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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950123-01-501788.txt : 20010507
<SEC-HEADER>0000950123-01-501788.hdr.sgml : 20010507
ACCESSION NUMBER: 0000950123-01-501788
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20010203
FILED AS OF DATE: 20010504
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BARNES & NOBLE INC
CENTRAL INDEX KEY: 0000890491
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940]
IRS NUMBER: 061196501
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0130
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-12302
FILM NUMBER: 1621939
BUSINESS ADDRESS:
STREET 1: 122 FIFTH AVE
CITY: NEW YORK
STATE: NY
ZIP: 10011
BUSINESS PHONE: 2126333300
MAIL ADDRESS:
STREET 1: 122 FIFTH AVENUE
CITY: NEW YORK
STATE: NY
ZIP: 10011
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>y48586e10-k405.txt
<DESCRIPTION>BARNES AND NOBLE INC.
<TEXT>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NO. 1-12302
Barnes & Noble, Inc.
(Exact name of registrant as specified in its Charter)
Delaware 06-1196501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 Fifth Avenue, New York, NY 10011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 633-3300
Securities registered pursuant to
Section 12(b) of the Act:
Common Stock, $0.001 par value per share New York Stock Exchange
(Title of Class) (Name of Exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $1,201,497,263 based upon the closing market price
of $23.90 per share of Common Stock on the New York Stock Exchange as of March
30, 2001.
Number of shares of $.001 par value Common Stock outstanding as of March 30,
2001: 65,202,364
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2001 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended February 3, 2001 are incorporated by reference into Parts II and IV.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I
<S> <C> <C>
Item 1. Business .................................................................................... 4
Item 2. Properties ..................................................................................17
Item 3. Legal Proceedings ...........................................................................18
Item 4. Submission of Matters to a Vote of Security Holders .........................................20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .......................20
Item 6. Selected Financial Data......................................................................21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ..................................................................................21
Item 7a. Quantitative and Qualitative Disclosures About Market Risk..................................N/A
Item 8. Financial Statements and Supplementary Data .................................................21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ..................................................................................21
PART III
Item 10. Directors and Executive Officers of the Registrant ..........................................22
Item 11. Executive Compensation ......................................................................22
Item 12. Security Ownership of Certain Beneficial Owners and Management ..............................22
Item 13. Certain Relationships and Related Transactions ..............................................22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .............................22
</TABLE>
3
<PAGE> 4
PART I
ITEM 1. BUSINESS
GENERAL
Barnes & Noble, Inc. (Barnes & Noble or the Company), the nation's
largest bookseller*, as of February 3, 2001 operated 908 bookstores and 978
video game and entertainment software stores. Of the 908 bookstores, 569 operate
under the Barnes & Noble Booksellers, Bookstop and Bookstar trade names (32 of
which were opened in fiscal 2000), and 339 operate under the B. Dalton
Bookseller, Doubleday Book Shops and Scribner's Bookstore trade names. Through
its approximate 36 percent interest in barnesandnoble.com llc (Barnes &
Noble.com), the Company is one of the largest sellers of books on the Internet
and is the premier bookseller on America Online's (AOL) proprietary network, the
Yahoo! Inc. (Yahoo) directory and Microsoft Network (MSN). The Company, through
its acquisitions of Babbage's Etc. LLC (Babbage's Etc.) and Funco, Inc. (Funco),
is the nation's largest video game and PC entertainment software specialty
retailer operating 978 video game and entertainment software stores under the
Babbage's, Software Etc., GameStop and FuncoLand trade names, a Web site
(gamestop.com) and Game Informer, one of the largest video game magazines with
circulation of over 200,000.
The Company's principal business is the retail sale of trade books
(generally hardcover and paperback consumer titles, excluding educational
textbooks and specialized religious titles), mass market paperbacks (such as
mystery, romance, science fiction and other popular fiction), children's books,
bargain books and magazines. These collectively account for substantially all of
the Company's bookstore sales. During fiscal 2000, the Company's share of the
consumer book market rose to approximately 16%. Bestsellers represent only 3% of
the Barnes & Noble store sales.
As a result of the acquisitions of Babbage's Etc. in October 1999 and
Funco in June 2000, the Company is the nation's largest video game and PC
entertainment specialty retailer operating 978 video game and entertainment
software stores located in 49 states, Puerto Rico and Guam. The Company's video
game and entertainment software stores range in size from 500 to 5,000 square
feet (averaging 1,500 square feet) depending upon market demographics. Stores
feature video game hardware and software, PC entertainment software and a
multitude of accessories.
The Company's fiscal year is comprised of 52 or 53 weeks, ending on the
Saturday closest to the last day of January. The fiscal year ended February 3,
2001 (fiscal 2000) was comprised of 53 weeks and the fiscal year ended January
29, 2000 (fiscal 1999) was comprised of 52 weeks.
The Company's sales increased $889.8 million or 25.5% during fiscal
2000 to $4.376 billion from $3.486 billion during fiscal 1999. Contributing to
this improvement was an increase of $533.8 million attributable to the inclusion
of sales from Babbage's Etc. and Funco (Video Game & Entertainment Software).
- --------
*Based upon information reported in trade publications and public filings.
4
<PAGE> 5
BARNES & NOBLE STORES
General
Barnes & Noble is the largest operator of book "super" stores in the
United States* with 569 Barnes & Noble stores located in 49 states and the
District of Columbia as of February 3, 2001. With more than 30 years of
bookselling experience, management has a strong sense of customers' changing
needs and the Company leads book retailing with a "community store" concept.
Barnes & Noble's typical store offers a comprehensive title base, a cafe, a
children's section, a music department, a magazine section and a calendar of
ongoing events, including author appearances and children's activities, that
make each Barnes & Noble bookstore an active part of its community.
Barnes & Noble stores range in size from 10,000 to 60,000 square feet
depending upon market size. Barnes & Noble stores opened during fiscal 2000
added 0.8 million square feet to the Barnes & Noble bookstore base, bringing the
total square footage to 13.4 million square feet, a six percent increase over
the prior year. Fiscal 2000 sales from Barnes & Noble "super" stores, which
contributed 87.6% of the Company's total bookstore sales, increased 12.3% to
$3.170 billion from $2.822 billion in fiscal 1999. The Company plans to open
between 40 and 45 Barnes & Noble bookstores in fiscal 2001 which are expected to
average 26,000 square feet in size. The Company believes that the key elements
contributing to the success of the Barnes & Noble bookstores are:
Proximity to Customers. The Company's strategy is to increase its share
of the consumer book market, as well as to increase the size of the market.
Since it began its "super" store roll-out, the Company has employed a market
clustering strategy. As of February 3, 2001, Barnes & Noble had stores in 148 of
the total 210 DMA markets (Designated Market Area). In 67 of the 148 markets,
the Company has only one Barnes & Noble store. The Company believes its stores'
proximity to their customers strengthen its market position and increase its
franchise value. Most Barnes & Noble stores are located in high-traffic areas
with convenient access to major commercial thoroughfares and ample parking. Most
stores offer extended shopping hours, generally 9:00 a.m. to 11:00 p.m., seven
days a week.
Dominant Title Selection. Each Barnes & Noble store features an
authoritative selection of books, ranging between 60,000 to 200,000 titles. The
comprehensive title selection is diverse and reflects local interests. In
addition, Barnes & Noble emphasizes books published by small and independent
publishers and university presses. Bestsellers represent only 3% of Barnes &
Noble store sales. Complementing this extensive on-site selection, all Barnes &
Noble stores provide customers with access to the millions of books available to
online shoppers while offering an option to have the book sent to the store or
shipped directly to the customer. The Company believes that its tremendous
selection, including many otherwise hard-to-find titles, builds customer
loyalty.
Store Design and Ambiance. Many of the Barnes & Noble "super" stores
create a comfortable atmosphere with ample public space; a cafe offering, among
other things, sandwiches and bakery items; and public restrooms. The cafes, for
which the Starbucks Corporation is the sole provider of coffee products, foster
the image of the "super" stores as a community meeting place. In addition, the
Company continues to develop and introduce new product line extensions, such as
gift, game, music, video, DVD and children's sections, to meet customers'
changing tastes and needs. These offerings and services have helped to make many
of the stores neighborhood institutions.
*Based upon information reported in trade publications and public filings.
5
<PAGE> 6
Music Departments. Many of the Barnes & Noble "super" stores have music
departments, which range in size from 1,700 to 7,800 square feet. The music
departments generally stock over 50,000 titles in classical music, opera, jazz,
blues and pop rock, tailored to the tastes of the Company's core customers.
Listening stations are available for customers to preview selected compact
discs.
Discount Pricing. Barnes & Noble stores employ an aggressive nationwide
discount pricing strategy. The current pricing is 40% off publishers' suggested
retail prices for hardcover bestsellers, 30% off paperback bestsellers and 20%
off select feature titles in departments such as children's books and computer
books. The Company believes that its pricing strategies enable the Company to
increase the discount on the books its customers buy most often while bringing
the Company closer to online pricing.
The Company also offers Readers' Advantage, a new membership loyalty
program which gives members an additional 10% discount in the Company's stores
and a 5% discount on the Barnes & Noble.com Web site. Readers' Advantage also
offers other benefits and invitations to member-only events.
Marketing and Community Relations. Barnes & Noble stores are launched
with a major grand opening campaign involving extensive print and radio
advertising, direct-mail marketing and community events. Each store plans its
own community-based calendar of events, including author appearances, children's
storytelling hours, poetry readings and discussion groups. The Company believes
its community focus encourages customer loyalty, word-of-mouth publicity and
media coverage. The Company also supports communities through efforts on behalf
of local non-profit and educational organizations. In addition, the Company is
underwriting the Emmy-award winning PBS children's television series Reading
Rainbow and is the exclusive book sponsor of the Poets & Writers organization.
Merchandising and Marketing
The Company's merchandising strategy for its Barnes & Noble bookstores
is to be the authoritative community bookstore which carries a dominant
selection of titles in all subjects, including an extensive selection of titles
from small independent publishers and university presses. Each Barnes & Noble
store stocks from 60,000 to 200,000 titles, of which approximately 50,000 titles
are common to all stores; the balance is crafted to reflect the lifestyles and
interests of each store's customers. Before a store opens, the Company's buyers
study the community and customize the title selection with offerings from the
store's local publishers and authors. After the store opens, each Barnes & Noble
store manager is responsible for adjusting the buyers' selection to the
interests, lifestyles and demands of the store's local customers. BookMaster,
the Company's proprietary inventory management database has more than 3.0
million titles. It includes catalogued sales rankings of over 1.0 million titles
in over 150 subjects and provides each store with comprehensive title selections
in those subjects in which it seeks to expand. By enhancing the Company's
existing merchandise replenishment systems, BookMaster allows the Company to
achieve higher in-stock positions and better productivity at the store level
through efficiencies in receiving, cashiering and returns processing.
Store Locations and Properties
The Company's experienced real estate personnel select sites for new
Barnes & Noble stores after an extensive review of demographic data and other
information relating to market potential, bookstore visibility and access,
available parking, surrounding businesses, compatible nearby tenants,
competition and the location of other Barnes & Noble stores. Most stores are
located in high-visibility
6
<PAGE> 7
areas adjacent to main traffic corridors in strip shopping centers or
freestanding buildings. The Company has successfully converted existing
structures such as old movie theaters, bowling alleys, power plants and landmark
buildings into "super" stores.
The number of Barnes & Noble stores located in each state and the
District of Columbia as of February 3, 2001 are listed below:
<TABLE>
<CAPTION>
NUMBER NUMBER
STATE OF STORES STATE OF STORES
- ----- --------- ----- ---------
<S> <C> <C> <C>
Alabama 5 Missouri 8
Alaska 1 Montana 3
Arizona 12 Nebraska 4
Arkansas 2 Nevada 5
California 80 New Hampshire 4
Colorado 13 New Jersey 20
Connecticut 11 New Mexico 2
Delaware 1 New York 38
Dist. Of Columbia 2 North Carolina 16
Florida 37 North Dakota 2
Georgia 13 Ohio 17
Hawaii 1 Oklahoma 5
Idaho 3 Oregon 8
Illinois 26 Pennsylvania 21
Indiana 7 Rhode Island 1
Iowa 3 South Carolina 9
Kansas 4 South Dakota 1
Kentucky 4 Tennessee 9
Louisiana 6 Texas 53
Maine 1 Utah 8
Maryland 9 Vermont 1
Massachusetts 17 Virginia 15
Michigan 17 Washington 17
Minnesota 16 Wisconsin 8
Mississippi 2 Wyoming 1
</TABLE>
Expansion
According to Veronis, Suhler & Associates Communications Industry
Forecast (Veronis Suhler), total U.S. consumer spending on books is expected to
increase at a compound annual growth rate of 4.4%, from approximately $17.4
billion in 1999 to approximately $21.5 billion in 2004. The Company believes
Barnes & Noble "super" stores offer the greatest opportunity to increase the
Company's share of the expanding consumer book market. The Company expects to
open approximately 40 to 45 new stores during fiscal 2001. All stores will be
opened under the Barnes & Noble Booksellers trade name and management positions
in those stores are expected to be filled mostly by employees from existing
stores.
7
<PAGE> 8
B. DALTON STORES
General
The Company is the second largest operator of mall bookstores in the
United States.* During fiscal 2000, B. Dalton (including Doubleday and
Scribner's) generated sales of approximately $372.2 million, or 10.3% of the
Company's total bookstore sales, compared with $426.0 million, or 13.1% of total
bookstore sales during fiscal 1999.
Most B. Dalton stores range in size from 2,800 to 6,000 square feet.
These stores stock between 15,000 and 25,000 titles. B. Dalton employs a
market-by-market discount pricing strategy which generally discounts hardcover
bestsellers from 15% to 25% off the publishers' suggested retail prices.
B. Dalton also offers Readers' Advantage, a new membership loyalty program which
gives members additional discounts and other benefits. The Company's eight
Doubleday and two Scribner's bookstores utilize a more upscale format in select
shopping malls and place a greater emphasis on hardcover and gift books.
The Company is continuing to execute a strategy to maximize returns
from its B. Dalton stores in response to declining sales attributable primarily
to "super" store competition. Part of the Company's strategy has been to close
underperforming stores as leases come up for renewal. In fiscal 2000, the
Company closed 61 B. Dalton stores.
Merchandising and Marketing
Each B. Dalton store carries a selection of core titles within a
variety of popular subject categories such as business, computers, cooking and
reference, which are supplemented by new releases, bestsellers and other titles
specially selected to meet local interests and demands. B. Dalton's merchandise
strategy is to expand title assortments within categories it believes have
significant growth potential, such as children's books, mass market paperbacks
(such as mystery, romance, science fiction and other popular fiction),
publishers' remainders and other bargain books including the Company's
self-published books. B. Dalton's product offerings are tailored to attract
shoppers interested in movies, television talk show topics and current events.
B. Dalton's advertising and promotional programs focus on point-of-sale
and storefront signage and other in-store promotions designed to attract mall
shoppers. B. Dalton takes advantage of cooperative advertising funds made
available by publishers and generally limits its expenditures and promotional
programs to the amount of such funds. In addition, B. Dalton stores customarily
incur advertising costs, often in amounts equal to a percentage of their annual
sales as required in their leases, for advertising of mall-related promotional
events.
*Based upon information reported in trade publications and public filings.
8
<PAGE> 9
Store Locations and Properties
Approximately 90% of B. Dalton stores are located in enclosed regional
shopping malls. The remaining stores are located in strip shopping centers and
central business districts. Lease renewals for B. Dalton stores are made after
an extensive review of financial results, demographic data, mall tenants,
location within the mall and competitive factors.
The number of B. Dalton stores located in each state and the District
of Columbia as of February 3, 2001 are listed below:
<TABLE>
<CAPTION>
NUMBER NUMBER
STATE OF STORES STATE OF STORES
- ----- --------- ----- ---------
<S> <C> <C> <C>
Alabama 1 Montana 2
Arizona 9 Nebraska 3
Arkansas 1 Nevada 3
California 48 New Hampshire 2
Colorado 4 New Jersey 9
Connecticut 3 New Mexico 2
Dist. Of Columbia 2 New York 11
Florida 16 North Carolina 8
Georgia 11 North Dakota 4
Idaho 3 Ohio 15
Illinois 15 Oklahoma 1
Indiana 6 Oregon 5
Iowa 6 Pennsylvania 15
Kansas 5 South Carolina 4
Kentucky 2 South Dakota 2
Louisiana 8 Tennessee 2
Maine 2 Texas 19
Maryland 8 Utah 5
Massachusetts 4 Virginia 10
Michigan 16 Washington 11
Minnesota 17 West Virginia 1
Mississippi 1 Wisconsin 5
Missouri 10 Wyoming 2
</TABLE>
BARNES & NOBLE.COM
General
In 1998, the Company and Bertelsmann AG (Bertelsmann) completed the
formation of a limited liability company to operate the online retail
bookselling operations of the Company's wholly owned subsidiary,
barnesandnoble.com inc. The new entity, barnesandnoble.com llc (Barnes &
Noble.com), was formed by combining the online bookselling operations of the
Company with funds contributed by
9
<PAGE> 10
the international media company Bertelsmann, one of the largest integrated media
companies in the world. In 1999, Barnes & Noble.com Inc. completed an initial
public offering (IPO) of 28.75 million shares of Class A Common Stock and used
the proceeds to purchase a 20 percent interest in Barnes & Noble.com. As a
result, the Company and Bertelsmann each retained a 40 percent interest in
Barnes & Noble.com from the date of the IPO through November 2000. In November
2000, Barnes & Noble.com acquired Fatbrain.com, Inc. (Fatbrain), the third
largest online bookseller. Barnes & Noble.com issued shares of its common stock
to Fatbrain shareholders. As a result of this merger, the Company and
Bertelsmann each retained an approximate 36 percent interest in Barnes &
Noble.com. Accordingly, the Company's share in the net losses of Barnes &
Noble.com for fiscal 2000 was based on an approximate 40 percent equity interest
from the beginning of fiscal 2000 through November 2000 and approximately 36
percent thereafter.
According to Media Metrix, in January 2001, Barnes & Noble.com was the
fourth-most-trafficked shopping site and was among the top 50 largest Web
properties on the Internet. Focused largely on the sale of books, music,
DVDs/videos, magazines and related products, Barnes & Noble.com has capitalized
on the recognized brand value of the Barnes & Noble name to become the second
largest online distributor of books. Customers can choose from millions of new
and out-of-print titles, a comprehensive selection of new and used college
textbooks and a variety of eBooks. Barnes & Noble.com also features Barnes &
Noble Online University, a free online education resource offering courses
through its Web site. The broad-based curriculum covers a range of subjects,
from gardening and classical music to Shakespeare and organizing stock
portfolios. Each course includes recommended study material, including books and
other products available for purchase through the Web site. Barnes & Noble.com's
video store features tens of thousands of movie titles available in both DVD and
VHS formats, more than 65,000 cast and crew filmographies, movie reviews and
ratings, as well as editorial recommendations on the best and most significant
movies. Barnes & Noble.com recently opened an eBookStore, featuring Microsoft
Reader(TM) technology for desktop PCs and laptop computers. The eBookStore is
the first online retail bookstore to offer eBooks for the Microsoft Reader(TM),
and features titles from more than 30 publishers.
With access to Barnes & Noble's more than 880,000 in-stock titles,
Barnes & Noble.com has the largest standing inventory of any online bookseller
ready for immediate delivery. The URL http://www.bn.com makes the site easy to
find. The Barnes & Noble.com affiliate network has more than 300,000 members and
maintains strategic alliances with major Web portals and content sites, such as
AOL, Yahoo and MSN. Barnes & Noble.com is also a leader in business-to-business
e-commerce with the industry's leading Business Solutions division, Fatbrain.
Fatbrain's Web-based services reach more than 3.5 million employee desktops at
nearly 350 Fortune 1000 companies worldwide. There are more than 500 individual
Fatbrain co-branded corporate online bookstores and information resource
centers, most of which are accessed using the sponsoring organizations'
corporate intranets.
VIDEO GAME AND ENTERTAINMENT SOFTWARE
General
As a result of its acquisitions of Babbage's Etc. and Funco in October
1999 and June 2000, respectively, the Company is the nation's largest video game
and PC entertainment software specialty retailer. The Company owns and operates
978 video game and entertainment software stores located in 49 states, Puerto
Rico and Guam. The Company's video game and entertainment software stores range
in size from 500 to 5,000 square feet (averaging 1,500 square feet) depending
upon market demographics. Stores feature video game hardware and software, PC
entertainment software and a multitude of related accessories.
10
<PAGE> 11
The video game and entertainment software industry consists of two
primary platforms, video games and PC entertainment software. Video game play
requires both hardware, a console connected to a television set or other
monitor, and software, a video game cartridge or CD-ROM. Manufacturers of
proprietary hardware also manufacture software that runs exclusively on their
own systems. Third-party software manufacturers produce software titles that run
on multiple proprietary systems. The video game sector has grown because of
significant technological improvements, substantial growth in the amount of
software available and the emergence of significant third-party software
publishers. Total spending in the U.S. on dedicated console hardware, related
accessories and software totaled $6.9 billion in 1999. The Company currently
offers a selection of more than 1,000 video game titles in its stores.
PC entertainment software is generally sold in CD-ROM format for play
on multimedia personal computers. The market for PC entertainment software has
experienced steady growth in recent years, coinciding with the growth in the
number of households with personal computers. The Company believes that the
market for PC entertainment software will continue to grow because of the
decreasing costs of personal computers. The computer entertainment software
market, according to Veronis Suhler, grew by 29.4% to approximately $1.4 billion
in 1999. The Company currently offers a selection of more than 700 PC
entertainment software titles.
The Video Game & Entertainment Software segment captures the entire
lifecycle of video game products through the mall stores which focus on carrying
the newest hardware and software titles, and the strip center stores which focus
on carrying affordable and pre-owned merchandise.
Merchandising and Marketing
The mall stores are targeted toward 14 to 34 year-old men and women who
are educated, computer literate, are in upper income levels and are consumers of
information, education and entertainment products. The Company's strip center
stores are targeted toward a budget-conscious, broader geographic base of
consumers. The video game and entertainment stores are designed to provide an
electronic gaming atmosphere with an engaging and visually captivating layout.
The store design and fixturing maximize point-of-sale marketing opportunities.
The Company's pricing strategy is designed to offer value to customers
by maintaining competitive prices in each market while at the same time giving
customers added benefits, such as offering customer satisfaction return
privileges, accepting used game trade-ins for new products and a pre-sale
reservation service.
Store Locations and Properties
The Company's video game and entertainment software stores are mainly
in prime locations in regional shopping malls, strip centers or other high
traffic locations in markets with desirable demographics. All new stores, lease
renewals, relocations and major remodels are evaluated on the basis of their
return on investment, strategic positioning and condition of the market.
11
<PAGE> 12
The number of video game and entertainment software stores located in
each state, Commonwealth of Puerto Rico and Guam as of February 3, 2001 are
listed below:
<TABLE>
<CAPTION>
NUMBER NUMBER
STATE OF STORES STATE OF STORES
- ----- --------- ----- ---------
<S> <C> <C> <C>
Alabama 9 Montana 4
Alaska 3 Nebraska 3
Arizona 15 Nevada 3
Arkansas 4 New Hampshire 5
California 110 New Jersey 51
Colorado 13 New Mexico 4
Connecticut 17 New York 52
Delaware 2 North Carolina 21
Florida 29 North Dakota 4
Georgia 21 Ohio 55
Guam 1 Oklahoma 9
Hawaii 8 Oregon 6
Idaho 2 Pennsylvania 47
Illinois 50 Puerto Rico 7
Indiana 17 Rhode Island 1
Iowa 9 South Carolina 11
Kansas 5 South Dakota 2
Kentucky 16 Tennessee 20
Louisiana 11 Texas 80
Maine 1 Utah 8
Maryland 29 Virginia 35
Massachusetts 28 Vermont 1
Michigan 48 Washington 27
Minnesota 22 West Virginia 8
Mississippi 4 Wisconsin 19
Missouri 21
</TABLE>
Expansion
The electronic games industry is one of the fastest growing retail
segments. Sales of video games reached a record high in terms of units sold and
dollars spent in 1999. The growth in the Video Game & Entertainment Software
segment is primarily attributable to increases in the number of households with
personal computers, in disposable income and Internet usage, which has given
rise to the popularity of multiplayer games and a wide variety of community and
support Web sites. The Company's growth strategy for the Video Game &
Entertainment Software segment is to continue to open new stores in its existing
markets and expand into new markets. The Company believes its attractive store
design offers the greatest opportunity to increase its share of the expanding
video game and entertainment market. The Company intends to strengthen its
position by opening approximately 75 new stores during fiscal 2001.
12
<PAGE> 13
The Company anticipates that its expansion plans will be supported by
continuing strong demand in the video game market, which has grown over the past
five years at a rate of 22.7% compounded annually and is forecasted to grow
21.7% over the next five years compounded annually according to Veronis, Suhler.
OTHER STRATEGIES
Proprietary Publishing. Barnes & Noble differentiates its product
offerings from those of its competitors by publishing books under its own
imprints for sale in its retail stores and through Barnes & Noble.com's online
and direct-mail book sales. As part of this activity, Barnes & Noble licenses
titles directly from domestic and international publishers as well as from
literary agents, commission books directly from authors, reprint classic titles
in the public domain and create collections of fiction and non-fiction using
in-house editors. With publishing and distribution rights to over 2,500 titles
covering a wide range of subject categories, Barnes & Noble Books offers
customers high-quality books at exceptional values. By self-publishing books,
the Company is able to significantly lower its merchandise costs and pass on a
portion of the savings to its customers. While the prices of these books
represent significant value to the customers, they also generate substantially
higher gross profit margins than those realized on sales of non-proprietary
books.
STRATEGIC INVESTMENTS
The Company maintains an equity investment in iUniverse.com, the
Internet's largest publishing portal. The Company also maintains an equity
investment in BOOK(R) magazine. The Company owns a 72 percent interest in
Calendar Club L.L.C., an operator of seasonal calendar kiosks.
STORE OPERATIONS
The Company has seasoned management teams for its Barnes & Noble,
B. Dalton and video game and entertainment software stores, including those for
real estate, merchandising and store operations. Field management includes
regional store directors and district managers supervising multiple store
locations. Each video game and entertainment software store generally employs a
manager, an assistant manager and between two and 10 sales associates, most of
whom are part-time employees. Each B. Dalton store generally employs a manager,
an assistant manager and approximately seven full- and part-time booksellers. By
comparison, each Barnes & Noble store generally employs a manager, two assistant
managers and approximately 40 full- and part-time booksellers. Most Barnes &
Noble stores also employ a full-time community relations manager. The large
employee base provides the Company with experienced booksellers and interactive
gaming experts to fill positions in the Company's new Barnes & Noble and video
game and entertainment software stores. The Company anticipates that a
significant percentage of the personnel required to manage its expanding
business will continue to come from within its existing operations.
Field management for all of the Company's bookstores and video game and
entertainment software stores, including regional store directors, district
managers and store managers, participate in a bonus program tied to sales. The
Company believes that the compensation of its field management is competitive
with that offered by other specialty retailers of comparable size.
The Company has a 12-week manager training program in which existing
store managers train new store managers in all areas of store operations. Store
managers are generally responsible for training
13
<PAGE> 14
other booksellers and Video Game & Entertainment Software employees in
accordance with detailed procedures and guidelines prescribed by the Company,
utilizing training aids available at each bookstore and video game and
entertainment software store. In addition, district managers participate in
semi-annual training and merchandising conferences.
PURCHASING
Barnes & Noble's buyers negotiate terms, discounts and cooperative
advertising allowances with publishers for all of the Company's bookstores. The
Company's distribution center enables it to maximize available discounts and
enhance its ability to create marketing programs with many of its vendors. The
Company has teams of buyers who specialize in customizing inventory for each of
the Company's bookselling strategies. Store inventories are further customized
by store managers, who may respond to local demand by purchasing a limited
amount of fast-selling titles through a nationwide wholesaling network.
The Company purchases books on a regular basis from over 1,750
publishers and approximately 45 wholesale distributors. Purchases from the top
five suppliers (including publishers and wholesale distributors) accounted for
approximately 46% of the Company's book purchases during fiscal 2000, and no
single supplier accounted for more than 15% of the Company's purchases during
this period. Consistent with retail book industry practice, substantially all of
the Company's book purchases are returnable for full credit, a practice which
substantially reduces the Company's risk of inventory obsolescence.
Publishers control the distribution of titles by virtue of copyright
protection, which limits availability on most titles to a single publisher.
Since the retail, or list, prices of titles, as well as the retailers' cost
price, are also generally determined by publishers, the Company has limited
options concerning availability, cost and profitability of its book inventory.
However, these limitations are mitigated by the substantial number of titles
available (over 3.0 million), the Company's ability to maximize available
discounts and its well-established relationships with publishers, which are
enhanced by the Company's significant purchasing volume.
Publishers periodically offer their excess inventory in the form of
remainder books to book retailers and wholesalers through an auction process
which generally favors booksellers such as the Company who are able to buy
substantial quantities. These books are generally purchased in large quantities
at favorable prices and are then sold to consumers at significant discounts off
publishers' list prices.
The Company purchases substantially all of its Video Game &
Entertainment Software products from approximately 200 manufacturers and
software publishers and approximately nine distributors. Purchases from the top
five vendors (including publishers and distributors) accounted for approximately
49.2% of the video game and entertainment software store purchases in fiscal
2000 and no single supplier accounted for more than 14% of its purchases during
this period. The Company's Video Game & Entertainment Software business is among
the top 5 customers of many of its vendors. The Company intends to continue to
maintain its strong relationships with each of the major video game and PC
entertainment software manufacturers and publishers. The Company believes that
these relationships ensure that it has early access to "hot" titles and, in most
cases, an adequate supply of popular titles and hardware, especially during peak
selling seasons. The current management team has placed a strong emphasis on
developing an accounts payable tracking system that insures outstanding vendor
14
<PAGE> 15
communications. The Company has negotiated selected situational price
protections and return privileges with numerous vendors in order to reduce the
risk of inventory obsolescence. The Company does not have contracts with trade
vendors. The Company conducts its business on an order-by-order basis, a
practice that is typical throughout the industry.
DISTRIBUTION
The Company has invested significant capital in its systems and
technology, by building new platforms, implementing new software applications
and maintaining efficient distribution centers. As of February 3, 2001, the
Company's book distribution centers had over one million square feet.
Historically, the Company had replenished through its distribution network some
of its fast-moving frontlist titles and bargain and self-published books and had
the remaining inventory drop-shipped directly to the stores from wholesalers and
publishers. The Company now sources more of its inventory through the
distribution centers, which has increased direct buying from publishers rather
than wholesalers. This has also led to improved just-in-time deliveries to
stores.
The Company operates a 200,000 square foot distribution center in
Grapevine, Texas, which provides the majority of products to the Company's video
game and entertainment software stores. By operating with a centralized
distribution facility, the Company effectively controls and minimizes inventory
levels. Technologically advanced conveyor systems and flow-through racks control
costs and improve speed of fulfillment. The technology used in the distribution
center allows for high-volume receiving, distributions to stores and returns to
vendors.
The Company employs a variety of rapid-response distribution methods in
its effort to be the "first-to-market" for "hot" new video game and
entertainment software titles. The Company strives to deliver "hot" video game
and entertainment software releases to selected video game and entertainment
software stores within hours of release. To achieve this rapid delivery, the
Company utilizes 11 "off-site" contract distribution sites to receive and air
freight "hot" titles to its video game and entertainment software stores.
MANAGEMENT INFORMATION AND CONTROL SYSTEMS
The Company has focused a majority of its information resources on
strategically positioning and implementing systems to support store operations,
merchandising and finance. BookMaster, the Company's bookstore inventory
management system, integrates point-of-sale features that utilize a proprietary
data-warehouse based replenishment system. BookMaster enhances communications
and real-time access to the Company's network of bookstores, distribution center
and wholesalers. In addition, the implementation of just-in-time replenishment
has provided for more rapid replenishment of books to all of the Company's
bookstores, resulting in higher in-stock positions and better productivity at
the bookstore level through efficiencies in receiving, cashiering and returns
processing.
The Company's video game and entertainment software stores' inventory
management system, the Retail Inventory Analysis Network, provides just-in-time
replenishment for the Company's video game and entertainment software stores.
The Retail Inventory Analysis System also provides SKU and sales data for each
store on a daily basis.
The Company continues to implement systems to improve efficiencies in
back office processing in the human resources, finance and merchandising areas.
An offsite business recovery capability has been developed and implemented to
assure uninterrupted systems support.
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<PAGE> 16
COMPETITION
The retail book business is highly competitive. The Company competes in
the "super" stores business with Borders Group, Inc. (Borders) and
Books-a-Million. The Company also faces competition from mass merchandisers,
such as Wal-Mart and Costco, some of which may have greater financial and other
resources than the Company. B. Dalton Bookseller, Doubleday Book Shops and
Scribner's Bookstores face direct competition from the Walden division of
Borders, as well as regional chains and "super" stores. The Company's bookstores
also compete with specialty retail stores that offer books in particular subject
areas, independent single store operators, variety discounters, drug stores,
warehouse clubs, mail-order clubs and other retailers offering books and music.
In addition, the Company's bookstores may also face competition from the
expanding market for electronic books.
The video game and entertainment software industry is intensely
competitive and subject to rapid changes in consumer preferences and frequent
new product introductions. The Company competes with mass merchants and regional
chains, including Wal-Mart, Kmart and Target, other video game and PC software
specialty stores located in malls and other locations, including Electronics
Boutique, toy retail chains, including Toys 'R' Us and KB Toys, mail-order
businesses, catalogs, direct sales by software publishers, online retailers, and
computer product and consumer electronics superstores, including Best Buy and
Circuit City. In addition, video games are available for rental from many video
stores and can be downloaded from interactive sites accessible on the Internet
and may also be distributed through other methods which may emerge in the
future. The Company's Video Game & Entertainment Software segment also competes
with sellers of previously played video game merchandise. Some of the Company's
competitors in the video game business have longer operating histories and may
have significantly greater financial resources than the Company. Additionally,
the Company's Video Game & Entertainment Software segment competes with other
forms of entertainment activities, including movies, television, theater,
sporting events and family entertainment centers.
The Company also faces competition from the Internet. The online
commerce market is rapidly evolving and intensely competitive, having few
barriers to entry. The Company believes that many small Web sites and several
large Web sites currently offer and sell most of the same products the Company
offers. Moreover, companies that control access to Internet commerce
transactions through network access or Web browsers currently promote, and will
likely continue to promote, certain of the Company's competitors. The Company is
aware that some of its competitors have and may continue to adopt aggressive
pricing or inventory availability policies and devote substantially more
resources to Web site and systems development than the Company.
TRADEMARKS AND SERVICEMARKS
B. Dalton Bookseller, Bookstar, Book$avers, Babbage's, Super Software
Etc., FuncoLand and GameStop are Company-owned service marks registered with the
United States Patent and Trademark Office. Barnes & Noble, Doubleday Book Shops
and Scribner's Bookstores are federally registered service marks which have been
licensed to the Company under long-term license agreements which are
royalty-free. These license agreements provide the Company with the exclusive
right to use the Doubleday and Scribner's service marks only in connection with
the retail sale of books.
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<PAGE> 17
SEASONALITY
The Company's business, like that of many retailers, is seasonal, with
the major portion of sales and operating profit realized during the quarter
which includes the Christmas selling season. The Company has now reported
operating profit for 19 consecutive quarters. The Company's expansion program
generally is weighted with store openings in the second half of the fiscal year,
which may increase the effect of seasonality.
EMPLOYEES
The Company's bookstores cultivate a culture of outgoing, helpful and
knowledgeable employees. The Company's video game and entertainment software
stores cultivate a work environment that attracts knowledgeable employees who
are actively interested in video games and entertainment software. As of
February 3, 2001, the Company had approximately 39,000 full and part-time
booksellers. As of February 3, 2001, the Company employed approximately 9,000
full and part-time employees in its video game and entertainment software
stores. The Company's employees are not represented by unions and the Company
believes that its relationship with its employees is excellent.
ITEM 2. PROPERTIES
All but one of the Barnes & Noble stores are leased. The leases
typically provide for an initial term of 10 or 15 years with one or more renewal
options. The terms of the Barnes & Noble store leases for its 568 leased stores
open as of February 3, 2001 expire as follows:
<TABLE>
<CAPTION>
LEASE TERMS TO EXPIRE DURING NUMBER OF
- ---------------------------- STORES
(12 MONTHS ENDING ON OR ABOUT JANUARY 31) ---------
<S> <C>
2002............................................................................ 7
2003............................................................................ 36
2004............................................................................ 36
2005............................................................................ 31
2006............................................................................ 28
2007 and later.................................................................. 430
</TABLE>
All B. Dalton stores are leased. The leases generally provide for an
initial 10 year term with no renewal option. The terms of the 339 B. Dalton
leases as of February 3, 2001 expire as follows:
<TABLE>
<CAPTION>
LEASE TERMS TO EXPIRE DURING NUMBER OF
- ---------------------------- STORES
(12 MONTHS ENDING ON OR ABOUT JANUARY 31) ---------
<S> <C>
2002............................................................................ 119
2003............................................................................ 46
2004............................................................................ 48
2005............................................................................ 35
2006............................................................................ 40
2007 and later.................................................................. 51
</TABLE>
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<PAGE> 18
All video game and entertainment software stores are leased. The leases
generally provide for an initial term of three to 10 years. The terms of the 978
video game and entertainment software leases as of February 3, 2001 expire as
follows:
<TABLE>
<CAPTION>
LEASE TERMS TO EXPIRE DURING NUMBER OF
- ---------------------------- STORES
(12 MONTHS ENDING ON OR ABOUT JANUARY 31) ---------
<S> <C>
2002............................................................................ 334
2003............................................................................ 210
2004............................................................................ 146
2005............................................................................ 95
2006............................................................................ 29
2007 and later.................................................................. 164
</TABLE>
The Company generally has been able to renew expiring leases on
favorable terms, and believes that renewals of leases expiring in the future
will not have a material adverse effect on its financial condition or results of
operations.
ITEM 3. LEGAL PROCEEDINGS
In March 1998, the American Booksellers Association (ABA) and 26
independent bookstores filed a lawsuit in the United States District Court for
the Northern District of California against the Company and Borders alleging
violations of the Robinson-Patman Act, the California Unfair Trade Practice Act
and the California Unfair Competition Law. Plaintiffs filed a second amended
complaint on October 19, 1999, adding Barnes & Noble.com Inc. as a defendant. In
the second amended complaint, plaintiffs allege, among other things, that the
Company entered into agreements with book publishers and distributors under
which the Company received discounts and other benefits that were not available
to plaintiffs and other independent bookstores. Plaintiffs allege that such
agreements gave the Company an unlawful competitive advantage that caused lost
sales and profits for the plaintiffs. The complaint seeks injunctive and
declaratory relief; treble damages on behalf of each of the bookstore
plaintiffs, and, with respect to the California bookstore plaintiffs, any other
damages permitted by California law; disgorgement of money, property and gains
wrongfully obtained in connection with the purchase of books for resale, or
offered for resale, in California from March 18, 1994 until the action is
completed and pre-judgment interest on any amounts awarded in the action, as
well as attorneys fees and costs. Although the complaint does not specify the
amount of damages sought, in discovery plaintiffs served a report of their
expert witness estimating plaintiffs' damages. Those damages, in the aggregate,
were estimated to be $3,600,000 to $5,500,000 (before trebling) with respect to
claims under the Robinson-Patman Act and $5,000,000 to $7,400,000 with respect
to disgorgement claims under California law. On January 21, 2000, the Company
filed an answer to the complaint, denying any liability to plaintiffs and
asserting various defenses. On January 16, 2001, the Company filed a motion for
summary judgment seeking dismissal of all plaintiffs' claims. On March 20, 2001,
the court granted the Company summary judgment dismissing all claims for damages
under federal and state law. The trial of the remaining claims began on April 9,
2001, and the parties settled the litigation on April 19, 2001.
Under the terms of the Settlement Agreement, (1) the Company and
Borders will each pay $2,350,000 to the ABA as partial reimbursement for its
legal fees, and (2) the plaintiffs have released all claims against the Company
up to the date of the settlement relating to matters asserted in the litigation,
and have agreed not to sue the Company for three years over any practices that
were the subject of the litigation. The Settlement Agreement does not impose any
restrictions on the Company's business practices.
In August 1998, The Intimate Bookshop, Inc. and its owner, Wallace
Kuralt, filed a lawsuit in the United States District Court for the Southern
District of New York against the Company, Borders, Amazon.com, Inc., certain
publishers and others alleging violation of the Robinson-Patman Act and
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<PAGE> 19
other federal law, New York statutes governing trade practices and common law.
The complaint sought certification of a class consisting of all retail
booksellers in the United States, whether or not currently in business, which
were in business and were members of the ABA at any time during the four-year
period preceding the filing of the complaint. The complaint alleged that the
named plaintiffs have suffered damages of approximately $11,250,000 or more and
requested treble damages on behalf of the named plaintiffs and each of the
purported class members, as well as injunctive and declaratory relief (including
an injunction requiring the closure of all of defendants' stores within 10 miles
of any location where plaintiff either has or had a retail bookstore during the
four years preceding the filing of the complaint, and prohibiting the opening by
defendants of any bookstore in such areas for the next 10 years), disgorgement
of alleged discriminatory discounts, rebates, deductions and payments, punitive
damages, interest, costs, attorneys fees and other relief. The plaintiffs
subsequently amended their complaint to allege eight causes of action on behalf
of The Intimate Bookshop and Wallace Kuralt, accusing the Company and the other
defendants of: (1) violating Section 2(f) of the Robinson-Patman Act; (2)
violating Section 2(c) of the Robinson-Patman Act; (3) violating Section 13(a)
of the Clayton Act; (4) inducing every publisher in the United States to breach
contracts with plaintiffs; (5) interfering with the plaintiff's advantageous
business relationships; (6) engaging in unfair competition; (7) violating
Sections 349 and 350 of the New York General Business Law; and (8) being
unjustly enriched. The class action allegations have been withdrawn and the
plaintiffs voluntarily dismissed defendants Harper Collins Publishers, Inc. and
Amazon.com, Inc. from the case.
On April 13, 1999, the Company and the other defendants filed a motion
to dismiss the second through eighth causes of action in their entireties and
for a more definite statement of the remaining allegations of the first cause of
action. As a result, the plaintiffs' third through eighth causes of action were
dismissed with prejudice, as were all claims asserted by Wallace Kuralt in his
individual capacity. Pursuant to the court's order, plaintiff The Intimate
Bookshop, Inc. filed a second amended complaint on March 13, 2000. The Company
served an answer on April 5, 2000 denying the material allegations of the
complaint and asserting various affirmative defenses. The Company intends to
continue to vigorously defend this action.
On November 3, 2000, plaintiffs Lucky, Inc. and Bookmark It, LLC,
operators of an independent bookstore in Great Falls, Montana, filed an action
against the Company, Borders, certain book publishers and others in the United
States District Court for the District of Montana. Plaintiffs filed an amended
complaint on November 14, 2000. In their amended complaint, plaintiffs purport
to assert claims on behalf of all persons or entities who as part of their
business purchase or sell books. Plaintiffs allege that the Company entered into
agreements with book publishers and distributors pursuant to which the Company
receives discounts and other benefits that are not available to plaintiffs.
Plaintiffs allege that such agreements were in violation of the Robinson-Patman
Act and the Montana Unfair Trade Practices and Consumer Protection Act. The
amended complaint seeks an unspecified amount of damages (to be trebled) as well
as punitive damages, costs and attorneys' fees. Plaintiffs have requested
permission to file a second amended complaint, which plaintiffs advise will omit
all class action claims and also will omit all claims for punitive damages. The
Company intends to vigorously defend this action.
In fiscal 1999, following the October 28, 1999 acquisition of Babbage's
Etc., five shareholder derivative lawsuits were filed in the Chancery Court of
the State of Delaware by Harbor Finance Partners, Louis F. Mahler, Ralph Stone,
Lawrence G. Metzger and Robert Waring against the Company and its directors. The
lawsuits allege, among other things, a breach of fiduciary duties to the Company
for the benefit of Leonard Riggio and seek damages and to enjoin or rescind the
transaction. The Company believes that the acquisition of Babbage's Etc. was in
the best interests of the Company's
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<PAGE> 20
shareholders and that the allegations are without merit. On January 30, 2001,
all five derivative actions were voluntarily dismissed without prejudice by the
plaintiffs.
In addition to the above actions, various claims and lawsuits arising
in the normal course of business are pending against the Company. The subject
matter of these proceedings primarily includes commercial disputes, personal
injury claims and employment issues. The results of these proceedings are not
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the 13 weeks ended February 3, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on the New York Stock Exchange
("NYSE") under the symbol "BKS". The following table sets forth, for the periods
indicated, the high and low sales prices of the common stock on the NYSE
Composite Tape.
Fiscal 2000 Fiscal 1999
---------------------- --------------------
High Low High Low
----- ----- ----- -----
First Quarter $24.06 16.31 $40.25 25.81
Second Quarter 23.88 16.44 36.38 22.50
Third Quarter 21.44 16.44 27.50 20.06
Fourth Quarter 29.94 17.38 25.38 18.50
20
<PAGE> 21
APPROXIMATE NUMBER OF HOLDERS OF COMMON EQUITY
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
RECORD HOLDERS
AS OF
TITLE OF CLASS MARCH 30, 2001
- -------------- --------------
<S> <C>
Common stock, $0.001 par value 2,032
</TABLE>
DIVIDENDS
The terms of the Company's debt agreements limit payment of cash
dividends. During fiscal 2000, the Company did not declare or pay any cash
dividends or make distributions or payments on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
The information included in the Company's Annual Report to Shareholders
for the fiscal year ended February 3, 2001 (the Annual Report) under the section
entitled "Selected Financial Data" is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information included in the Annual Report under the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information included in the Annual Report under the sections
entitled: "Consolidated Statements of Operations," "Consolidated Balance
Sheets," "Consolidated Statements of Changes in Shareholders' Equity,"
"Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial
Statements" are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors and executive officers of the
Company is incorporated herein by reference to the Company's definitive Proxy
Statement relating to the Company's 2001 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission within 120 days of the
Company's fiscal year ended February 3, 2001 (the Proxy Statement).
The information with respect to compliance with Section 16(a) of the
Securities Exchange Act is incorporated herein by reference to the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to executive compensation is incorporated
herein by reference to the Proxy Statement.
The information with respect to compensation of directors is
incorporated herein by reference to the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to security ownership of certain
beneficial owners and management is incorporated herein by reference to the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to certain relationships and related
transactions is incorporated herein by reference to the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements:
(i) "The Report of Independent Certified Public Accountants" included
in the Annual Report is incorporated herein by reference.
(ii) The information included in the Annual Report under the sections
entitled: "Consolidated Statements of Operations," "Consolidated
Balance Sheets," "Consolidated Statements of Changes in
Shareholders' Equity," "Consolidated Statements of Cash Flows" and
"Notes to Consolidated Financial Statements" are incorporated
hereinby reference.
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<PAGE> 23
(b) There were no reports filed on Form 8-K during the Company's quarter ended
February 3, 2001.
2. Schedules:
All schedules are omitted because the information is either not
applicable or is contained in the consolidated financial statements incorporated
herein by reference.
3. Exhibits:
The following are filed as Exhibits to this form:
Exhibit
No. Description
--- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended. (1)
3.2 Amendment to the Amended and Restated Certificate of
Incorporation of the Company filed May 30, 1996. (2)
3.3 Amended and Restated By-laws of the Company. (1)
3.4 Amendment to the Company's By-laws adopted May 31, 1995. (3)
3.5 Certificate of Designation of Preferences and Rights of
Preferred Stock, Series H of Barnes & Noble, Inc. (4)
3.6 Certificate of Amendment of The Amended and Restated
Certificate of Incorporation of Barnes & Noble, Inc., dated
July 17, 1998 and filed July 17, 1998. (4)
4.1 Specimen Common Stock certificate. (1)
4.2 Rights Agreement, dated as of July 10, 1998, between Barnes &
Noble, Inc. and The Bank of New York, as Rights Agent. (4)
10.1 Amended and Restated Credit Agreement, dated as of November
18, 1997 (the "Credit Agreement"), among the Company, its
subsidiaries, The Chase Manhattan Bank (National Association),
as Administrative Agent (the "Agent") and the Banks party
thereto. (5)
10.2 Amendment No. 2, dated as of October 21, 1999, to the Credit
Agreement. (12)
10.3 Pledge and Security Agreement dated as of March 15, 1996 (the
"Pledge Agreement"), among the Company, its subsidiaries and
the Agent. (6)
10.4 Amendment to the Pledge and Security Agreement dated as of
November 18, 1997. (5)
10.5 Second Amendment dated as of October 27, 1999 to the Pledge
Agreement. (12)
10.6 Third Amendment dated as of July 2, 2000 to the Pledge
Agreement. (15)
10.7 1996 Incentive Plan, as amended. (10)
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<PAGE> 24
Exhibit
No. Description
--- -----------
10.8 1991 Employee Incentive Plan. (1)
10.9 Extended Savings Plan. (1)
10.10 Amendment to the Extended Savings Plan dated as of December
22, 1995. (6)
10.11 Amended and Restated Employees' Retirement Plan dated as of
January 1, 1998. (5)
10.12 Amendment to the Amended and Restated Employees' Retirement
Plan dated as of September 9, 1999. (12)
10.13 Amendment to the Amended and Restated Employees' Retirement
Plan dated as of March 1, 2000. (12)
10.14 Supplemental Compensation Plan. (7)
10.15 License Agreement for "Barnes & Noble" service mark, dated as
of February 11, 1987. (1)
10.16 Consents to "Barnes & Noble" License Agreement Assignments,
dated as of November 18, 1988 and November 16, 1992,
respectively. (6)
10.17 Employment Agreement between the Company and Mitchell S.
Klipper, dated as of April 1, 1993 (the "Employment
Agreement"). (8)
10.18 Amendment to the Employment Agreement dated as of April 1,
1998. (5)
10.19 Employment Agreement between the Company and Stephen Riggio,
dated as of January 1, 2000. (12)
10.20 Formation Agreement dated November 12, 1998 among Barnes &
Noble, Inc., B&N.com Holding Corp., barnesandnoble.com inc.,
B&N.com Member Corp., Bertelsmann AG and BOL.US Online, Inc.
(9)
10.21 Amended and Restated Limited Liability Company Agreement of
barnesandnoble.com llc (the "LLC Agreement") among Barnes &
Noble, Inc., B&N.com Holding Corp., Bertelsmann AG and BOL.US
Online, Inc. (9)
10.22 Amendment No. 1 to the LLC Agreement. (12)
10.23 Supply Agreement, dated as of October 31, 1998, between Barnes
& Noble, Inc. and barnesandnoble.com llc. (10)
10.24 Purchase Agreement, dated as of October 6, 1999, among Barnes
& Noble, Inc., Babbage's Etc. LLC and its owners. (11)
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Exhibit
No. Description
--- -----------
10.25 Agreement and Plan of Merger, dated as of May 4, 2000, by and
among Funco, Inc., Barnes & Noble, Inc. and B&N Acquisition
Corporation. (13)
10.26 Credit Agreement, dated as of October 12, 2000, among the
Company, its subsidiaries, The Chase Manhattan Bank (National
Association), as Administrative Agent and the Banks party
thereto. (14)
13.1 The sections of the Company's Annual Report entitled:
"Selected Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations",
"Consolidated Statements of Operations", "Consolidated Balance
Sheets", "Consolidated Statements of Changes in Shareholders'
Equity", "Consolidated Statements of Cash Flows", "Notes to
Consolidated Financial Statements" and "The Report of
Independent Certified Public Accountants". (15)
21.1 List of subsidiaries. (15)
23.1 Consent of BDO Seidman, LLP. (15)
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<PAGE> 26
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form S-4 (Commission File No. 33-59778) and incorporated herein by
reference.
(2) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended April 27, 1996.
(3) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended April 29, 1995.
(4) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended August 1, 1998.
(5) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended January 31, 1998.
(6) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended January 27, 1996.
(7) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended July 29, 1995.
(8) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (Commission File No. 33-50548) and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended October 31, 1998.
(10) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended January 30, 1999.
(11) Previously filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on November 12, 1999.
(12) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended January 29,2000.
(13) Previously filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on May 10, 2000.
(14) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended October 28, 2000.
(15) Filed herewith.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
BARNES & NOBLE, INC.
(Registrant)
By: /s/Leonard Riggio By: /s/Maureen O'Connell By: /s/Michael Archbold
Leonard Riggio, Chairman Maureen O'Connell, Michael Archbold
of the Board and Chief Chief Financial Officer Vice President, Chief
Executive Officer April 30, 2001 Financial Officer of
April 30, 2001 Barnes & Noble Booksellers
(Chief Accounting Officer)
April 30, 2001
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Leonard Riggio Chairman of the Board and Chief Executive April 30, 2001
Leonard Riggio Officer
/s/ Stephen Riggio Vice Chairman April 30, 2001
Stephen Riggio
/s/ Michael N. Rosen Secretary and Director April 30, 2001
Michael N. Rosen
/s/ Matthew A. Berdon Director April 30, 2001
Matthew A. Berdon
/s/ Michael J. Del Giudice Director April 30, 2001
Michael J. Del Giudice
/s/ William Dillard II Director April 30, 2001
William Dillard II
/s/ Irene R. Miller Director April 30, 2001
Irene R. Miller
/s/ Margaret T. Monaco Director April 30, 2001
Margaret T. Monaco
/s/ William Sheluck, Jr. Director April 30, 2001
William Sheluck, Jr.
</TABLE>
27
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>2
<FILENAME>y48586ex10-6.txt
<DESCRIPTION>THIRD AMENDMENT TO PLEDGE AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.6 [EXECUTION COPY]
THIRD AMENDMENT TO PLEDGE AND SECURITY AGREEMENT
THIRD AMENDMENT TO PLEDGE AND SECURITY AGREEMENT, dated as of July 2,
2000, between BARNES & NOBLE, INC., a corporation duly organized and validly
existing under the laws of the State of Delaware (the "Company"); each of the
Subsidiaries of the Company identified under the caption "SUBSIDIARY GUARANTORS"
on the signature pages hereof (individually, a "Subsidiary Guarantor" and,
collectively, the "Subsidiary Guarantors" and, together with the Company, the
"Obligors"); and THE CHASE MANHATTAN BANK, as agent for the lenders or other
financial institutions or entities party, as lenders, to the Credit Agreement
referred to below (in such capacity, together with its successors in such
capacity, the "Administrative Agent").
The Company, the Subsidiary Guarantors, certain lenders and the
Administrative Agent are parties to a Amended and Restated Credit Agreement
dated as of November 18, 1997 (as modified and supplemented and in effect from
time to time, the "Amended and Restated Credit Agreement"), providing, subject
to the terms and conditions thereof, for extensions of credit (by making of
loans and issuing letters of credit) to be made by said lenders to the Company
in an aggregate principal or face amount not exceeding $850,000,000 (as that
amount may be increased as provided therein). The Obligors and the Agent wish to
amend the Security Agreement referred to in the Amended and Restated Credit
Agreement in certain respects and, accordingly, agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Amended and Restated Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 3 below, but effective as of the date hereof, the
Annexes to the Security Agreement shall be amended as follows:
(a) Annex 1. Annex 1 to the Security Agreement shall be
amended in its entirety to read as Annex 1 hereto.
(b) Annex 2. Annex 2 to the Security Agreement shall be
amended in its entirety to read as Annex 2 hereto.
(c) Annex 3. Annex 3 to the Security Agreement shall be
amended in its entirety to read as Annex 3 hereto.
(d) Annex 4. Annex 4 to the Security Agreement shall be
amended in its entirety to read as Annex 4 hereto.
(e) Annex 5. Annex 5 to the Security Agreement shall be
amended in its entirety to read as Annex 5 hereto.
Section 2. Conditions Precedent. As provided in Section 2 above, the
amendments set forth in Section 2 shall become effective, as of the date hereof,
upon the due execution and delivery of this Amendment by the Obligors and the
Agent.
Section 3. Miscellaneous. Except as herein provided, the Security
Agreement shall remain unchanged and in full force and effect. This Amendment
may be executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment by signing any such counterpart. This Amendment shall
be governed by, and construed in accordance with, the internal laws of the State
of New York.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed and delivered as of the day and year first above written.
BARNES & NOBLE, INC.
By /s/ Maureen O'Connell
-----------------------------------------------------
Title: Maureen O'Connell, Chief Financial Officer
SUBSIDIARY GUARANTORS
B. DALTON BOOKSELLER, INC.
By /s/ Maureen O'Connell
-----------------------------------------------------
Title: Maureen O'Connell, Vice President
BARNES & NOBLE BOOKSELLERS, INC.
By /s/ Maureen O'Connell
-----------------------------------------------------
Title: Maureen O'Connell, Vice President
MABO BOOKS CORP.
(formerly known as Marboro Books Corp.)
By /s/ Maureen O'Connell
-----------------------------------------------------
Title: Maureen O'Connell, Vice President
DOUBLEDAY BOOK SHOPS, INC.
By /s/ Maureen O'Connell
-----------------------------------------------------
Title: Maureen O'Connell, Vice President
CCI HOLDINGS, INC.
By /s/ Maureen O'Connell
-----------------------------------------------------
Title: Maureen O'Connell, Vice President
BABBAGE'S ETC. LLC
By /s/ Leonard Riggio
------------------------------------------------------
Title: Leonard Riggio, Manager
2
<PAGE> 3
VENDAMERICA, INC.
By /s/ Maureen O'Connell
-----------------------------------------------------
Title: Maureen O'Connell, Vice President
FUNCO, INC.
By /s/ Maureen O'Connell
-----------------------------------------------------
Title: Maureen O'Connell, Vice President
SUNRISE PUBLICATIONS, INC.
By /s/ Maureen O'Connell
-----------------------------------------------------
Title: Maureen O'Connell, Vice President
THE CHASE MANHATTAN BANK, as Administrative Agent
By /s/ Barry K. Bergman
-----------------------------------------------------
Title: Vice President
3
<PAGE> 4
ANNEX 1
PLEDGED STOCK
BARNES & NOBLE, INC.
<TABLE>
<CAPTION>
Certificate Registered
Issuer Nos. Owner Number of Shares
------ ---- ----- ----------------
<S> <C> <C> <C>
B. Dalton Bookseller, C-1 Barnes & Noble, Inc. 360 shares of common stock,
Inc. par value $100
Barnes & Noble 1 Barnes & Noble, Inc. 100 shares of common stock,
Booksellers, Inc. par value $1
Mabo Books Corp. 4 Barnes & Noble, Inc. 10 shares of common stock, no
par value
CCI Holdings, Inc. 1 Barnes & Noble, Inc. 3,000 shares of common stock,
par value $1
B&N. Sub Corp 1 Barnes & Noble, Inc. 100 shares of common stock,
par value $1
</TABLE>
B. DALTON BOOKSELLER, INC.
<TABLE>
<CAPTION>
Certificate Registered
Issuer Nos. Owner Number of Shares
------ ---- ----- ----------------
<S> <C> <C> <C>
Doubleday Book Shops, 5 B. Dalton 1,000 shares of common stock,
Inc. Bookseller, Inc. par value $1
Vendamerica, Inc. 2 B. Dalton 1,000 shares of common stock,
Bookseller, Inc. no par value
Funco, Inc. 2400 B. Dalton 1,000 shares of common stock,
Bookseller, Inc. par value $.01
</TABLE>
BARNES & NOBLE BOOKSELLERS, INC.
NONE
MABO BOOKS CORP.
NONE
DOUBLEDAY BOOK SHOPS, INC.
NONE
4
<PAGE> 5
CCI HOLDINGS, INC.
NONE
BABBAGE'S ETC. LLC.
NONE
VENDAMERICA, INC
NONE
FUNCO, INC.
<TABLE>
<CAPTION>
Certificate Registered
Issuer Nos. Owner Number of Shares
------ ---- ----- ----------------
<S> <C> <C> <C>
Babbage's Etc. LLC N/A Funco, Inc. 100% Membership Interest
Sunrise Publications, Inc. 1 Funco, Inc. 1,000,000 shares of common
stock, par value $.01
</TABLE>
5
<PAGE> 6
ANNEX 2
LIST OF PATENTS AND PATENT APPLICATIONS
BARNES & NOBLE, INC.
<TABLE>
<CAPTION>
File Patent Country Registration No. Date
- ---- ------ ------- ---------------- ----
<S> <C> <C> <C> <C>
NONE
</TABLE>
B. DALTON BOOKSELLER, INC.
<TABLE>
<CAPTION>
File Patent Country Registration No. Date
- ---- ------ ------- ---------------- ----
<S> <C> <C> <C> <C>
NONE
</TABLE>
BARNES & NOBLE BOOKSELLERS, INC.
<TABLE>
<CAPTION>
File Patent Country Registration No. Date
- ---- ------ ------- ---------------- ----
<S> <C> <C> <C> <C>
NONE
</TABLE>
MABO BOOKS CORP.
<TABLE>
<CAPTION>
File Patent Country Registration No. Date
- ---- ------ ------- ---------------- ----
<S> <C> <C> <C> <C>
NONE
</TABLE>
DOUBLEDAY BOOK SHOPS, INC.
<TABLE>
<CAPTION>
File Patent Country Registration No. Date
- ---- ------ ------- ---------------- ----
<S> <C> <C> <C> <C>
NONE
</TABLE>
CCI HOLDINGS, INC.
<TABLE>
<CAPTION>
File Patent Country Registration No. Date
- ---- ------ ------- ---------------- ----
<S> <C> <C> <C> <C>
NONE
</TABLE>
BABBAGE'S ETC. LLC
<TABLE>
<CAPTION>
File Patent Country Registration No. Date
- ---- ------ ------- ---------------- ----
<S> <C> <C> <C> <C>
NONE
</TABLE>
6
<PAGE> 7
VENDAMERICA, INC.
<TABLE>
<CAPTION>
File Patent Country Registration No. Date
- ---- ------ ------- ---------------- ----
<S> <C> <C> <C> <C>
NONE
</TABLE>
FUNCO, INC.
<TABLE>
<CAPTION>
File Patent Country Registration No. Date
- ---- ------ ------- ---------------- ----
<S> <C> <C> <C> <C>
NONE
</TABLE>
SUNRISE PUBLICATIONS, INC.
<TABLE>
<CAPTION>
File Patent Country Registration No. Date
- ---- ------ ------- ---------------- ----
<S> <C> <C> <C> <C>
NONE
</TABLE>
2
<PAGE> 8
ANNEX 3
LIST OF TRADE NAMES, TRADEMARKS, SERVICES MARKS,
TRADEMARK AND SERVICE MARK REGISTRATIONS AND
APPLICATIONS FOR TRADEMARK AND SERVICE MARK REGISTRATIONS
A. U.S. TRADEMARKS
BARNES & NOBLE, INC.
<TABLE>
<CAPTION>
Application (A)
Registration (R)
Mark or Series (S) No.
- ---- -----------------
<S> <C>
1873 Press 75/857,302(A)
1873 Press 75/857,304(A)
1873 Press 75/857,305(A)
1873 Press and Colophon 75/887,883(A)
1873 Press Colophon 75/857,882(A)
Blink 75/320,806(A)
The Book Lover's Second Home 1,930,860(R)
Classics to Read By 75/793,114(A)
Discover Great New Writers 2,119,401(R)
Discover Great New Writers 2,119,402(R)
Discover Great New Writers 2,119,413(R)
Explorations 75/914,447(A)
Meet Me at Barnes & Noble 1,910,598(R)
Nite Reader 2,105,941(R)
Now What?! 75/853,137(A)
Premier Music (Design) 1,903,140(R)
</TABLE>
7
<PAGE> 9
<TABLE>
<S> <C>
Punctuate! 75/841,046(A)
Ransom Notes 75/912,951(A)
Read Only 75/892,798(A)
Silver Lining Books 75/635,541(A)
What Are You Reading? 2,126,136(R)
</TABLE>
B. DALTON BOOKSELLER, INC.
<TABLE>
<CAPTION>
Application (A)
Registration (R)
Mark or Series (S) No.
- ---- -----------------
<S> <C>
Books Dalton 1,667,902 (R)
B. Dalton Jr. 1,684,036 (R)
B. Dalton Jr. (Design) 1,667,039 (R)
Booksavers 1,597,933 (R)
P.B. Pages 1,814,553 (R)
B. Dalton's 1,293,494 (R)
Barnes & Noble Jr.
(Design) 1,609,403 (R)
Barnes & Noble Jr. 1,606,005 (R)
B. Dalton Bookseller 846,824 (R)
B. Dalton 1,158,498 (R)
Hooked on Books 1,147,660 (R)
People Who Know Books
Know B. Dalton 1,306,552 (R)
Amaranth Press 1,404,928 (R)
Pickwick 1,047,832 (R)
Lamp of Learning
(Design) 1,607,811 (R)
</TABLE>
8
<PAGE> 10
BARNES & NOBLE BOOKSELLERS, INC.
<TABLE>
<CAPTION>
Application (A)
Registration (R)
Mark or Series (S) No.
- ---- -----------------
<S> <C>
Bookstar (Design) 1,558,604 (R)
Amaranth Press 1,404,928(R)
</TABLE>
MABO BOOKS CORP.
<TABLE>
<CAPTION>
Application (A)
Registration (R)
Mark or Series (S) No.
- ---- -----------------
<S> <C>
NONE
</TABLE>
CCI HOLDINGS, INC.
<TABLE>
<CAPTION>
Application (A)
Registration (R)
Mark or Series (S) No.
- ---- -----------------
<S> <C>
NONE
</TABLE>
DOUBLEDAY BOOK SHOPS, INC.
<TABLE>
<CAPTION>
Application (A)
Registration (R)
Mark or Series (S) No.
- ---- -----------------
<S> <C>
The Old Corner (Mass.) 0025314 (R)
Bookstore
Books of All Publishers
Since 1910 (and Design) 1,516,823 (R)
</TABLE>
BABBAGE'S ETC. LLC
<TABLE>
<CAPTION>
Application (A)
Registration (R)
Mark or Series (S) No.
- ---- -----------------
<S> <C>
Babbage's 1,345,315 (R) and
1,569,315 (R)
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C>
America's Software for 1,547,310 (R) and
the Home 1,553,597 (R)
Babbage's Software for 1,345,205 (R)
the Home
Gamestop 1,707,460 (R)
</TABLE>
VENDAMERICA, INC.
<TABLE>
<CAPTION>
Application (A)
Registration (R)
Mark or Series (S) No.
- ---- -----------------
<S> <C>
NONE
</TABLE>
FUNCO,INC.
<TABLE>
<S> <C>
More Video Games at Half the Price 2,226,903 (R)
FuncoLand (Stylized Letters) 2,085,805 (R)
FuncoLand National Video Game 2,061,504 (R)
Championships
America's Place to Shop for Video Games 1,962,954 (R)
FuncoLand Fun Club 1,876,618 (R)
FuncoLand Your Source for Interactive 1,896,591 (R)
Entertainment
Bring Home the Fun 1,806,603 (R)
Experience the Fun at FuncoLand 1,798,387 (R)
Funco 1,796,605 (R)
FuncoLand 1,796,604 (R)
Funco Land 1,708,866 (R)
Sunrise Publications 1,999,100 (R)
Game Informer 1,788,102 (R)
</TABLE>
11
<PAGE> 12
SUNRISE PUBLICATIONS, INC.
None
12
<PAGE> 13
U.S. TRADENAMES
BARNES & NOBLE, INC.
Name
NONE
B. DALTON BOOKSELLER, INC.
Name
NONE
BARNES & NOBLE BOOKSELLERS, INC.
Name
Bookstop
MABO BOOKS CORP.
Name
NONE
DOUBLEDAY BOOK SHOPS, INC.
Name
NONE
CCI HOLDINGS, INC.
Name
NONE
BABBAGE'S ETC. LLC
Name
Software Etc.
13
<PAGE> 14
VENDAMERICA, INC.
Name
NONE
FUNCO, INC.
Name
NONE
SUNRISE PUBLICATIONS, INC.
Name
NONE
14
<PAGE> 15
B. FOREIGN TRADEMARKS
BARNES & NOBLE, INC.
<TABLE>
<CAPTION>
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
---- ---------------- ------- ---------------
<S> <C> <C> <C>
NONE
</TABLE>
B. DALTON BOOKSELLER, INC.
<TABLE>
<CAPTION>
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
---- ---------------- ------- ---------------
<S> <C> <C> <C>
NONE
</TABLE>
BARNES & NOBLE BOOKSELLERS, INC.
<TABLE>
<CAPTION>
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
---- ---------------- ------- ---------------
<S> <C> <C> <C>
NONE
</TABLE>
MABO BOOKS CORP.
<TABLE>
<CAPTION>
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ---- ---------------- ------- ---------------
<S> <C> <C> <C>
NONE
</TABLE>
DOUBLEDAY BOOK SHOPS, INC.
<TABLE>
<CAPTION>
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ---- ---------------- ------- ---------------
<S> <C> <C> <C>
NONE
</TABLE>
CCI HOLDINGS, INC.
<TABLE>
<CAPTION>
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ---- ---------------- ------- ---------------
<S> <C> <C> <C>
NONE
</TABLE>
15
<PAGE> 16
BABBAGE'S ETC. LLC
<TABLE>
<CAPTION>
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ---- ---------------- ------- ---------------
<S> <C> <C> <C>
NONE
</TABLE>
VENDAMERICA, INC.
<TABLE>
<CAPTION>
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ---- ---------------- ------- ---------------
<S> <C> <C> <C>
NONE
</TABLE>
FUNCO, INC.
<TABLE>
<CAPTION>
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ---- ---------------- ------- ---------------
<S> <C> <C> <C>
NONE
</TABLE>
SUNRISE PUBLICATIONS, INC.
<TABLE>
<CAPTION>
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ---- ---------------- ------- ---------------
<S> <C> <C> <C>
NONE
</TABLE>
16
<PAGE> 17
ANNEX 4
LIST OF CONTRACTS, LICENSES AND OTHER AGREEMENTS
RELATING TO INTELLECTUAL PROPERTY
BARNES & NOBLE, INC.
License Agreement dated as of February 11, 1989 between Barnes & Noble College
Bookstores, Inc. and Barnes & Noble Discount Bookstores, Inc. (a predecessor of
B. Dalton Bookseller, Inc.), and Consents to License Agreement Assignments,
dated as of November 18, 1988 and November 16, 1992, respectively.
B. DALTON BOOKSELLER, INC.
Letter Agreement dated as of February 21, 1989 from Scribner's Book Companies,
Inc. and MacMillan, Inc. to B. Dalton Bookseller, Inc.
BARNES & NOBLE BOOKSELLERS, INC.
NONE
MABO BOOKS CORP.
NONE
DOUBLEDAY BOOK SHOPS, INC.
Trade Mark and Service Mark License dated as of May 31, 1990 between Bantam
Doubleday Dell Publishing Group, Inc. and Doubleday Book Shops, Inc.
CCI HOLDINGS, INC.
NONE
BABBAGE'S ETC. LLC
NONE
VENDAMERICA, INC.
NONE
17
<PAGE> 18
FUNCO, INC.
NONE
SUNRISE PUBLICATIONS, INC.
NONE
18
<PAGE> 19
ANNEX 5
LIST OF LOCATIONS
BARNES & NOBLE, INC. B. DALTON BOOKSELLER, INC.
1. 122 Fifth Avenue 1. 122 Fifth Avenue
New York, NY 10011 New York, NY 10011
2. 1400 Old Country Road 2. 1400 Old Country Road
Westbury, NY 11590 Westbury, NY 11590
BARNES & NOBLE BOOKSELLERS, INC. 3. 100 Middlesex Center Boulevard
Jamesburg, NJ 08831
1. 122 Fifth Avenue
New York, NY 10011 4. 331 Herrod Drive
Jamesburg, NJ 08831
2. 1400 Old Country Road
Westbury, NY 11590 5. 308 Herrod Drive
Jamesburg, NJ 08831
MABO BOOKS CORP.
1. 122 Fifth Avenue CCI HOLDINGS, INC.
New York, NY 10011
1. 122 Fifth Avenue
2. 1400 Old Country Road New York, NY 10011
Westbury, NY 11590
2. 1400 Old Country Road
3. One Pond Road Westbury, NY 11590
Rockleigh, NJ 07647
3. 6411 Burleson Road
DOUBLEDAY BOOK SHOPS, INC. Austin, TX 78744
1. 122 Fifth Avenue
New York, NY 10011
2. 1400 Old Country Road
Westbury, NY 11590
BABBAGE'S ETC. LLC
1. 122 Fifth Avenue
New York, NY 10011
2. 1400 Old Country Road
Westbury, NY 11590
3. 2250 William D. Tate Avenue
Grapevine, TX 76051
19
<PAGE> 20
VENDAMERICA, INC
1. 122 Fifth Avenue
New York, NY 10011
2. 1400 Old Country Road
Westbury, NY 11590
3. 2250 William D. Tate Avenue
Grapevine, TX 76051
FUNCO,INC.
1. 122 Fifth Avenue
New York, NY 10011
2. 1400 Old Country Road
Westbury, NY 11590
3. 10120 West 76th Street
Eden Prairie, MN 55344
SUNRISE PUBLICATIONS, INC.
1. 122 Fifth Avenue
New York, NY 10011
2. 1400 Old Country Road
Westbury, NY 11590
3. 10120 West 76th Street
Eden Prairie, MN 55344
20
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>3
<FILENAME>y48586ex13-1.txt
<DESCRIPTION>SECTIONS OF ANNUAL REPORT
<TEXT>
<PAGE> 1
EXHIBIT 13.1
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of Barnes & Noble, Inc. and its
subsidiaries (collectively, the Company) set forth on the following pages should
be read in conjunction with the consolidated financial statements and notes
included elsewhere in this report. The Company's fiscal year is comprised of 52
or 53 weeks, ending on the Saturday closest to the last day of January. The
Statement of Operations Data for the 53 weeks ended February 3, 2001 (fiscal
2000), the 52 weeks ended January 29, 2000 (fiscal 1999) and the 52 weeks ended
January 30, 1999 (fiscal 1998) and the Balance Sheet Data as of February 3, 2001
and January 29, 2000 are derived from, and are qualified by reference to,
audited consolidated financial statements which are included elsewhere in this
report. The Statement of Operations Data for the 52 weeks ended January 31, 1998
(fiscal 1997) and the 53 weeks ended February 1, 1997 (fiscal 1996) and the
Balance Sheet Data as of January 30, 1999, January 31, 1998 and February 1, 1997
are derived from audited consolidated financial statements not included in this
report. Certain prior-period amounts have been reclassified for comparative
purposes.
<TABLE>
<CAPTION>
Fiscal Year 2000(1)(2) 1999(3) 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(Thousands of dollars, except per share data)
STATEMENT OF OPERATIONS DATA:
Sales
Barnes & Noble stores(4) $ 3,169,591 2,821,549 2,515,352 2,245,531 1,861,177
B. Dalton stores(5) 372,230 426,018 468,414 509,389 564,926
Barnes & Noble.com -- -- -- 14,601 --
Other 76,419 14,728 21,842 27,331 22,021
------------ ------------ ------------ ------------ ------------
Total bookstore sales 3,618,240 3,262,295 3,005,608 2,796,852 2,448,124
Video game and entertainment software
stores(6) 757,564 223,748 -- -- --
------------ ------------ ------------ ------------ ------------
Total sales 4,375,804 3,486,043 3,005,608 2,796,852 2,448,124
Cost of sales and occupancy 3,169,724 2,483,729 2,142,717 2,019,291 1,785,392
------------ ------------ ------------ ------------ ------------
Gross profit 1,206,080 1,002,314 862,891 777,561 662,732
Selling and administrative expenses 812,992 651,099 580,609 542,336 467,777
Depreciation and amortization 144,760 112,304 88,345 76,951 59,806
Pre-opening expenses 7,669 6,801 8,795 12,918 17,571
Impairment charge(7) 106,833 -- -- -- --
------------ ------------ ------------ ------------ ------------
Operating profit 133,826 232,110 185,142 145,356 117,578
Interest expense, net and amortization of
deferred financing fees(8) (53,541) (23,765) (24,412) (37,666) (38,286)
Equity in net loss of Barnes & Noble.com(9) (103,936) (42,047) (71,334) -- --
Gain on formation of Barnes & Noble.com(10) -- 25,000 63,759 -- --
Other income (expense)(11) (9,346) 27,337 3,414 1,913 2,090
------------ ------------ ------------ ------------ ------------
Earnings (loss) before provision for
income taxes, extraordinary charge and
cumulative effect of a change in
accounting principle (32,997) 218,635 156,569 109,603 81,382
Provision for income taxes 18,969 89,637 64,193 44,935 30,157
------------ ------------ ------------ ------------ ------------
Earnings (loss) before extraordinary
charge and cumulative effect of a
change in accounting principle (51,966) 128,998 92,376 64,668 51,225
Extraordinary charge(12) -- -- -- (11,499) --
Cumulative effect of a change in accounting
principle -- (4,500) -- -- --
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $ (51,966) 124,498 92,376 53,169 51,225
============ ============ ============ ============ ============
Earnings (loss) per common share
Basic
Earnings (loss) before extraordinary
charge and cumulative effect of a
change in accounting principle $ (0.81) 1.87 1.35 0.96 0.77
Extraordinary charge $ -- -- -- (0.17) --
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Fiscal Year 2000(1)(2) 1999(3) 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(Thousands of dollars, except per share data)
Cumulative effect of a change in
accounting principle $ -- (0.07) -- -- --
Net earnings (loss) $ (0.81) 1.80 1.35 0.79 0.77
Diluted
Earnings (loss) before extraordinary
charge and cumulative effect of a
change in accounting principle $ (0.81) 1.81 1.29 0.93 0.75
Extraordinary charge $ -- -- -- (0.17) --
Cumulative effect of a change in
accounting principle $ -- (0.06) -- -- --
Net earnings (loss) $ (0.81) 1.75 1.29 0.76 0.75
Weighted average common shares outstanding
Basic 64,341,000 69,005,000 68,435,000 67,237,000 66,103,000
Diluted 64,341,000 71,354,000 71,677,000 69,836,000 67,886,000
OTHER OPERATING DATA:
Number of stores
Barnes & Noble stores(4) 569 542 520 483 431
B. Dalton stores(5) 339 400 489 528 577
Video game and entertainment software
stores(6) 978 526 -- -- --
------------ ------------ ------------ ------------ ------------
Total 1,886 1,468 1,009 1,011 1,008
============ ============ ============ ============ ============
Comparable store sales increase
(decrease)(13)
Barnes & Noble stores(4) 4.9% 6.1% 5.0% 9.4% 7.3%
B. Dalton stores(5) (1.7) 0.1 (1.4) (1.1) (1.0)
Video game and entertainment software
stores(6) (6.7) 12.5 -- -- --
Capital expenditures $ 134,292 146,294 141,378 121,903 171,885
BALANCE SHEET DATA:
Working capital $ 520,178 318,668 315,989 264,719 212,692
Total assets $ 2,557,476 2,413,791 1,807,597 1,591,171 1,446,647
Long-term debt $ 666,900 431,600 249,100 284,800 290,000
Shareholders' equity $ 777,677 846,360 678,789 531,755 455,989
</TABLE>
(1) Fiscal 2000 includes the results of operations of Funco, Inc. from June
14, 2000, the date of acquisition.
(2) In fiscal 2000, the Company acquired a controlling interest in Calendar
Club L.L.C. (Calendar Club); the Company's consolidated statement of
operations includes results of operations of Calendar Club for the full
year. Prior to fiscal 2000, the Company included its equity in the
results of operations of Calendar Club as part of other income
(expense).
(3) Fiscal 1999 includes the results of operations of Babbage's Etc. LLC
from October 28, 1999, the date of acquisition.
(4) Also includes nine Bookstop and 22 Bookstar stores as of February 3,
2001.
<PAGE> 3
(5) Also includes eight Doubleday Book Shops, two Scribner's Bookstores and
four smaller format bookstores operated under the Barnes & Noble trade
name representing the Company's original retail strategy as of February
3, 2001.
(6) Includes 396 FuncoLand stores, 261 Software Etc. stores, 212 Babbage's
stores, 102 GameStop stores and seven smaller format stores as of
February 3, 2001.
(7) Represents a non-cash charge to operating earnings to adjust the
carrying value of certain assets, primarily goodwill relating to the
purchase of B. Dalton and other mall bookstore assets.
(8) Interest expense for fiscal 2000, 1999, 1998, 1997 and 1996 is net of
interest income of $939, $1,449, $976, $446 and $2,288, respectively.
(9) On November 12, 1998, the Company and Bertelsmann AG (Bertelsmann)
completed the formation of a limited liability company to operate the
online retail bookselling operations of the Company's wholly owned
subsidiary, barnesandnoble.com inc., which had begun operations in
fiscal 1997. As a result of the formation of barnesandnoble.com llc
(Barnes & Noble.com), the Company began accounting for its interest in
Barnes & Noble.com under the equity method of accounting as of the
beginning of fiscal 1998. Fiscal 1998 reflects a 100 percent equity
interest in Barnes & Noble.com for the first three quarters ended
October 31, 1998 (also the effective date of the limited liability
company agreement), and a 50 percent equity interest beginning on
November 1, 1998 through the end of the fiscal year. As a result of the
initial public offering (IPO) for the Barnes & Noble.com business on
May 25, 1999, the Company and Bertelsmann each retained a 40 percent
interest in Barnes & Noble.com. Accordingly, the Company's share in the
net loss of Barnes & Noble.com for fiscal 1999 was based on a 50
percent equity interest from the beginning of fiscal 1999 through May
25, 1999 and 40 percent through the end of the fiscal year. In November
2000, Barnes & Noble.com acquired Fatbrain.com, Inc. (Fatbrain), the
third largest online bookseller. Barnes & Noble.com issued shares of
its common stock to Fatbrain shareholders. As a result of this merger,
the Company and Bertelsmann each retained an approximate 36 percent
interest in Barnes & Noble.com. Accordingly, the Company's share in the
net losses of Barnes & Noble.com for fiscal 2000 was based on an
approximate 40 percent equity interest from the beginning of fiscal
2000 through November 2000 and approximately 36 percent thereafter.
<PAGE> 4
(10) As a result of the formation of the limited liability company, the
Company recognized a pre-tax gain during fiscal 1998 in the amount of
$126,435, of which $63,759 has been recognized in earnings based on the
$75,000 received directly from Bertelsmann and $62,676 ($36,351 after
taxes) has been reflected in additional paid-in capital based on the
Company's share of the incremental equity of the joint venture
resulting from the $150,000 Bertelsmann contribution. As a result of
the Barnes & Noble.com IPO, the Company recorded an increase in
additional paid-in capital of $200,272 ($116,158 after taxes)
representing the Company's incremental share in the equity in Barnes &
Noble.com. In addition, the Company recognized a pre-tax gain of
$25,000 in fiscal 1999 as a result of cash received in connection with
the joint venture agreement with Bertelsmann.
(11) Included in other expense in fiscal 2000 are losses of $9,730 from the
Company's equity investments. Included in other income in fiscal 1999
are pre-tax gains of $22,356 and $10,975 recognized in connection with
the Company's investments in NuvoMedia Inc. and Chapters Inc.,
respectively, as well as a one-time charge of $5,000 attributable to
the termination of the Ingram Book Group acquisition and losses from
equity investments of $994.
(12) Reflects a net extraordinary charge during fiscal 1997 due to the early
extinguishment of debt, consisting of: (i) a pre-tax charge of $11,281
associated with the redemption premium on the Company's senior
subordinated notes; (ii) the associated write-off of $8,209 of
unamortized deferred finance costs; and (iii) the related tax benefits
of $7,991 on the extraordinary charge.
(13) Comparable store sales increase (decrease) is calculated on a 52-week
basis, and includes sales of stores that have been open for 15 months
for Barnes & Noble stores (due to the high sales volume associated with
grand openings) and 12 months for B. Dalton stores. Comparable store
sales include relocated Barnes & Noble stores and exclude B. Dalton
stores which the Company has closed or has a formal plan to close.
Comparable store sales increase (decrease) for the video game and
entertainment software stores are calculated on a 52-week basis, and
include sales of stores that have been open for 12 months.
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's fiscal year is comprised of 52 or 53 weeks, ending on the
Saturday closest to the last day of January. As used in this section, "fiscal
2000" represents the 53 weeks ended February 3, 2001, "fiscal 1999" represents
the 52 weeks ended January 29, 2000 and "fiscal 1998" represents the 52 weeks
ended January 30, 1999.
GENERAL
Barnes & Noble, Inc. (Barnes & Noble or the Company), the nation's
largest bookseller(*), as of February 3, 2001 operates 908 bookstores and 978
video game and entertainment software stores. Of the 908 bookstores, 569 operate
under the Barnes & Noble Booksellers, Bookstop and Bookstar trade names (32 of
which were opened in fiscal 2000) and 339 operate under the B. Dalton
Bookseller, Doubleday Book Shops and Scribner's Bookstore trade names. Through
its approximate 36 percent interest in barnesandnoble.com llc (Barnes &
Noble.com), the Company is one of the largest sellers of books on the Internet
and is the premier bookseller on America Online's (AOL) proprietary network, the
Yahoo! Inc. (Yahoo) directory and Microsoft Network (MSN). The Company, through
its acquisitions of Babbage's Etc. LLC (Babbage's Etc.) and Funco, Inc. (Funco),
is the nation's largest video game and PC entertainment software specialty
retailer operating 978 video game and entertainment software stores under the
Babbage's, Software Etc., GameStop and FuncoLand trade names, and a Web site,
gamestop.com and Game Informer, one of the largest video game magazines with
circulation of over 200,000. The Company employed approximately 48,000 full- and
part-time employees as of February 3, 2001.
Barnes & Noble is the nation's largest operator of book "super"
stores(1) with 569 Barnes & Noble bookstores located in 49 states and the
District of Columbia as of February 3, 2001. With more than 30 years of
bookselling experience, management has a strong sense of customers' changing
needs and the Company leads book retailing with a "community store" concept.
Barnes & Noble's typical bookstore offers a comprehensive title base, a cafe,
a children's section, a music department, a magazine section and a calendar of
ongoing events, including author appearances and children's activities, that
make each Barnes & Noble bookstore an active part of its community.
Barnes & Noble bookstores range in size from 10,000 to 60,000 square
feet depending upon market size, and each store features an authoritative
selection of books, ranging from 60,000 to 200,000 titles. The comprehensive
title selection is diverse and reflects local interests. In addition, Barnes &
Noble emphasizes books published by small and independent publishers and
university presses. Bestsellers represent only three percent of Barnes & Noble
bookstore sales. Complementing this extensive on-site selection, all Barnes &
Noble bookstores provide customers with access to the millions of books
available to online shoppers while offering an option to have the book sent to
the store or shipped directly to the customer. All Barnes & Noble bookstores are
equipped with the BookMaster in-store operating system which enhances the
Company's merchandise replenishment system, resulting in higher in-stock
positions and better productivity at the store level through efficiencies in
receiving, cashiering and returns processing.
During fiscal 2000, the Company added 0.8 million square feet to the
Barnes & Noble bookstore base, bringing the total square footage to 13.4 million
square feet, a six percent increase over the prior
- ------------------
*Based upon sales reported in trade publications and public filings.
<PAGE> 6
year. Barnes & Noble bookstores contributed more than 88 percent of the
Company's total bookstore sales in fiscal 2000. The Company plans to open
between 40 and 45 Barnes & Noble bookstores in fiscal 2001 which are expected to
average 26,000 square feet in size.
At the end of fiscal 2000, the Company operated 339 B. Dalton bookstores
in 45 states and the District of Columbia. B. Dalton bookstores employ
merchandising strategies that target the "Middle-American" consumer book market,
offering a wide range of bestsellers and general-interest titles. Most B. Dalton
bookstores range in size from 2,800 to 6,000 square feet, and while they are
appropriate to the size of adjacent mall tenants, the opening of "super" stores
in nearby locations continues to have a significant adverse impact on B. Dalton
bookstores.
The Company is continuing to execute a strategy to maximize returns from
its B. Dalton bookstores in response to declining sales attributable primarily
to "super" store competition. Part of the Company's strategy has been to close
underperforming stores, which has resulted in the closing of between 40 and 90
B. Dalton bookstores per year since 1989.
In 1998, the Company and Bertelsmann AG (Bertelsmann) completed the
formation of a limited liability company to operate the online retail
bookselling operations of the Company's wholly owned subsidiary,
barnesandnoble.com inc. The new entity, barnesandnoble.com llc (Barnes &
Noble.com), was formed by combining the online bookselling operations of the
Company with funds contributed by the international media company Bertelsmann,
one of the largest integrated media companies in the world. In 1999, Barnes &
Noble.com Inc. completed an initial public offering (IPO) of 28.75 million
shares of Class A Common Stock and used the proceeds to purchase a 20 percent
interest in Barnes & Noble.com. As a result, the Company and Bertelsmann each
retained a 40 percent interest in Barnes & Noble.com from the date of the IPO
through November 2000. In November 2000, Barnes & Noble.com acquired
Fatbrain.com, Inc. (Fatbrain), the third largest online bookseller. Barnes &
Noble.com issued shares of its common stock to Fatbrain shareholders. As a
result of this merger, the Company and Bertelsmann each retained an approximate
36 percent interest in Barnes & Noble.com. Accordingly, the Company's share in
the net losses of Barnes & Noble.com for fiscal 2000 was based on an approximate
40 percent equity interest from the beginning of fiscal 2000 through November
2000 and approximately 36 percent thereafter.
According to Media Metrix, in January 2001, Barnes & Noble.com was the
fourth-most-trafficked shopping site and was among the top 50 largest Web
properties on the Internet. Focused largely on the sale of books, music,
DVDs/videos, magazines and related products, Barnes & Noble.com has capitalized
on the recognized brand value of the Barnes & Noble name to become the second
largest online distributor of books. Customers can choose from millions of new
and out-of-print titles, a comprehensive selection of new and used college
textbooks and a variety of eBooks. Barnes & Noble.com also features Barnes &
Noble Online University, a free online education resource offering courses
through its Web site. The broad-based curriculum covers a range of subjects,
from gardening and classical music to Shakespeare and organizing stock
portfolios. Each course includes recommended study material, including books and
other products available for purchase through the Web site. Barnes & Noble.com's
video store features tens of thousands of movie titles available in both DVD and
VHS formats, more than 65,000 cast and crew filmographies, movie reviews and
ratings, as well as editorial recommendations on the best and most significant
movies. Barnes & Noble.com recently opened an eBookStore, featuring Microsoft
Reader(TM) technology for desktop PCs and laptop computers. The eBookStore is
the first online retail bookstore to offer eBooks for the Microsoft Reader(TM),
and features titles from more than 30 publishers.
<PAGE> 7
With access to Barnes & Noble's more than 880,000 in-stock titles,
Barnes & Noble.com has the largest standing inventory of any online bookseller
ready for immediate delivery. The URL http://www.bn.com makes the site easy to
find. The Barnes & Noble.com affiliate network has more than 300,000 members and
maintains strategic alliances with major Web portals and content sites, such as
AOL, Yahoo and MSN. Barnes & Noble.com is also a leader in business-to-business
e-commerce with the industry's leading Business Solutions division, Fatbrain.
Fatbrain's Web-based services reach more than 3.5 million employee desktops at
nearly 350 Fortune 1000 companies worldwide. There are more than 500 individual
Fatbrain co-branded corporate online bookstores and information resource
centers, most of which are accessed using the sponsoring organizations'
corporate intranets.
Barnes & Noble further differentiates its product offerings from those
of its competitors by publishing books under its own imprints for sale in its
retail stores and through Barnes & Noble.com's online and direct-mail book
sales. With publishing and distribution rights to over 2,500 titles, Barnes &
Noble Books offers customers high-quality books at exceptional values, while
generating attractive gross margins.
As a result of its acquisitions of Babbage's Etc. and Funco in October
1999 and June 2000, respectively, the Company is the nation's largest video game
and PC entertainment software specialty retailer. The Company owns and operates
978 video game and entertainment software stores located in 49 states, Puerto
Rico and Guam. The Company's video game and entertainment software stores range
in size from 500 to 5,000 square feet (averaging 1,500 square feet) depending
upon market demographics. Stores feature video game hardware and software, PC
entertainment software and a multitude of accessories.
RESULTS OF OPERATIONS
The Company's sales, operating profit, comparable store sales, store
openings, store closings, number of stores open and square feet of selling space
at year end are set forth below:
<TABLE>
<CAPTION>
FISCAL YEAR 2000 1999 1998
----------- ----------- -----------
(Thousands of dollars)
<S> <C> <C> <C>
SALES
Bookstores (1) $ 3,618,240 3,262,295 3,005,608
Video game and entertainment software stores 757,564 223,748 --
----------- ----------- -----------
Total $ 4,375,804 3,486,043 3,005,608
=========== =========== ===========
OPERATING PROFIT (2)
Bookstores (1) $ 127,812 216,678 185,142
Video game and entertainment software stores 6,014 15,432 --
----------- ----------- -----------
Total $ 133,826 232,110 185,142
=========== =========== ===========
COMPARABLE STORE SALES INCREASE (DECREASE) (3)
Barnes & Noble stores 4.9% 6.1% 5.0%
B. Dalton stores (1.7) 0.1 (1.4)
Video game and entertainment software stores (6.7) 12.5 --
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
STORES OPENED
Barnes & Noble stores 32 38 50
B. Dalton stores -- -- 4
Video game and entertainment software stores 65 -- --
------ ------ ------
Total 97 38 54
====== ====== ======
STORES CLOSED
Barnes & Noble stores 5 16 13
B. Dalton stores 61 89 43
Video game and entertainment software stores 17 -- --
------ ------ ------
Total 83 105 56
====== ====== ======
NUMBER OF STORES OPEN AT YEAR END
Barnes & Noble stores 569 542 520
B. Dalton stores 339 400 489
Video game and entertainment software stores (4) 978 526 --
------ ------ ------
Total 1,886 1,468 1,009
====== ====== ======
SQUARE FEET OF SELLING SPACE AT YEAR END (IN MILLIONS)
Barnes & Noble stores 13.4 12.7 11.9
B. Dalton stores 1.4 1.6 1.9
Video game and entertainment software stores 1.5 0.8 --
------ ------ ------
Total 16.3 15.1 13.8
====== ====== ======
</TABLE>
(1) As a result of the Company's additional investment in Calendar Club L.L.C.
(Calendar Club) in fiscal 2000, the consolidated statement of operations
includes the operations of Calendar Club for the full year. Included in
fiscal 2000 are sales and operating profits associated with Calendar Club
of $66,301 and $1,395, respectively. Prior to fiscal 2000, the Company's
consolidated statement of operations included its equity in the results of
operations of Calendar Club as a component of other income (expense). The
Company's equity in the net earnings of Calendar Club for fiscal 1999 and
fiscal 1998 were $1,228 and $2,274, respectively.
(2) Fiscal 2000 operating profit is net of a non-cash impairment charge of
$106,833.
(3) Comparable store sales for Barnes & Noble stores are determined using
stores open at least 15 months, due to the high sales volume associated
with grand openings. Comparable store sales for B. Dalton stores are
determined using stores open at least 12 months. Comparable store sales for
the video game and entertainment software stores include sales of stores
that have been open for 12 months.
(4) Includes FuncoLand stores acquired in June 2000.
<PAGE> 9
The following table sets forth, for the periods indicated, the percentage
relationship that certain items bear to total sales of the Company:
<TABLE>
<CAPTION>
FISCAL YEAR 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales and occupancy 72.4 71.2 71.3
-------- -------- --------
Gross margin 27.6 28.8 28.7
Selling and administrative expenses 18.6 18.7 19.3
Depreciation and amortization 3.3 3.2 2.9
Pre-opening expenses 0.2 0.2 0.3
Impairment charge 2.4 -- --
-------- -------- --------
Operating margin 3.1 6.7 6.2
Interest expense, net and amortization of deferred
financing fees (1.2) (0.7) (0.8)
Equity in net loss of Barnes & Noble.com (2.4) (1.2) (2.4)
Gain on formation of Barnes & Noble.com -- 0.7 2.1
Other income (expense) (0.2) 0.8 0.1
-------- -------- --------
Earnings (loss) before provision for income
taxes and cumulative effect of a change in
accounting principle (0.7) 6.3 5.2
Provision for income taxes 0.4 2.6 2.1
-------- -------- --------
Earnings (loss) before cumulative effect of a
change in accounting principle (1.1) 3.7 3.1
Cumulative effect of a change in accounting
principle -- (0.1) --
-------- -------- --------
Net earnings (loss) (1.1)% 3.6% 3.1%
======== ======== ========
</TABLE>
<PAGE> 10
53 WEEKS ENDED FEBRUARY 3, 2001 COMPARED WITH 52 WEEKS ENDED JANUARY 29, 2000
Sales
The Company's sales increased $889.8 million or 25.5% during fiscal 2000
to $4.376 billion from $3.486 billion during fiscal 1999. Contributing to this
improvement was an increase of $533.8 million attributable to the inclusion of
sales from Babbage's Etc. and Funco (Video Game & Entertainment Software).
Through its acquisitions of Babbage's Etc. in October 1999 and Funco in June
2000 (the Acquisitions), the Company has become the nation's largest video game
and PC entertainment software specialty retailer. Fiscal 2000 sales from Barnes
& Noble "super" stores, which contributed 72.4% of total sales or 87.6% of total
bookstore sales, increased 12.3% to $3.170 billion from $2.822 billion in fiscal
1999.
The increase in bookstore sales was primarily attributable to the 4.9%
growth in Barnes & Noble comparable store sales, full year sales from the 38 new
stores opened during fiscal 1999 and the opening of an additional 32 Barnes &
Noble stores during fiscal 2000. This increase was partially offset by declining
sales of B. Dalton, due to 61 store closings and a comparable store sales
decline of (1.7%) in fiscal 2000.
Video Game & Entertainment Software sales during fiscal 2000 increased
to $757.6 million from $223.7 million during fiscal 1999. This increase in sales
was attributable to the inclusion of a full year of Babbage's Etc.'s sales in
fiscal 2000 compared with sales for the fourth quarter only in fiscal 1999, as
well as the inclusion of Funco sales for approximately one-half of fiscal 2000.
Comparable store sales as if Babbage's Etc. and Funco had been included for the
entire 52-week period decreased 6.7%.
Cost of Sales and Occupancy
The Company's cost of sales and occupancy includes costs such as rental
expense, common area maintenance, merchant association dues and lease-required
advertising.
Cost of sales and occupancy increased to $3.170 billion in fiscal 2000
from $2.484 billion in fiscal 1999 primarily due to the increase in Video Game &
Entertainment Software's cost of sales and occupancy as a result of the
Acquisitions. The Company's gross margin rate decreased to 27.6% in fiscal 2000
from 28.8% in fiscal 1999. This decrease was primarily attributable to lower
gross margins in the video game and entertainment software stores, partially
offset by improved leverage on occupancy costs as well as a favorable product
mix in the bookstores.
Selling and Administrative Expenses
Selling and administrative expenses increased $161.9 million, or 24.9%
to $813.0 million in fiscal 2000 from $651.1 million in fiscal 1999 primarily
due to the increase in Video Game & Entertainment Software's selling and
administrative expenses as a result of the Acquisitions. Selling and
administrative expenses decreased slightly to 18.6% of sales during fiscal 2000
from 18.7% during fiscal 1999.
<PAGE> 11
Depreciation and Amortization
Depreciation and amortization increased $32.5 million, or 28.9%, to
$144.8 million in fiscal 2000 from $112.3 million in fiscal 1999. The increase
was primarily the result of the increase in Video Game & Entertainment
Software's depreciation and amortization as a result of the Acquisitions, as
well as depreciation related to the Barnes & Noble stores opened during fiscal
2000 and fiscal 1999.
Pre-Opening Expenses
Pre-opening expenses increased in fiscal 2000 to $7.7 million from $6.8
million in fiscal 1999. This increase was the result of additional labor used to
facilitate the rollout of the new Barnes & Noble bookstores as well as the
opening of 65 new video game and entertainment software stores.
Impairment Charge
During fiscal 2000, the Company recorded a non-cash charge to operating
earnings of $106.8 million ($92.4 million after taxes or $1.44 per share). This
charge included approximately $69.9 million of goodwill and $32.4 million of
property, plant and equipment related to the book business, primarily goodwill
associated with the purchase of B. Dalton and other mall bookstore assets. The
Company's mall-based bookstores have experienced significant declines in sales
and profitability as a result of increased competition from book "super" stores
and Internet book retailers. In fiscal 2000, B. Dalton comparable store sales
declined (1.7%) compared with an increase in comparable store sales of 0.1% in
fiscal 1999. As a result, the anticipated future cash flows from certain stores
were no longer sufficient to recover the carrying value of the underlying
assets. Also, included in this charge were other charges of $4.5 million related
to the write-off of certain investments which had continuing adverse financial
results.
Operating Profit
Operating profit decreased to $133.8 million in fiscal 2000 from $232.1
million in fiscal 1999. Operating profit, before the effect of the $106.8
million impairment charge, increased $8.5 million to $240.7 million during
fiscal 2000. Bookstore operating profit, before the effect of the $106.8 million
impairment charge, increased 8.3% to $234.6 million. Bookstore operating margin,
before the effect of the impairment charge, decreased slightly to 6.5% of sales
during fiscal 2000 from 6.6% of sales in fiscal 1999 as a result of the
inclusion of Calendar Club operating results.
Interest Expense, Net and Amortization of Deferred Financing Fees
Interest expense, net of interest income, and amortization of deferred
financing fees, increased $29.7 million to $53.5 million in fiscal 2000 from
$23.8 million in fiscal 1999. This increase was primarily the result of the
increased borrowings under the Company's revolving credit facility used to
support the Company's Acquisitions and the common stock repurchase program.
Equity in Net Loss of Barnes & Noble.com
As a result of the Barnes & Noble.com Inc. IPO on May 25, 1999, the
Company and Bertelsmann each retained a 40 percent interest in Barnes &
Noble.com. Accordingly, the Company's share in the net loss of Barnes &
Noble.com for fiscal 1999 was based on a 50 percent equity interest from the
beginning of fiscal 1999 through May 25, 1999 and 40 percent through the end of
1999. The Company's equity in
<PAGE> 12
the net loss of Barnes & Noble.com for fiscal 1999 was $42.0 million. In
November 2000, Barnes & Noble.com acquired Fatbrain.com, Inc. (Fatbrain), the
third largest online bookseller. Barnes & Noble.com issued shares of its common
stock to Fatbrain shareholders. As a result of this merger, the Company and
Bertelsmann each retained an approximate 36 percent interest in Barnes &
Noble.com. Accordingly, the Company's share in the net losses of Barnes &
Noble.com for fiscal 2000 was based on an approximate 40 percent equity interest
from the beginning of fiscal 2000 through November 2000 and approximately 36
percent thereafter. The Company's equity in the net loss of Barnes & Noble.com
for fiscal 2000 was $103.9 million.
Gain on Formation of Barnes & Noble.com
Under the terms of the November 12, 1998 joint venture agreement
between the Company and Bertelsmann, the Company received a $25.0 million
payment from Bertelsmann in fiscal 1999 in connection with the Barnes &
Noble.com Inc. IPO.
Other Income (Expense)
Other expense of ($9.3) million in fiscal 2000 was primarily due to the
equity losses of iUniverse.com. Other income of $27.4 million in fiscal 1999 was
primarily attributable to a one-time gain of $11.0 million on the partial sale
of Chapters Inc. (Chapters), a one-time gain of $22.4 million in connection with
the sale of its investment in NuvoMedia Inc. (NuvoMedia) to Gemstar
International Ltd., partially offset by a one-time charge of ($5.0) million
attributable to the termination of the planned Ingram Book Group (Ingram)
acquisition.
Provision for Income Taxes
Barnes & Noble's effective tax rate in fiscal 2000 increased to (57.5)
percent compared with 41.0 percent during fiscal 1999. The fiscal 2000 increase
was primarily related to the goodwill write-down associated with the impairment
charge, which provided no tax benefit.
<PAGE> 13
Earnings (Loss)
As a result of the factors discussed above, the Company reported a
consolidated net loss of ($52.0) million (or ($0.81) per share). The Company's
earnings, before the effect of the impairment charge, were $40.5 million during
fiscal 2000 compared with $124.5 million during fiscal 1999. Components of
earnings per share are as follows:
<TABLE>
<CAPTION>
Fiscal Year 2000 1999
-------- ----
<S> <C> <C>
Retail Earnings Per Share
Bookstores $ 1.85 1.62
Video Game & Entertainment Software Stores (0.16) 0.10
-------- ----
Retail EPS $ 1.69 1.72
EPS Impact of Investing Activities
Cash:
Gain on Barnes & Noble.com $ -- 0.21
Gain on partial sale of Chapters -- 0.09
Non-cash:
Share in net losses of Barnes & Noble.com (0.98) (0.35)
Share of net losses from other equity investments (0.08) (0.01)
Gain on sale of investment in NuvoMedia -- 0.19
-------- ----
Total Investing Activities $ (1.06) 0.13
Other Adjustments
Impairment charge $ (1.44) --
Ingram write-off -- (0.04)
Change in accounting for pre-opening costs -- (0.06)
-------- ----
Total Other Adjustments $ (1.44) (0.10)
-------- ----
Consolidated EPS $ (0.81) 1.75
======== ====
</TABLE>
<PAGE> 14
52 WEEKS ENDED JANUARY 29, 2000 COMPARED WITH 52 WEEKS ENDED JANUARY 30, 1999
Sales
The Company's sales increased 16.0% during fiscal 1999 to $3.486 billion
from $3.006 billion during fiscal 1998. Contributing to this improvement was a
7.4% increase attributable to the inclusion of Babbage's Etc.'s sales for the
fourth quarter of 1999. Babbage's Etc., one of the nation's largest operators of
video game and entertainment software stores, was acquired by the Company on
October 28, 1999. Fiscal 1999 sales from Barnes & Noble "super" stores, which
contributed 80.9% of total sales or 86.5% of total bookstore sales, increased
12.2% to $2.822 billion from $2.515 billion in fiscal 1998.
The increase in bookstore sales was primarily attributable to the 6.1%
growth in Barnes & Noble comparable store sales, full year sales from the 50 new
stores opened during fiscal 1998 and the opening of an additional 38 Barnes &
Noble stores during 1999. This increase was partially offset by declining sales
of B. Dalton, due to 89 store closings.
Cost of Sales and Occupancy
The Company's cost of sales and occupancy includes costs such as rental
expense, common area maintenance, merchant association dues and lease-required
advertising.
Cost of sales and occupancy increased to $2.484 billion in fiscal 1999
from $2.143 billion in fiscal 1998 primarily due to the inclusion of Babbage's
Etc.'s cost of sales and occupancy in the fourth quarter of 1999. The Company's
gross margin rate increased to 28.8% in fiscal 1999 from 28.7% in fiscal 1998.
This increase was attributable to improved leverage on occupancy costs as well
as a favorable merchandise mix in the bookstores, partially offset by lower
gross margins in the video game and entertainment software stores.
Selling and Administrative Expenses
Selling and administrative expenses increased $70.5 million, or 12.1% to
$651.1 million in fiscal 1999 from $580.6 million in fiscal 1998 partially due
to the inclusion of Babbage's Etc.'s selling and administrative expenses in the
fourth quarter of 1999. Selling and administrative expenses decreased to 18.7%
of sales during fiscal 1999 from 19.3% during fiscal 1998.
Depreciation and Amortization
Depreciation and amortization increased $24.0 million, or 27.1%, to
$112.3 million in fiscal 1999 from $88.3 million in fiscal 1998. The increase
was primarily the result of the depreciation related to Barnes & Noble stores
opened during fiscal 1999 and fiscal 1998, as well as the depreciation on the
Company's BookMaster system and the inclusion of Babbage's Etc.'s fourth quarter
depreciation and amortization of $3.6 million.
<PAGE> 15
Pre-Opening Expenses
Pre-opening expenses declined in fiscal 1999 to $6.8 million from $8.8
million in fiscal 1998 reflecting the opening of fewer new stores compared with
prior years and the first quarter adoption of Statement of Position 98-5,
"Reporting on Costs of Start-up Activities" (SOP 98-5). SOP 98-5 requires an
entity to expense all start-up activities (as defined) as incurred. Prior to
1999, the Company amortized costs associated with the opening of new stores over
the respective store's first 12 months of operations. The Company recorded a
one-time non-cash charge reflecting the cumulative effect of a change in
accounting principle in the amount of $4.5 million after taxes, representing
such start-up costs capitalized as of the beginning of fiscal year 1999. Since
adoption, the Company has expensed all such start-up costs as incurred. The
effect of the change in accounting principle on earnings in 1999 was immaterial.
Operating Profit
Operating profit increased to $232.1 million in fiscal 1999 from $185.1
million in fiscal 1998. Fiscal 1999 operating profit includes Babbage's Etc.'s
fourth quarter 1999 operating profit of $15.4 million. Bookstore operating
profit increased 17.1% to $216.7 million. Bookstore operating margin improved to
6.6% of sales during fiscal 1999 from 6.2% of sales in fiscal 1998 reflecting
better occupancy leverage and a more favorable product mix.
Interest Expense, Net and Amortization of Deferred Financing Fees
Interest expense, net of interest income, and amortization of deferred
financing fees decreased 2.5% to $23.8 million in fiscal 1999 from $24.4 million
in fiscal 1998 despite the inclusion of $3.1 million of additional interest
expense attributable to the Babbage's Etc. acquisition in fiscal 1999. The
decline was the result of strong cash flows and more favorable interest rates
under the Company's senior credit facility.
Equity in Net Loss of Barnes & Noble.com
As a result of the formation of the limited liability company with
Bertelsmann, the Company began accounting for its interest in Barnes & Noble.com
under the equity method of accounting as of the beginning of fiscal 1998. The
Company's equity in the net loss of Barnes & Noble.com for fiscal 1998 was $71.3
million. The Company's share in the net loss of Barnes & Noble.com for fiscal
1998 was based on a 100 percent equity interest for the first three quarters
ended October 31, 1998 (the effective date of the limited liability company
agreement), and a 50 percent equity interest beginning on November 1, 1998
through the end of the fiscal year.
As a result of the Barnes & Noble.com Inc. IPO on May 25, 1999, the
Company and Bertelsmann each retained a 40 percent interest in Barnes &
Noble.com. Accordingly, the Company's share in the net loss of Barnes &
Noble.com for fiscal 1999 was based on a 50 percent equity interest from the
beginning of fiscal 1999 through May 25, 1999 and approximately 40 percent
through the end of fiscal 1999. The Company's equity in the net loss of Barnes &
Noble.com for fiscal 1999 was $42.0 million.
<PAGE> 16
Gain on Formation of Barnes & Noble.com
As a result of the formation of the limited liability company,
resulting in the receipt of $75.0 million by the Company from Bertelsmann, a
gain was recorded in fiscal 1998 in the amount of $63.8 million. The gain
represents the excess of the amount received over the portion of the net assets
of Barnes & Noble.com sold by the Company to Bertelsmann.
Under the terms of the November 12, 1998 joint venture agreement
between the Company and Bertelsmann, the Company received a $25.0 million
payment from Bertelsmann in fiscal 1999 in connection with the Barnes &
Noble.com Inc. IPO.
Other Income
Other income increased to $27.3 million in fiscal 1999 from $3.4 million
in fiscal 1998. This increase was primarily attributable to the following
transactions which occurred in fiscal 1999:
The Company and Ingram announced their agreement to terminate the
Company's planned acquisition of Ingram. The Company's application before the
Federal Trade Commission for the purchase was formally withdrawn. As a result,
other income reflects a one-time charge of $5.0 million for acquisition costs.
These costs relate primarily to legal, accounting and other transaction related
costs incurred in connection with the proposed acquisition of Ingram.
The Company sold a portion of its investment in Chapters resulting in a
pre-tax gain of $11.0 million.
The Company recognized a pre-tax gain of $22.4 million in connection
with the sale of its investment in NuvoMedia to Gemstar International Ltd.
Provision for Income Taxes
Barnes & Noble's effective tax rate was 41 percent during both fiscal
1999 and fiscal 1998.
<PAGE> 17
Earnings
Fiscal 1999 earnings increased $32.1 million, or 34.8%, to $124.5
million (or $1.75 per diluted share) from $92.4 million (or $1.29 per diluted
share) during fiscal 1998. Components of earnings per share are as follows:
<TABLE>
<CAPTION>
Fiscal Year 1999 1998
-------- ----
<S> <C> <C>
Retail Earnings Per Share
Bookstores $ 1.62 1.32
Babbage's Etc 0.10 --
-------- ----
Retail EPS $ 1.72 1.32
EPS Impact of Investing Activities
Cash:
Gain on Barnes & Noble.com $ 0.21 0.53
Gain on partial sale of Chapters 0.09 --
Non-cash:
Share in net losses of Barnes & Noble.com (0.35) (0.59)
Share of net earnings (losses) from other equity investments (0.01) 0.03
Gain on sale of investment in NuvoMedia 0.19 --
-------- ----
Total Investing Activities $ 0.13 (0.03)
Other Adjustments
Ingram write-off $ (0.04) --
Change in accounting for pre-opening costs (0.06) --
-------- ----
Total Other Adjustments $ (0.10) --
-------- ----
Consolidated EPS $ 1.75 1.29
======== ====
</TABLE>
SEASONALITY
The Company's business, like that of many retailers, is seasonal, with
the major portion of sales and operating profit realized during the quarter
which includes the Christmas selling season. The Company has now reported
operating profit for 19 consecutive quarters.
LIQUIDITY AND CAPITAL RESOURCES
Working capital requirements are generally at their highest during the
Company's fiscal quarter ending on or about January 31 due to the higher
payments to vendors for holiday season merchandise purchases and the
replenishment of merchandise inventories following this period of increased
sales. In addition, the Company's sales and merchandise inventory levels will
fluctuate from quarter-to-quarter as a result of the number and timing of new
store openings, as well as the amount and timing of sales contributed by new
stores.
Cash flows from operating activities, funds available under its
revolving credit facility and vendor financing continue to provide the Company
with liquidity and capital resources for store expansion, seasonal working
capital requirements and capital investments.
<PAGE> 18
Cash Flow
Cash flows provided from operating activities were $80.5 million, $187.3
million and $177.7 million during fiscal 2000, 1999 and 1998, respectively. In
fiscal 2000, the decrease in cash flows from operating activities was primarily
attributable to a weaker than expected holiday season which resulted in lower
net earnings and an increase in standing inventory as well as an increase in
prepaid rent due to the fiscal year-end date. In fiscal 1999, the improvement in
cash flows was primarily due to the improvement in net earnings. The slight
decrease in retail operating cash flows in fiscal 1998 was due to a strategic
increase in the distribution center standing inventory, the implementation of a
new wage plan in fiscal 1998 and increased operating expenses associated with
implementing the Company's new store system enhancements.
Retail earnings before interest, taxes, depreciation and amortization
(EBITDA) increased $41.0 million or 11.9% to $385.4 million in fiscal 2000 from
$344.4 million in fiscal 1999. This improvement in EBITDA is due to a
combination of the continuing maturation of the Barnes & Noble stores and the
inclusion of the Video Game & Entertainment Software segment. Total debt to
retail EBITDA increased to 1.73 times in fiscal 2000 from 1.25 times in fiscal
1999 primarily due to the debt incurred to fund the Company's Acquisitions and
stock repurchase program. The weighted-average age per square foot of the
Company's 569 Barnes & Noble stores was 4.6 years as of February 3, 2001 and is
expected to increase to approximately 5.3 years by February 2, 2002. As the
relatively young Barnes & Noble stores mature, and as the number of new stores
opened during the fiscal year decreases as a percentage of the existing store
base, the increasing operating profits of Barnes & Noble stores are expected to
generate a greater portion of cash flows required for working capital, including
new store inventories, capital expenditures and other initiatives. Additionally,
due to the Barnes & Noble.com Inc. IPO in fiscal 1999, retail cash flows are now
fully available to support the Company's working capital requirements.
Capital Structure
Shareholders' equity decreased 8.1% to $777.7 million as of February 3,
2001, from $846.4 million as of January 29, 2000. The reduction in shareholders'
equity was primarily attributable to the net loss recorded by the Company
largely due to the inclusion of the one-time, non-cash impairment charge
recorded in the fourth quarter of fiscal 2000 and increased equity losses from
Barnes & Noble.com.
The Company has an $850.0 million senior credit facility (the Facility),
obtained in November 1997, with a syndicate led by The Chase Manhattan Bank. The
Facility is structured as a five-year revolving credit. The Facility permits
borrowings at various interest rate options based on the prime rate or London
Interbank Offer Rate (LIBOR) depending upon certain financial tests. In
addition, the agreement requires the Company to pay a commitment fee up to 0.25%
of the unused portion depending upon certain financial tests. The Facility
contains covenants, limitations and events of default typical of credit
facilities of this size and nature.
The amount outstanding under the Facility has been classified as
long-term debt in the accompanying consolidated balance sheets due to both its
terms and the Company's intent and ability to maintain principal amounts.
In fiscal 2000, the Company obtained an additional $100.0 million
senior unsecured seasonal credit facility (seasonal credit facility) with a
syndicate of banks led by The Chase Manhattan Bank. The seasonal credit
facility, which matured on January 31, 2001, permitted for borrowings at an
interest rate based on LIBOR. In addition, the agreement required the Company to
pay a commitment fee of 0.375
<PAGE> 19
percent of the unused portion. The seasonal credit facility was guaranteed by
all restricted subsidiaries of Barnes & Noble.
Additionally, in March of 2001, the Company announced the successful
completion of the sale of $300.0 million 5.25 percent convertible subordinated
notes due March 15, 2009, further strengthening its balance sheet. The notes are
convertible into the Company's common stock at a conversion price of $32.51 per
share.
Borrowings under the Company's senior and seasonal credit facilities
averaged $697.8 million, $397.1 million and $380.3 million and peaked at $918.7
million, $693.5 million and $535.0 million during fiscal 2000, 1999 and 1998,
respectively. The ratio of debt to equity increased to 0.86:1.00 as of February
3, 2001 from 0.51:1.00 as of January 29, 2000, primarily attributable to the
increased borrowings to fund the Acquisitions and the impact of the non-cash
impairment charge.
Capital Investment
Capital expenditures totaled $134.3 million, $146.3 million and $141.4
million during fiscal 2000, 1999 and 1998, respectively. Capital expenditures in
fiscal 2001, primarily for the opening of between 40 and 45 new Barnes & Noble
stores and 75 new video game and entertainment software stores, are expected to
be between $150 million and $170 million, although commitment to such
expenditures has not yet been made.
Based on current operating levels and the store expansion planned for
the next fiscal year, management believes cash flows generated from operating
activities, short-term vendor financing and borrowing capacity under its
revolving credit facility will be sufficient to meet the Company's working
capital and debt service requirements, and support the development of its short-
and long-term strategies for at least the next 12 months.
In fiscal 1999, the Board of Directors authorized a common stock
repurchase program for the purchase of up to $250.0 million of the Company's
common shares. As of February 3, 2001, the Company has repurchased 5,504,700
shares at a cost of approximately $117.4 million under this program. The
repurchased shares are held in treasury.
BARNES & NOBLE.COM
On November 12, 1998, the Company and Bertelsmann completed the
formation of a joint venture to operate the online retail bookselling operations
of the Company's wholly owned subsidiary, Barnes & Noble.com Inc. The new
entity, Barnes & Noble.com, was structured as a limited liability company. Under
the terms of the relevant agreements, effective as of October 31, 1998, the
Company and Bertelsmann each retained a 50 percent membership interest in Barnes
& Noble.com. The Company contributed substantially all of the assets and
liabilities of its online operations to the joint venture and Bertelsmann paid
$75.0 million to the Company and made a $150.0 million cash contribution to the
joint venture. Bertelsmann also agreed to contribute an additional $50.0 million
to the joint venture for future working capital requirements. The Company
recognized a pre-tax gain during fiscal 1998 in the amount of $126.4 million, of
which $63.8 million was recognized in earnings based on the $75.0 million
received directly and $62.7 million ($36.4 million after taxes) was reflected in
additional paid-in capital based on the Company's share of the incremental
equity of the joint venture resulting from the $150.0 million Bertelsmann
contribution.
<PAGE> 20
On May 25, 1999, Barnes & Noble.com Inc. completed an IPO of 28.75
million shares of Class A Common Stock and used the proceeds to purchase a 20
percent interest in Barnes & Noble.com. As a result, the Company and Bertelsmann
each retained a 40 percent interest in Barnes & Noble.com. The Company recorded
an increase in additional paid-in capital of $200.3 million ($116.2 million
after taxes) representing the Company's incremental share in the equity of
Barnes & Noble.com.
Under the terms of the November 12, 1998 joint venture agreement
between the Company and Bertelsmann, the Company received a $25.0 million
payment from Bertelsmann in connection with the IPO.
The accompanying consolidated financial statements, in accordance with
the equity method of accounting, reflect the Company's investment in Barnes &
Noble.com as a single line item in the consolidated balance sheets as of
February 3, 2001 and January 29, 2000 and reflect the Company's share of the net
loss of Barnes & Noble.com as a single line item in the consolidated statements
of operations for fiscal years 2000, 1999 and 1998, as if the formation of the
joint venture had occurred at the beginning of fiscal 1998.
ACQUISITION OF FUNCO
On June 14, 2000, the Company acquired all of the outstanding shares of
Funco, a Minneapolis-based electronic games retailer for approximately $159.2
million (excluding acquisition related costs). The acquisition was accounted for
by the purchase method of accounting and, accordingly, the results of operations
for the period subsequent to the acquisition are included in the consolidated
financial statements. The excess of purchase price over the net assets acquired,
in the amount of approximately $131.4 million, has been recorded as goodwill and
is being amortized using the straight-line method over an estimated useful life
of 30 years.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company from time to time enters into interest rate swap agreements
for the purpose of hedging risks attributable to changing interest rates
associated with the Company's revolving credit facility, and, in general, such
hedges have been fully effective. The Company may enter into interest rate swaps
in the future and these transactions are expected to substantially offset the
effects of changes in the underlying variable interest rates.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. The Company
will adopt SFAS 133 as required for its first quarterly filing of fiscal year
2001. The Company does not believe that adoption of SFAS 133 will have a
material effect on its consolidated financial statements.
The Company periodically reviews its accounting policies for the
recognition of revenue. The Company's policies for revenue recognition are
consistent with the views expressed in the Securities and Exchange Commission's
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," which was required to be implemented in the fourth quarter of
fiscal 2000.
<PAGE> 21
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report may contain certain forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995) and
information relating to the Company that are based on the beliefs of the
management of the Company as well as assumptions made by and information
currently available to the management of the Company. When used in this report,
the words "anticipate," "believe," "estimate," "expect," "intend," "plan" and
similar expressions, as they relate to the Company or the management of the
Company, identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events, the outcome of which
is subject to certain risks, including among others general economic and market
conditions, decreased consumer demand for the Company's products, possible
disruptions in the Company's computer or telephone systems, possible work
stoppages or increases in labor costs, possible increases in shipping rates or
interruptions in shipping service, effects of competition, possible disruptions
or delays in the opening of new stores or the inability to obtain suitable sites
for new stores, higher than anticipated store closing or relocation costs,
higher interest rates, the performance of the Company's online initiatives such
as Barnes & Noble.com, the performance and successful integration of acquired
businesses, the success of the Company's strategic investments, unanticipated
increases in merchandise or occupancy costs, unanticipated adverse litigation
results or effects, and other factors which may be outside of the Company's
control. In addition, the video game market has historically been cyclical in
nature and dependent upon the introduction of new generation systems and related
interactive software. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those described as anticipated, believed,
estimated, expected, intended or planned. Subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the cautionary statements in
this paragraph.
<PAGE> 22
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year 2000 1999 1998
------------ --------- ---------
(Thousands of dollars, except per share data)
<S> <C> <C> <C>
Sales $ 4,375,804 3,486,043 3,005,608
Cost of sales and occupancy 3,169,724 2,483,729 2,142,717
------------ --------- ---------
Gross profit 1,206,080 1,002,314 862,891
------------ --------- ---------
Selling and administrative expenses 812,992 651,099 580,609
Depreciation and amortization 144,760 112,304 88,345
Pre-opening expenses 7,669 6,801 8,795
Impairment charge 106,833 -- --
------------ --------- ---------
Operating profit 133,826 232,110 185,142
Interest (net of interest income of $939, $1,449 and $976, respectively) and
amortization of deferred financing fees (53,541) (23,765) (24,412)
Equity in net loss of Barnes & Noble.com (103,936) (42,047) (71,334)
Gain on formation of Barnes & Noble.com -- 25,000 63,759
Other income (expense) (9,346) 27,337 3,414
------------ --------- ---------
Earnings (loss) before provision for income taxes and cumulative effect
of a change in accounting principle (32,997) 218,635 156,569
Provision for income taxes 18,969 89,637 64,193
------------ --------- ---------
Earnings (loss) before cumulative effect of a change in accounting
principle (51,966) 128,998 92,376
Cumulative effect of a change in accounting principle, net of tax benefits
of $3,125 -- (4,500) --
------------ --------- ---------
Net earnings (loss) $ (51,966) 124,498 92,376
============ ========= =========
Earnings (loss) per common share
Basic
Earnings (loss) before cumulative effect of a change in accounting
principle $ (0.81) 1.87 1.35
Cumulative effect of a change in accounting principle, net of tax
benefits $ -- (0.07) --
Net earnings (loss) $ (0.81) 1.80 1.35
Diluted
Earnings (loss) before cumulative effect of a change in accounting
principle $ (0.81) 1.81 1.29
Cumulative effect of a change in accounting principle, net of tax
benefits $ -- (0.06) --
Net earnings (loss) $ (0.81) 1.75 1.29
Weighted average common shares outstanding
Basic 64,341,000 69,005,000 68,435,000
Diluted 64,341,000 71,354,000 71,677,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Thousands of dollars, except per share data) February 3, 2001 January 29, 2000
---------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 26,003 24,247
Receivables, net 84,505 58,240
Merchandise inventories 1,238,618 1,102,453
Prepaid expenses and other current assets 106,127 56,579
----------- ---------
Total current assets 1,455,253 1,241,519
----------- ---------
Property and equipment:
Land and land improvements 3,247 3,247
Buildings and leasehold improvements 436,289 417,535
Fixtures and equipment 682,444 565,345
----------- ---------
1,121,980 986,127
Less accumulated depreciation and amortization 555,760 418,078
----------- ---------
Net property and equipment 566,220 568,049
----------- ---------
Intangible assets, net 359,192 298,011
Investment in Barnes & Noble.com 136,595 240,531
Other noncurrent assets 40,216 65,681
----------- ---------
Total assets $ 2,557,476 2,413,791
=========== =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 582,075 599,376
Accrued liabilities 353,000 323,475
----------- ---------
Total current liabilities 935,075 922,851
----------- ---------
Long-term debt 666,900 431,600
Deferred income taxes 74,289 125,006
Other long-term liabilities 103,535 87,974
Shareholders' equity:
Common stock; $.001 par value; 300,000,000 shares authorized; 70,549,176 and
69,553,839 shares issued, respectively 71 70
Additional paid-in capital 673,122 654,584
Accumulated other comprehensive loss (5,874) (1,198)
Retained earnings 227,735 279,701
Treasury stock, at cost, 5,504,700 and 4,025,900 shares,
respectively (117,377) (86,797)
----------- ---------
Total shareholders' equity 777,677 846,360
----------- ---------
Commitments and contingencies -- --
----------- ---------
Total liabilities and shareholders' equity $ 2,557,476 2,413,791
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 24
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Other Treasury
Common Paid-in Comprehensive Retained Stock at
(Thousands of dollars) Stock Capital Loss Earnings Cost Total
- ---------------------- ------- ---------- ------------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1998 $ 68 468,860 -- 62,827 -- 531,755
Comprehensive earnings:
Net earnings -- -- -- 92,376 --
Total comprehensive earnings 92,376
Exercise of 837,281 common stock
options, including tax benefits of $9,002 1 18,306 -- -- -- 18,307
Barnes & Noble.com issuance of
membership units (net of deferred
income taxes of $26,325) -- 36,351 -- -- -- 36,351
------- ------- ------ ------- -------- -------
Balance at January 30, 1999 69 523,517 -- 155,203 -- 678,789
Comprehensive earnings:
Net earnings -- -- -- 124,498 --
Other comprehensive loss (net of
deferred income taxes of $839) -- -- (1,198) -- --
Total comprehensive earnings 123,300
Exercise of 794,728 common stock
options, including tax benefits of $6,302 1 14,909 -- -- -- 14,910
Barnes & Noble.com Inc. IPO (net of
deferred income taxes of $84,114) -- 116,158 -- -- -- 116,158
Treasury stock acquired, 4,025,900 shares -- -- -- -- (86,797) (86,797)
------- ------- ------ ------- -------- -------
Balance at January 29, 2000 70 654,584 (1,198) 279,701 (86,797) 846,360
Comprehensive earnings:
Net loss -- -- -- (51,966) --
Other comprehensive loss (net of
deferred income taxes of $3,317) -- -- (4,676) -- --
Total comprehensive loss (56,642)
Exercise of 995,337 common stock
options, including tax benefits of $4,727 1 18,538 -- -- -- 18,539
Treasury stock acquired, 1,478,800 shares
-- -- -- -- (30,580) (30,580)
------- ------- ------ ------- -------- -------
Balance at February 3, 2001 $ 71 673,122 (5,874) 227,735 (117,377) 777,677
======= ======= ====== ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year 2000 1999 1998
--------- -------- --------
(Thousands of dollars)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (51,966) 124,498 92,376
Adjustments to reconcile net earnings (loss) to net cash flows from
operating activities:
Depreciation and amortization (including amortization of deferred
financing fees) 146,317 112,693 88,721
Loss on disposal of property and equipment 3,313 5,636 3,291
Deferred taxes (54,098) 9,877 14,761
Impairment charge 106,833 -- --
Increase in other long-term liabilities for scheduled rent increases
in long-term leases 9,417 13,472 14,031
Cumulative effect of a change in accounting principle, net of taxes -- 4,500 --
Other (income) expense, net 9,346 (27,337) (3,414)
Gain on formation of Barnes & Noble.com -- (25,000) (63,759)
Equity in net loss of Barnes & Noble.com 103,936 42,047 71,334
Changes in operating assets and liabilities, net (192,566) (73,055) (39,673)
--------- -------- --------
Net cash flows from operating activities 80,532 187,331 177,668
--------- -------- --------
Cash flows from investing activities:
Acquisition of consolidated subsidiaries, net of cash received (157,817) (175,760) --
Purchases of property and equipment (134,292) (146,294) (141,378)
Proceeds from the partial sale of iUniverse.com 2,962 -- --
Proceeds from the partial sale of Chapters Inc. -- 21,558 --
Proceeds from formation of Barnes & Noble.com -- 25,000 75,000
Purchase of investments (12,802) (20,000) --
Investment in Barnes & Noble.com -- -- (75,394)
Net increase in other noncurrent assets (86) (9,282) (119)
--------- -------- --------
Net cash flows from investing activities (302,035) (304,778) (141,891)
--------- -------- --------
Cash flows from financing activities:
Net increase (decrease) in revolving credit facility 235,300 182,500 (35,700)
Proceeds from exercise of common stock options including related tax
benefits 18,539 14,910 18,307
Purchase of treasury stock through repurchase program (30,580) (86,797) --
--------- -------- --------
Net cash flows from financing activities 223,259 110,613 (17,393)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,756 (6,834) 18,384
Cash and cash equivalents at beginning of year 24,247 31,081 12,697
--------- -------- --------
Cash and cash equivalents at end of year $ 26,003 24,247 31,081
========= ======== ========
Changes in operating assets and liabilities, net:
Receivables, net $ (29,004) 3,795 (14,012)
Merchandise inventories (103,668) (69,059) (93,491)
Prepaid expenses and other current assets (29,972) (8,543) (1,047)
Accounts payable and accrued liabilities (29,922) 752 68,877
--------- -------- --------
Changes in operating assets and liabilities, net $(192,566) (73,055) (39,673)
========= ======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 49,007 24,911 25,243
Income taxes $ 73,371 72,342 18,225
Supplemental disclosure of subsidiaries acquired:
Assets acquired $ 206,105 201,910
Liabilities assumed 48,288 26,150
--------- -------
Cash paid $ 157,817 175,760
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars, except per share data)
For the 53 weeks ended February 3, 2001 (fiscal 2000), 52 weeks ended January
29, 2000 (fiscal 1999) and 52 weeks ended January 30, 1999 (fiscal 1998).
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Barnes & Noble, Inc. (Barnes & Noble), through its subsidiaries
(collectively, the Company), is primarily engaged in the sale of books, video
games and entertainment software products. The Company employs two principal
bookselling strategies: its "super" store strategy through its wholly owned
subsidiary Barnes & Noble Booksellers, Inc., under its Barnes & Noble
Booksellers, Bookstop and Bookstar trade names (hereafter collectively referred
to as Barnes & Noble stores) and its mall strategy through its wholly owned
subsidiaries B. Dalton Bookseller, Inc. and Doubleday Book Shops, Inc., under
its B. Dalton stores, Doubleday Book Shops and Scribner's Bookstore trade names
(hereafter collectively referred to as B. Dalton stores). The Company is also
engaged in the online retailing of books and other products through an
approximate 36 percent interest in barnesandnoble.com llc (Barnes & Noble.com),
as more fully described in Note 7. The Company, through its acquisitions of
Babbage's Etc. LLC (Babbage's Etc.) and Funco, Inc. (Funco) operates video game
and entertainment software stores under the Babbage's, Software Etc., GameStop
and FuncoLand trade names, a Web site (gamestop.com) and Game Informer magazine
(hereafter collectively referred to as Video Game & Entertainment Software).
Additionally, the Company owns a 72 percent interest in Calendar Club L.L.C.
(Calendar Club), an operator of seasonal calendar kiosks.
Consolidation
The consolidated financial statements include the accounts of Barnes &
Noble and its wholly and majority-owned subsidiaries. Investments in affiliates
in which ownership interests range from 20 percent to 50 percent, principally
Barnes & Noble.com, are accounted for under the equity method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, the Company is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid instruments
purchased with an original maturity of three months or less to be cash
equivalents.
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost
is determined primarily by the retail inventory method on the first-in,
first-out (FIFO) basis for 82 percent and 83 percent of the Company's
merchandise inventories as of February 3, 2001 and January 29, 2000,
respectively. Merchandise inventories of Video Game & Entertainment Software
stores and Calendar Club represent 9 percent of merchandise inventories as of
February 3, 2001 and are recorded based on the average cost method. The
remaining merchandise inventories are valued on the last-in, first-out (LIFO)
method.
If substantially all of the merchandise inventories currently valued at
LIFO costs were valued at current costs, merchandise inventories would remain
unchanged as of February 3, 2001 and January 29, 2000.
Property and Equipment
Property and equipment are carried at cost, less accumulated
depreciation and amortization. For financial reporting purposes, depreciation is
computed using the straight-line method over estimated useful lives. For tax
purposes, different methods are used. Maintenance and repairs are expensed as
incurred, while betterments and major remodeling costs are capitalized.
Leasehold improvements are capitalized and amortized over the shorter of their
estimated useful lives or the terms of the respective leases. Capitalized lease
acquisition costs are being amortized over the lease terms of the underlying
leases. Costs incurred in purchasing management information systems are
capitalized and included in property and equipment. These costs are amortized
over their estimated useful lives from the date the systems become operational.
Intangible Assets and Amortization
The costs in excess of net assets of businesses acquired are carried as
intangible assets, net of accumulated amortization, in the accompanying
consolidated balance sheets. The net intangible assets, consisting primarily of
goodwill and trade names of $359,192 as of February 3, 2001 and $298,011 as of
January 29, 2000, are amortized using the straight-line method over periods
ranging from 30 to 40 years.
Amortization of goodwill and trade names included in depreciation and
amortization in the accompanying consolidated statements of operations is
$12,593, $5,148 and $3,257 during fiscal 2000, 1999 and 1998, respectively.
Accumulated amortization at February 3, 2001 and January 29, 2000 was $62,292
and $49,699, respectively.
Impairment of Long-Lived Assets
The Company periodically reviews property and equipment and intangibles
(primarily goodwill) whenever events or changes in circumstances indicate that
their carrying amounts may not be recoverable or their depreciation or
amortization periods should be accelerated. The Company assesses recoverability
based on several factors, including management's intention with respect to its
stores and those stores' projected undiscounted cash flows. An impairment loss
is recognized for the amount by which the carrying amount of the assets exceeds
the present value of their projected cash flows.
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Deferred Charges
Costs incurred to obtain long-term financing are amortized over the
terms of the respective debt agreements using the straight-line method, which
approximates the interest method. Unamortized costs included in other noncurrent
assets as of February 3, 2001 and January 29, 2000 were $1,286 and $1,969,
respectively. Amortization expense included in interest and amortization of
deferred financing fees is $1,557, $389 and $376 during fiscal 2000, 1999 and
1998, respectively.
Marketable Equity Securities
All marketable equity securities included in other noncurrent assets
are classified as available-for-sale securities under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115), with unrealized gains and losses (net of taxes)
shown as a component of shareholders' equity.
Revenue Recognition
Revenue from sales of the Company's products is recognized at the time
of sale.
The Company sells memberships which entitle purchasers to additional
discounts. The membership revenue is deferred and recognized as income over the
12-month membership period.
Sales returns (which are not significant) are recognized at the time
returns are made.
Pre-opening Expenses
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP
98-5). SOP 98-5 requires an entity to expense all start-up activities, as
defined, when incurred. Prior to 1999, the Company amortized costs associated
with the opening of new stores over the respective store's first 12 months of
operations. In accordance with SOP 98-5, the Company recorded a one-time
non-cash charge reflecting the cumulative effect of a change in accounting
principle in the amount of $4,500 after taxes, representing such start-up costs
capitalized as of the beginning of fiscal year 1999. Since adoption, the Company
has expensed all such start-up costs as incurred. The effect of the change in
accounting principle on earnings in fiscal 2000 and fiscal 1999 was immaterial.
Closed Store Expenses
Upon a formal decision to close or relocate a store, the Company charges
unrecoverable costs to expense. Such costs include the net book value of
abandoned fixtures and leasehold improvements and a provision for future lease
obligations, net of expected sublease recoveries. Costs associated with store
closings of $5,026 and $5,447 during fiscal 2000 and fiscal 1999, respectively,
are included in selling and administrative expenses in the accompanying
consolidated statements of operations.
Net Earnings Per Common Share
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding.
Diluted earnings per share reflect, in
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
periods in which they have a dilutive effect, the impact of common shares
issuable upon exercise of stock options.
Income Taxes
The provision for income taxes includes federal, state and local income
taxes currently payable and those deferred because of temporary differences
between the financial statement and tax bases of assets and liabilities. The
deferred tax assets and liabilities are measured using the enacted tax rates and
laws that are expected to be in effect when the differences reverse.
Stock Options
The Company accounts for all transactions under which employees receive
shares of stock or other equity instruments in the Company or the Company incurs
liabilities to employees in amounts based on the price of its stock in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
Reclassifications
Certain prior-period amounts have been reclassified for comparative
purposes to conform with the fiscal 2000 presentation.
Reporting Period
The Company's fiscal year is comprised of 52 or 53 weeks, ending on the
Saturday closest to the last day of January. The reporting periods ended
February 3, 2001, January 29, 2000 and January 30, 1999 contained 53 weeks, 52
weeks and 52 weeks, respectively.
2. RECEIVABLES, NET
Receivables represent customer, bankcard, landlord and other receivables
due within one year as follows:
<TABLE>
<CAPTION>
February 3, January 29,
2001 2000
----------- -----------
<S> <C> <C>
Trade accounts $ 8,146 9,558
Bankcard receivables 24,000 21,309
Receivables from landlords for
leasehold improvements 18,568 12,807
Other receivables 33,791 14,566
------- ------
Total receivables, net $84,505 58,240
======= ======
</TABLE>
3. DEBT
On November 18, 1997, the Company obtained an $850,000 five-year senior
revolving credit facility (the Revolving Credit Facility) with a syndicate led
by The Chase Manhattan Bank. The Revolving Credit Facility permits borrowings at
various interest rate options based on the prime rate or London Interbank Offer
Rate (LIBOR) depending upon certain financial tests. In addition, the agreement
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
requires the Company to pay a commitment fee up to 0.25 percent of the unused
portion depending upon certain financial tests. The Revolving Credit Facility
contains covenants, limitations and events of default typical of credit
facilities of this size and nature, including financial covenants which require
the Company to meet, among other things, cash flow and interest coverage ratios
and which limit capital expenditures. The Revolving Credit Facility is secured
by the capital stock, accounts receivable and general intangibles of the
Company's subsidiaries. Net proceeds from the Revolving Credit Facility are
available for general corporate purposes.
In fiscal 2000, the Company obtained an additional $100,000 senior
unsecured seasonal credit facility (seasonal credit facility) with a syndicate
of banks led by The Chase Manhattan Bank. The seasonal credit facility, which
matured on January 31, 2001, permitted for borrowings at an interest rate based
on LIBOR. In addition, the agreement required the Company to pay a commitment
fee of 0.375 percent of the unused portion. The seasonal credit facility was
guaranteed by all restricted subsidiaries of Barnes & Noble.
The Company from time to time enters into interest rate swap agreements
to manage interest costs and risk associated with changes in interest rates.
These agreements effectively convert underlying variable-rate debt based on
prime rate or LIBOR to fixed-rate debt through the exchange of fixed and
floating interest payment obligations without the exchange of underlying
principal amounts. As of February 3, 2001 and January 29, 2000 the Company had
outstanding $55,000 and $85,000 of swaps, respectively, maturing in 2003. The
Company recorded interest income (expense) associated with these agreements of
$462 and ($470) during fiscal years 2000 and 1999, respectively.
Selected information related to the Company's Revolving Credit Facility
and seasonal credit facility is as follows:
<TABLE>
<CAPTION>
Fiscal Year 2000 1999 1998
- ----------- -------- ------- -------
<S> <C> <C> <C>
Balance at end of year $666,900 431,600 249,100
Average balance outstanding during the year $697,832 397,114 380,315
Maximum borrowings outstanding during the year $918,700 693,500 535,000
Weighted average interest rate during the year 7.57% 6.01% 6.29%
Interest rate at end of year 6.01% 6.26% 5.77%
</TABLE>
Fees expensed with respect to the unused portion of the Company's
revolving credit commitment were $272, $664 and $733, during fiscal 2000, 1999
and 1998, respectively.
The amounts outstanding under the Company's Revolving Credit Facility
have been classified as long-term debt based on the terms of the credit
agreement and the Company's intention to maintain principal amounts outstanding.
Additionally, in March of 2001, the Company announced the successful
completion of the sale of $300,000 5.25 percent convertible subordinated notes
due March 15, 2009. The notes are convertible into the Company's common stock at
a conversion price of $32.51 per share.
The Company has no agreements to maintain compensating balances.
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
4. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents reported in the
accompanying consolidated balance sheets approximate fair value due to the
short-term maturities of these assets. The aggregate fair value of the Revolving
Credit Facility approximates its carrying amount, because of its recent and
frequent repricing based upon market conditions. Investments in publicly traded
securities accounted for under SFAS 115 are carried at amounts approximating
fair value.
Interest rate swap agreements are valued based on market quotes
obtained from dealers. The carrying value and estimated fair value of the
interest rate swaps asset (liability) was $0 and ($542), respectively, at
February 3, 2001, and $0 and $447, respectively, at January 29, 2000.
5. MARKETABLE EQUITY SECURITIES
Marketable equity securities are carried on the balance sheet at their
fair market value as a component of other noncurrent assets. The following
marketable equity securities as of February 3, 2001 and January 29, 2000 have
been classified as available-for-sale securities:
<TABLE>
<CAPTION>
GEMSTAR
INTERNATIONAL
LTD. CHAPTERS INC. TOTAL
------------- ------------- -------
<S> <C> <C> <C>
Cost $ 27,137 8,294 35,431
Fiscal 1999 unrealized losses (1,684) (353) (2,037)
-------- ------ -------
Market value at January 29, 2000 25,453 7,941 33,394
Fiscal 2000 unrealized losses (6,974) (1,019) (7,993)
-------- ------ -------
Market value at February 3, 2001 $ 18,479 6,922 25,401
======== ====== =======
</TABLE>
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
6. OTHER INCOME (EXPENSE)
The following table sets forth the components of other income (expense), in
thousands of dollars:
<TABLE>
<CAPTION>
FISCAL YEAR 2000 1999 1998
-------- ------- -----
<S> <C> <C> <C>
iUniverse.com (1) $ (9,277) (2,121) --
Equity in net losses of BOOK
magazine (2) (127) -- --
Gain on sale of NuvoMedia (3) -- 22,356 --
Chapters (4) -- 10,874 1,140
Equity in net earnings of Calendar
Club (5) -- 1,228 2,274
Termination of planned acquisition of
Ingram Book Group (6) -- (5,000) --
Other 58 -- --
-------- ------ -----
$ (9,346) 27,337 3,414
======== ====== =====
</TABLE>
(1) During 1999, the Company acquired a 41 percent interest in iUniverse.com
for $20,000. In the first quarter of fiscal 2000, the Company invested
an additional $8,000 in iUniverse.com thereby increasing its percentage
ownership interest to 49 percent. In the third quarter of fiscal 2000,
the Company sold a portion of its investment in iUniverse.com decreasing
its percentage ownership interest to 29 percent. This transaction
resulted in a pre-tax gain of $326. This investment is being accounted
for under the equity method and is reflected as a component of other
noncurrent assets.
(2) During 2000, the Company acquired an approximate 50 percent interest in
BOOK(R) magazine for $4,802. This investment is being accounted for
under the equity method and is reflected as a component of other
noncurrent assets.
(3) In fiscal 1998, the Company accounted for its investment in NuvoMedia
Inc. (NuvoMedia) under the cost method. In fiscal 1999, NuvoMedia was
acquired by Gemstar International Ltd. (Gemstar), a publicly traded
company. Under the terms of the agreement, NuvoMedia shareholders
received Gemstar shares in exchange for their ownership interests. In
fiscal 1999, in connection with the sale of NuvoMedia, the Company
recognized a pre-tax gain of $22,356.
(4) During fiscal 1999, the Company sold a portion of its investment in
Chapters Inc. (Chapters) resulting in a pre-tax gain of $10,975. Prior
to this transaction, the Company accounted for its investment in
Chapters under the equity method.
(5) In fiscal 2000, the Company invested $11,000 to acquire a controlling
interest in Calendar Club by increasing its percentage ownership
interest to 72 percent. Accordingly, the Company has consolidated the
results of operations of Calendar Club. Prior to fiscal 2000, the
Company held a 50 percent interest in Calendar Club and accordingly
accounted for its investment under the equity method and reflected it as
a component of other noncurrent assets.
(6) In 1999, the Company and the Ingram Book Group (Ingram) announced their
agreement to terminate the Company's planned acquisition of Ingram. The
Company's application before the Federal Trade Commission for the
purchase was formally withdrawn. As a result, other income reflects a
one-time charge of $5,000 for acquisition costs relating primarily to
legal, accounting and other transaction related costs.
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
7. BARNES & NOBLE.COM
On November 12, 1998, the Company and Bertelsmann AG (Bertelsmann)
completed the formation of a limited liability company to operate the online
retail bookselling operations of the Company's wholly owned subsidiary,
barnesandnoble.com inc. The new entity, barnesandnoble.com llc (Barnes &
Noble.com), was structured as a limited liability company. Under the terms of
the relevant agreements, effective as of October 31, 1998, the Company and
Bertelsmann each retained a 50 percent membership interest in Barnes &
Noble.com. The Company contributed substantially all of the assets and
liabilities of its online operations to the joint venture and Bertelsmann paid
$75,000 to the Company and made a $150,000 cash contribution to the joint
venture. Bertelsmann also agreed to contribute an additional $50,000 to the
joint venture for future working capital requirements. The Company recognized a
pre-tax gain during fiscal 1998 in the amount of $126,435, of which $63,759 was
recognized in earnings based on the $75,000 received directly and $62,676
($36,351 after taxes) was reflected in additional paid-in capital based on the
Company's share of the incremental equity of the joint venture resulting from
the $150,000 Bertelsmann contribution.
On May 25, 1999, Barnes & Noble.com Inc. completed an initial public
offering (IPO) of 28.75 million shares of Class A Common Stock and used the
proceeds to purchase a 20 percent interest in Barnes & Noble.com. As a result,
the Company and Bertelsmann each retained a 40 percent interest in Barnes &
Noble.com. The Company recorded an increase in additional paid-in capital of
$116,158 after taxes representing the Company's incremental share in the equity
of Barnes & Noble.com. In November 2000, Barnes & Noble.com acquired
Fatbrain.com, Inc. (Fatbrain), the third largest online bookseller. Barnes &
Noble.com issued shares of its common stock to Fatbrain shareholders. As a
result of this merger, the Company and Bertelsmann each retained an approximate
36 percent interest in Barnes & Noble.com. The Company will continue to account
for its investment under the equity method.
Under the terms of the November 12, 1998 joint venture agreement between the
Company and Bertelsmann, the Company received a $25,000 payment from Bertelsmann
in connection with the IPO. The Company recognized the $25,000 pre-tax gain in
fiscal 1999. The estimated fair market values of the Company's investment in
Barnes & Noble.com were $122,000 and $742,000 at February 3, 2001 and January
29, 2000, respectively.
Summarized financial information for Barnes & Noble.com follows:
<TABLE>
<CAPTION>
12 months ended December 31,
-----------------------------------------
2000 1999 1998
--------- -------- --------
<S> <C> <C> <C>
Net sales $ 320,115 193,730 61,834
Gross profit $ 58,314 33,793 14,265
Loss* $(275,723) (102,404) (83,148)
Cash and cash equivalents $ 212,304 478,047 96,940
Other current assets 80,332 27,567 14,736
Noncurrent assets 236,299 173,904 90,468
Current liabilities 135,987 75,940 32,995
Minority interest 284,494 482,896 --
--------- -------- --------
Net assets $ 108,454 120,682 169,149
========= ======== ========
</TABLE>
*Includes impairment charge of $75,051 in 2000.
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
8. EMPLOYEES' RETIREMENT AND DEFINED CONTRIBUTION PLANS
As of December 31, 1999, substantially all employees of the Company were
covered under a noncontributory defined benefit pension plan (the Pension Plan).
As of January 1, 2000, the Pension Plan was amended so that employees no longer
earn benefits for subsequent service. Subsequent service continues to be the
basis for vesting of benefits not yet vested at December 31, 1999 and the
Pension Plan will continue to hold assets and pay benefits. The amendment was
treated as a curtailment in fiscal 1999 resulting in a pre-tax gain of $14,142
which is included as a reduction of selling and administrative expenses.
The Company maintains defined contribution plans (the Savings Plans) for
the benefit of substantially all employees. In addition, the Company provides
certain health care and life insurance benefits (the Postretirement Plan) to
retired employees, limited to those receiving benefits or retired as of April 1,
1993.
A summary of the components of net periodic cost for the Pension Plan
and the Postretirement Plan follows:
<TABLE>
<CAPTION>
Pension Plan Postretirement Plan
------------------------------- ------------------------
Fiscal Year 2000 1999 1998 2000 1999 1998
- ----------- ------- ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ -- 4,535 4,157 -- -- --
Interest cost 1,779 2,349 2,039 151 151 149
Expected return on plan assets (2,887) (2,494) (2,208) -- -- --
Net amortization and deferral -- 32 36 (104) (123) (135)
------- ------ ------ ---- ---- ----
Net periodic expense (income) $(1,108) 4,422 4,024 47 28 14
======= ====== ====== ==== ==== ====
</TABLE>
Total Company contributions charged to employee benefit expenses for
the Savings Plans were $5,681, $3,374 and $3,090 during fiscal 2000, 1999 and
1998, respectively.
Weighted-average actuarial assumptions used in determining the net
periodic costs of the Pension Plan and the Postretirement Plan are as follows:
<TABLE>
<CAPTION>
Pension Plan Postretirement Plan
---------------------------- ----------------------
Fiscal Year 2000 1999 1998 2000 1999 1998
- ----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.8% 7.8% 7.3% 7.8% 7.8% 7.3%
Expected return on plan assets 9.5% 9.5% 9.5% -- -- --
Assumed rate of compensation
increase 4.8% 4.8% 4.3% -- -- --
</TABLE>
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The following table provides a reconciliation of benefit obligations,
plan assets and funded status of the Pension Plan and the Postretirement Plan:
<TABLE>
<CAPTION>
Pension Plan Postretirement Plan
----------------------- --------------------
Fiscal Year 2000 1999 2000 1999
- ----------- -------- ------- ------ ------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year $ 23,037 33,064 2,053 2,145
Service cost -- 4,535 -- --
Interest cost 1,779 2,349 151 151
Actuarial (gain) loss 129 (1,707) 54 272
Benefits paid (758) (1,062) (177) (515)
Curtailment -- (14,142) -- --
-------- ------- ------ ------
Benefit obligation at end of year $ 24,187 23,037 2,081 2,053
-------- ------- ------ ------
Change in plan assets:
Fair value of plan assets at
beginning of year $ 29,036 25,331 -- --
Actual return (loss) on assets (446) 1,393 -- --
Employer contributions 4,282 3,374 -- --
Benefits paid (758) (1,062) -- --
-------- ------- ------ ------
Fair value of plan assets at end of
year $ 32,114 29,036 -- --
-------- ------- ------ ------
Funded status $ 7,927 5,999 (2,081) (2,053)
Unrecognized net actuarial (gain)
loss 3,661 200 (1,583) (1,741)
Unrecognized prior service cost -- -- -- --
Unrecognized net obligation
remaining -- -- -- --
-------- ------- ------ ------
Prepaid (accrued) benefit cost $ 11,588 6,199 (3,664) (3,794)
======== ======= ====== ======
</TABLE>
The health care cost trend rate used to measure the expected cost of
the Postretirement Plan benefits is assumed to be six and one-half percent in
2001, declining at one-half percent decrements each year through 2004 to five
percent in 2004 and each year thereafter. The health care cost trend assumption
has a significant effect on the amounts reported. For example, a one percent
increase or decrease in the health care cost trend rate would change the
accumulated postretirement benefit obligation by approximately $181 and $159,
respectively, as of February 3, 2001, and would change the net periodic cost by
approximately $13 and $13, respectively, during fiscal 2000.
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
9. INCOME TAXES
The Company files a consolidated federal return. Federal and state
income tax provisions (benefits) for fiscal 2000, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Fiscal Year 2000 1999 1998
----------- -------- ------ ------
<S> <C> <C> <C>
Current:
Federal $ 59,055 64,454 39,286
State 13,086 15,306 10,146
-------- ------ ------
72,141 79,760 49,432
-------- ------ ------
Deferred:
Federal (44,390) 7,193 11,697
State (8,782) 2,684 3,064
-------- ------ ------
(53,172) 9,877 14,761
-------- ------ ------
Total $ 18,969 89,637 64,193
======== ====== ======
</TABLE>
A reconciliation between the provision (benefit) for income taxes and
the expected provision for income taxes at the federal statutory rate of 35
percent during fiscal 2000, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
Fiscal Year 2000 1999 1998
----------- -------- ------ -------
<S> <C> <C> <C>
Expected provision (benefit) for income taxes
at federal statutory rate $(11,549) 76,522 54,799
Amortization of non-deductible goodwill and
trade names and write-down of goodwill 26,669 1,342 1,251
State income taxes, net of federal income tax
benefit 2,798 11,694 8,596
Other, net 1,051 79 (453)
-------- ------ -------
Provision for income taxes $ 18,969 89,637 64,193
======== ====== =======
</TABLE>
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The tax effects of temporary differences that give rise to significant
components of the Company's deferred tax assets and liabilities as of February
3, 2001 and January 29, 2000 are as follows:
<TABLE>
<CAPTION>
February 3, January 29,
2001 2000
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Operating expenses $ (16,236) (15,437)
Depreciation (20,886) (31,289)
Investment in Barnes & Noble.com
(69,693) (110,439)
--------- --------
Total deferred tax liabilities (106,815) (157,165)
--------- --------
Deferred tax assets:
Inventory 6,520 4,312
Lease transactions 20,705 18,664
Reversal of estimated accruals 7,733 4,246
Restructuring charge 13,530 14,537
Insurance liability 1,871 2,673
Deferred income 2,056 4,015
Unrealized holding losses on
available-for-sale securities 4,156 839
Other 8,409 7,278
--------- --------
Total deferred tax assets 64,980 56,564
--------- --------
Net deferred tax liabilities $ (41,835) (100,601)
========= ========
</TABLE>
10. ACQUISITIONS
On June 14, 2000, the Company acquired all of the outstanding shares of
Funco, a Minneapolis-based electronic games retailer for approximately $159,200
(excluding acquisition related costs). The acquisition was accounted for by the
purchase method of accounting and, accordingly, the results of operations for
the period subsequent to the acquisition are included in the consolidated
financial statements. The excess of purchase price over the net assets acquired,
in the amount of approximately $131,400, has been recorded as goodwill and is
being amortized using the straight-line method over an estimated useful life of
30 years. The pro forma effect assuming the acquisition of Funco at the
beginning of fiscal 1999 and fiscal 2000 is not material.
On October 28, 1999, the Company acquired Babbage's Etc., one of the
nation's largest operators of video game and entertainment software stores, for
$208,670 (including assumed liabilities). If financial performance targets are
met in the next fiscal year, the Company will make an additional payment of
approximately $10,000 in 2002. The acquisition was accounted for under the
purchase method of accounting and, accordingly, the results of operations for
the period subsequent to the acquisition are included in the consolidated
financial statements. The excess of purchase price over the
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
net assets acquired, in the amount of $202,386, has been recorded as goodwill
and is being amortized using the straight-line method over an estimated useful
life of 30 years.
The following table summarizes pro forma results as if Babbage's Etc.
was acquired on the first day of fiscal year 1999:
<TABLE>
<CAPTION>
Fiscal Year 1999
------------------------------------------------------------------
<S> <C>
Sales $3,815,435
Earnings before cumulative effect of a change
in accounting principle $ 125,011
Net earnings $ 120,511
Net earnings per common share:
Basic $ 1.75
Diluted $ 1.69
</TABLE>
The pro forma results of operations include adjustments to give effect
to amortization of goodwill and interest expense on debt related to the
acquisition, together with related income tax effects. The information has been
prepared for comparative purposes only and does not purport to be indicative of
the results of operations which actually would have resulted had the acquisition
occurred on the date indicated.
11. SEGMENT INFORMATION
Historically, the Company operated as a single segment. As a result of
the acquisitions of Babbage's Etc. in 1999 and Funco in 2000, the Company is
currently operating under two segments and accordingly, is required to disclose
information in accordance with Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). The Company's reportable segments are strategic groups that offer
different products. These groups have been aggregated into two segments:
bookstores and video game and entertainment software stores.
Bookstores
This segment includes 569 book "super" stores under the Barnes & Noble
Booksellers, Bookstop and Bookstar names which generally offer a comprehensive
title base, a cafe, a children's section, a music department, a magazine section
and a calendar of ongoing events, including author appearances and children's
activities. This segment also includes 339 small format mall-based stores under
the B. Dalton Bookseller, Doubleday Book Shops and Scribner's Bookstore trade
names. Additionally, this segment includes the operations of Calendar Club, the
Company's majority-owned subsidiary. Calendar Club is an operator of seasonal
calendar kiosks.
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Video Game and Entertainment Software Stores
This segment includes 480 video game and entertainment software stores
operated under the Babbage's and Software Etc. names, 498 stores under the
FuncoLand and GameStop names, a Web site (gamestop.com) and Game Informer
magazine. The principal products of these stores are comprised of video game
hardware and software and PC entertainment software. The Company's consolidated
financial statements reflect the results of Babbage's Etc. from October 1999 and
Funco from June 2000.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Segment operating profit
includes corporate expenses in each operating segment. Barnes & Noble evaluates
the performance of its segments and allocates resources to them based on
operating profit.
Summarized financial information concerning the Company's reportable
segments is presented below:
<TABLE>
<CAPTION>
SALES DEPRECIATION AND AMORTIZATION
------------------------------------------ -----------------------------------
Fiscal Year 2000 1999 1998 2000 1999 1998
- ----------- ---------- --------- --------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Bookstores $3,618,240 3,262,295 3,005,608 $122,563 108,691 88,345
Video game & entertainment
software stores 757,564 223,748 -- 22,197 3,613 --
---------- --------- --------- -------- ------- ------
TOTAL $4,375,804 3,486,043 3,005,608 $144,760 112,304 88,345
========== ========= ========= ======== ======= ======
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT IN
OPERATING PROFIT BARNES & NOBLE.COM
-------------------------------------- -----------------------------------
Fiscal Year 2000 1999 1998 2000 1999 1998
- ----------- -------- ------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Bookstores * $127,812 216,678 185,142 $136,595 240,531 82,307
Operating margin 3.53% 6.64% 6.16%
Video game & entertainment
software stores 6,014 15,432 -- -- -- --
Operating margin 0.79% 6.90% NA
-------- ------- ------- -------- ------- ------
TOTAL $133,826 232,110 185,142 $136,595 240,531 82,307
======== ======= ======= ======== ======= ======
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES TOTAL ASSETS
------------------------------------ ------------------------------------------
Fiscal Year 2000 1999 1998 2000 1999 1998
-------- ------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bookstores $109,161 142,005 141,378 $2,049,639 2,076,795 1,807,597
Video game & entertainment
software stores 25,131 4,289 -- 507,837 336,996 --
-------- ------- ------- ---------- --------- ---------
TOTAL $134,292 146,294 141,378 $2,557,476 2,413,791 1,807,597
======== ======= ======= ========== ========= =========
</TABLE>
* Fiscal 2000 operating profit is net of a non-cash impairment charge of
$106,833.
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
A reconciliation of operating profit from reportable segments to
earnings before income taxes and cumulative effect of a change in accounting
principle in the consolidated financial statements is as follows:
<TABLE>
<CAPTION>
Fiscal Year 2000 1999 1998
- ----------- --------- -------- --------
<S> <C> <C> <C>
Reportable segments operating profit $ 133,826 232,110 185,142
Interest, net (53,541) (23,765) (24,412)
Equity in net loss of Barnes & Noble.com (103,936) (42,047) (71,334)
Gain on formation of Barnes & Noble.com -- 25,000 63,759
Other income (expense) (9,346) 27,337 3,414
--------- -------- --------
Consolidated earnings (loss) before income taxes and
cumulative effect of a change in accounting principle $ (32,997) 218,635 156,569
========= ======== ========
</TABLE>
12. COMPREHENSIVE EARNINGS (LOSS)
Comprehensive earnings are net earnings, plus certain other items that
are recorded directly to shareholders' equity. The only such item currently
applicable to the Company is the unrealized loss on available-for-sale
securities, as follows:
<TABLE>
<CAPTION>
Fiscal Year 2000 1999 1998
- ----------- -------- ------- ------
<S> <C> <C> <C>
Net earnings (loss) $(51,966) 124,498 92,376
Other comprehensive loss:
Unrealized loss on available-for-sale securities, net of
deferred income tax benefit of $3,317, $839 and $0,
respectively (4,676) (1,198) --
-------- ------- ------
Total comprehensive earnings (loss) $(56,642) 123,300 92,376
======== ======== ======
</TABLE>
13. SHAREHOLDERS' EQUITY
In fiscal 1999, the Board of Directors authorized a common stock repurchase
program for the purchase of up to $250,000 of the Company's common shares. As of
February 3, 2001, the Company has repurchased 5,504,700 shares at a cost of
approximately $117,377 under this program. The repurchased shares are held in
treasury.
Each share of the Company's Common Stock also entitles the holder to the
right (the Right) to purchase one four-hundredth of a share of the Company's
Series H Preferred Stock for $225. The Right is only exercisable if a person or
group acquires 15 percent or more of the Company's outstanding Common Stock or
announces a tender offer or exchange offer, the consummation of which would
result in such person or group owning 15 percent or more of the Company's
outstanding Common Stock.
14. IMPAIRMENT CHARGE
During fiscal 2000, the Company recorded a non-cash charge to operating
earnings of $106,833 ($92,440 after taxes or $1.44 per share). This charge
included approximately $69,928 of goodwill and
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
$32,405 of property, plant and equipment related to the book business, primarily
goodwill associated with the purchase of B. Dalton and other mall bookstore
assets. The Company's mall-based bookstores have experienced significant
declines in sales and profitability as a result of increased competition from
book "super" stores and Internet book retailers. In fiscal 2000, B. Dalton
comparable store sales declined (1.7%) compared with an increase in comparable
store sales of 0.1% in fiscal 1999. As a result, the anticipated future cash
flows from certain stores were no longer sufficient to recover the carrying
value of the underlying assets. Also, included in this charge were other charges
of $4,500 related to the write-off of certain investments which had continuing
adverse financial results. The estimated fair value of the assets was based on
anticipated future cash flows discounted at a rate commensurate with the risk
involved.
15. STOCK OPTION PLANS
The Company currently has two incentive plans under which stock options
have been or may be granted to officers, directors and key employees of the
Company, the 1991 Employee Incentive Plan (the 1991 Plan) and the 1996 Incentive
Plan (the 1996 Plan). The options to purchase common shares generally are issued
at fair market value on the date of the grant, begin vesting after one year in
33-1/3 percent or 25 percent increments per year, expire 10 years from issuance
and are conditioned upon continual employment during the vesting period.
The 1996 Plan and the 1991 Plan allow the Company to grant options to
purchase up to 11,000,000 and 4,732,704 shares of common stock, respectively.
In addition to the two incentive plans, the Company has granted stock
options to certain key executives and directors. The vesting terms and
contractual lives of these grants are similar to that of the incentive plans.
In accordance with the Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company discloses
the pro forma impact of recording compensation expense utilizing the
Black-Scholes model. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the Black-Scholes model does not necessarily provide a
reliable measure of the fair value of its stock options.
Had compensation cost for the Company's stock option grants been
determined based on the fair value of the stock at the grant dates, the
Company's net earnings and diluted earnings per share for fiscal 2000, 1999 and
1998, would have been reduced by approximately $8,529 or $0.13 per share, $6,298
or $0.09 per share, and $6,188 or $0.09 per share, respectively.
Because the application of the pro forma disclosure provision of SFAS
123 are required only to be applied to grants of options made by the Company
during fiscal 1995 and after, the above pro forma amounts may not be
representative of the effects of applying SFAS 123 to future years.
The weighted-average fair value of the options granted during fiscal
2000, 1999 and 1998 were estimated at $7.86, $10.00 and $12.96 respectively,
using the Black-Scholes option-pricing model with
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
the following assumptions: volatility of 35 percent, risk-free interest rate of
6.50 percent in fiscal 2000, 5.90 percent in fiscal 1999, and 5.33 percent in
fiscal 1998, and an expected life of 6.0 years for fiscal 2000 and fiscal 1999
and 5.4 years for fiscal 1998.
A summary of the status of the Company's stock options is presented
below:
<TABLE>
<CAPTION>
Weighted-Average
(Thousands of shares) Shares Exercise Price
- --------------------- ------- ----------------
<S> <C> <C>
Balance, January 31, 1998 9,664 $13.17
Granted 1,841 31.12
Exercised (837) 11.11
Forfeited (390) 22.35
------
Balance, January 30, 1999 10,278 16.22
Granted 2,148 22.31
Exercised (795) 11.39
Forfeited (488) 26.91
------
Balance, January 29, 2000 11,143 17.27
Granted 2,675 17.04
Exercised (995) 13.64
Forfeited (807) 22.76
------
Balance, February 3, 2001 12,016 $17.15
======
</TABLE>
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The following table summarizes information as of February 3, 2001
concerning outstanding and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-
Average Weighted-
Range of Number Remaining Average Number Weighted-
Exercise Outstanding Contractual Exercise Exercisable Average
Prices (000s) Life Price (000s) Exercise Price
- ---------------- ----------- ------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.21 - $3.77 364 2.35 $ 3.59 364 $ 3.59
$10.00 - $16.75 6,924 4.77 $13.51 4,769 $12.05
$17.13 - $24.25 3,177 7.57 $20.10 1,496 $20.07
$26.50 - $34.75 1,551 7.52 $30.56 630 $31.79
------ -----
$3.21 - $34.75 12,016 5.79 $17.15 7,259 $14.99
====== =====
</TABLE>
16. LEASES
The Company leases retail stores, warehouse facilities, office space and
equipment. Substantially all of the retail stores are leased under noncancelable
agreements which expire at various dates through 2036 with various renewal
options for additional periods. The agreements, which have been classified as
operating leases, generally provide for both minimum and percentage rentals and
require the Company to pay all insurance, taxes and other maintenance costs.
Percentage rentals are based on sales performance in excess of specified
minimums at various stores.
Rental expense under operating leases are as follows:
<TABLE>
Fiscal Year 2000 1999 1998
- ----------- -------- ------- -------
<S> <C> <C> <C>
Minimum rentals $338,922 291,964 271,201
Percentage rentals 10,782 7,502 3,183
-------- ------- -------
$349,704 299,466 274,384
======== ======= =======
</TABLE>
Future minimum annual rentals, excluding percentage rentals, required
under leases that had initial, noncancelable lease terms greater than one year,
as of February 3, 2001 are:
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
2001 $327,098
2002 311,203
2003 285,264
2004 263,664
2005 247,087
After 2005 1,478,066
----------
$2,912,382
==========
</TABLE>
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
17. LEGAL PROCEEDINGS
In March 1998, the American Booksellers Association (ABA) and 26
independent bookstores filed a lawsuit in the United States District Court for
the Northern District of California against the Company and Borders Group, Inc.
(Borders) alleging violations of the Robinson-Patman Act, the California Unfair
Trade Practice Act and the California Unfair Competition Law. Plaintiffs filed a
second amended complaint on October 19, 1999, adding Barnes & Noble.com Inc. as
a defendant. In the second amended complaint, plaintiffs allege, among other
things, that the Company entered into agreements with book publishers and
distributors under which the Company received discounts and other benefits that
were not available to plaintiffs and other independent bookstores. Plaintiffs
allege that such agreements gave the Company an unlawful competitive advantage
that caused lost sales and profits for the plaintiffs. The complaint seeks
injunctive and declaratory relief; treble damages on behalf of each of the
bookstore plaintiffs, and, with respect to the California bookstore plaintiffs,
any other damages permitted by California law; disgorgement of money, property
and gains wrongfully obtained in connection with the purchase of books for
resale, or offered for resale, in California from March 18, 1994 until the
action is completed and pre-judgment interest on any amounts awarded in the
action, as well as attorneys fees and costs. Although the complaint does not
specify the amount of damages sought, in discovery plaintiffs served a report of
their expert witness estimating plaintiffs' damages. Those damages, in the
aggregate, were estimated to be $3,600 to $5,500 (before trebling) with respect
to claims under the Robinson-Patman Act and $5,000 to $7,400 with respect to
disgorgement claims under California law. On January 21, 2000, the Company filed
an answer to the complaint, denying any liability to plaintiffs and asserting
various defenses. On January 16, 2001, the Company filed a motion for summary
judgment seeking dismissal of all plaintiffs' claims. On March 20, 2001, the
court granted the Company summary judgment dismissing all claims for damages
under federal and state law. A trial on the remaining issues is scheduled to
begin on April 9, 2001, without a jury. The Company intends to vigorously defend
this action.
In August 1998, The Intimate Bookshop, Inc. and its owner, Wallace
Kuralt, filed a lawsuit in the United States District Court for the Southern
District of New York against the Company, Borders, Amazon.com, Inc., certain
publishers and others alleging violation of the Robinson-Patman Act and other
federal law, New York statutes governing trade practices and common law. The
complaint sought certification of a class consisting of all retail booksellers
in the United States, whether or not currently in business, which were in
business and were members of the ABA at any time during the four-year period
preceding the filing of the complaint. The complaint alleged that the named
plaintiffs have suffered damages of approximately $11,250 or more and requested
treble damages on behalf of the named plaintiffs and each of the purported class
members, as well as injunctive and declaratory relief (including an injunction
requiring the closure of all of defendants' stores within 10 miles of any
location where plaintiff either has or had a retail bookstore during the four
years preceding the filing of the complaint, and prohibiting the opening by
defendants of any bookstore in such areas for the next 10 years), disgorgement
of alleged discriminatory discounts, rebates, deductions and payments, punitive
damages, interest, costs, attorneys fees and other relief. The plaintiffs
subsequently amended their complaint to allege eight causes of action on behalf
of The Intimate Bookshop and Wallace Kuralt, accusing the Company and the other
defendants of: (1) violating Section 2(f) of the Robinson-Patman Act; (2)
violating Section 2(c) of the Robinson-Patman Act; (3) violating Section 13(a)
of the Clayton Act; (4) inducing every publisher in the United States to breach
contracts with plaintiffs; (5) interfering with the plaintiff's advantageous
business relationships; (6) engaging in unfair competition; (7) violating
Sections 349 and 350 of the New York General Business Law; and (8) being
unjustly enriched. The class action
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
allegations have been withdrawn and the plaintiffs voluntarily dismissed
defendants Harper Collins Publishers, Inc. and Amazon.com, Inc. from the case.
On April 13, 1999, the Company and the other defendants filed a motion
to dismiss the second through eighth causes of action in their entireties and
for a more definite statement of the remaining allegations of the first cause of
action. As a result, the plaintiffs' third through eighth causes of action were
dismissed with prejudice, as were all claims asserted by Wallace Kuralt in his
individual capacity. Pursuant to the court's order, plaintiff The Intimate
Bookshop, Inc. filed a second amended complaint on March 13, 2000. The Company
served an answer on April 5, 2000 denying the material allegations of the
complaint and asserting various affirmative defenses. The Company intends to
continue to vigorously defend this action.
On November 3, 2000, plaintiffs Lucky, Inc. and Bookmark It, LLC,
operators of an independent bookstore in Great Falls, Montana, filed an action
against the Company, Borders, certain book publishers and others in the United
States District Court for the District of Montana. Plaintiffs filed an amended
complaint on November 14, 2000. In their amended complaint, plaintiffs purport
to assert claims on behalf of all persons or entities who as part of their
business purchase or sell books. Plaintiffs allege that the Company entered into
agreements with book publishers and distributors pursuant to which the Company
receives discounts and other benefits that are not available to plaintiffs.
Plaintiffs allege that such agreements were in violation of the Robinson-Patman
Act and the Montana Unfair Trade Practices and Consumer Protection Act. The
amended complaint seeks an unspecified amount of damages (to be trebled) as well
as punitive damages, costs and attorneys' fees. Plaintiffs have requested
permission to file a second amended complaint, which plaintiffs advise will omit
all class action claims and also will omit all claims for punitive damages. The
Company intends to vigorously defend this action.
In fiscal 1999, following the October 28, 1999 acquisition of Babbage's
Etc., five shareholder derivative lawsuits were filed in the Chancery Court of
the State of Delaware by Harbor Finance Partners, Louis F. Mahler, Ralph Stone,
Lawrence G. Metzger and Robert Waring against the Company and its directors. The
lawsuits allege, among other things, a breach of fiduciary duties to the Company
for the benefit of Leonard Riggio and seek damages and to enjoin or rescind the
transaction. The Company believes that the acquisition of Babbage's Etc. was in
the best interests of the Company's shareholders and that the allegations are
without merit. On January 30, 2001, all five derivative actions were voluntarily
dismissed without prejudice by the plaintiffs.
In addition to the above actions, various claims and lawsuits arising
in the normal course of business are pending against the Company. The subject
matter of these proceedings primarily includes commercial disputes, personal
injury claims and employment issues. The results of these proceedings are not
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
18. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases space for its executive offices in properties in
which Leonard Riggio, chairman, chief executive officer and principal
stockholder of Barnes & Noble, has a minority interest. The space was rented at
an aggregate annual rent including real estate taxes of approximately $3,198,
$2,753 and $1,316 in fiscal years 2000, 1999 and 1998, respectively.
The Company leases a 75,000 square foot office/warehouse from a
partnership in which Leonard Riggio has a 50 percent interest, pursuant to a
lease expiring in 2023. Pursuant to such lease, the
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Company paid $648, $573 and $737 in fiscal years 2000, 1999 and 1998,
respectively.
The Company is provided with certain package shipping services by the
LTA Group, Inc. (LTA), a company in which a brother of Leonard Riggio owns a 20
percent interest. The Company paid LTA $16,661, $13,118 and $12,571 for such
services during fiscal years 2000, 1999 and 1998, respectively.
The Company leases retail space in a building in which Barnes & Noble
College Bookstores, Inc. (B&N College), a company owned by Leonard Riggio,
subleases space for its executive offices from the Company. Occupancy costs
allocated by the Company to B&N College for this space totaled $709, $686 and
$725 for fiscal years 2000, 1999 and 1998, respectively.
B&N College allocated to the Company certain operating costs B&N
College incurred on the Company's behalf. These charges are included in the
accompanying consolidated statements of operations and approximated $264, $193
and $48 for fiscal 2000, 1999 and 1998, respectively. B&N College purchased
$17,198, $16,125 and $12,061 of merchandise from the Company during fiscal 2000,
1999 and 1998, respectively. The Company charged B&N College $1,331, $1,042 and
$972 for fiscal years 2000, 1999 and 1998, respectively, for capital
expenditures, business insurance and other operating costs incurred on its
behalf.
The Company uses a jet aircraft owned by B&N College and pays for the
costs and expenses of operating the aircraft based upon the Company's usage.
Such costs which include fuel, insurance, personnel and other costs approximated
$2,401, $2,205 and $1,760 during fiscal 2000, 1999 and 1998, respectively, and
are included in the accompanying consolidated statements of operations.
On October 28, 1999, the Company acquired Babbage's Etc., one of the
nation's largest operators of video game and entertainment software stores, a
company majority owned by Leonard Riggio, for $208,670. If financial performance
targets are met over fiscal year 2001, the Company will make an additional
payment of approximately $10,000 in 2002.
Barnes & Noble.com purchased $110,462, $74,682 and $33,444 of
merchandise from the Company during fiscal 2000, 1999 and 1998, respectively,
and Barnes & Noble.com expects to source purchases through the Company in the
future. The Company has entered into an agreement (the Supply Agreement) with
Barnes & Noble.com whereby the Company charges Barnes & Noble.com the costs
associated with such purchases plus incremental overhead incurred by the Company
in connection with providing such inventory. The Supply Agreement is subject to
certain termination provisions.
The Company has entered into agreements whereby Barnes & Noble.com
receives various services from the Company, including, among others, services
for payroll processing, benefits administration, insurance (property and
casualty, medical, dental and life), tax, traffic, fulfillment and
telecommunications. In accordance with the terms of such agreements the Company
has received, and expects to continue to receive, fees in an amount equal to the
direct costs plus incremental expenses associated with providing such services.
The Company received $1,699, $2,037 and $856 for such services during fiscal
2000, 1999 and 1998, respectively.
The Company subleases to Barnes & Noble.com approximately one-third of
a 300,000 square foot warehouse facility located in New Jersey. The Company has
received from Barnes & Noble.com $489, $473 and $310 for such subleased space
during fiscal 2000, 1999 and 1998, respectively.
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Since 1993, the Company has used the music distributor AEC One Stop
Group, Inc. (AEC) as its primary music and video supplier and to provide a music
and video database. In 1999, AEC's parent corporation was acquired by an
investor group in which Leonard Riggio was a minority investor. The Company paid
AEC $159,179 and $126,241 in connection with this agreement during fiscal 2000
and fiscal 1999, respectively.
19. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of quarterly financial information for each of the last two
fiscal years is as follows:
<TABLE>
<CAPTION>
Total Fiscal
Fiscal 2000 Quarter End April July October January Year
On or About 2000 2000 2000 2001 2000(a)
--------- ------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Sales $ 894,256 924,330 951,834 1,605,384 4,375,804
Gross profit $ 240,089 248,067 258,871 459,053 1,206,080
Equity in net loss of Barnes & Noble.com (b) $ (17,598) (17,940) (18,901) (49,497) (103,936)
Net loss (c) $ (4,144) (8,646) (5,177) (33,999) (51,966)
Loss per common share $ (0.06) (0.13) (0.08) (0.52) (0.81)
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1999 Quarter End April July October January Total Fiscal
On or About 1999 1999 1999 2000 Year 1999
--------- ------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Sales $ 718,336 727,165 715,903 1,324,639 3,486,043
Gross profit $ 192,371 199,275 200,490 410,178 1,002,314
Equity in net loss of Barnes & Noble.com (b) $ (11,544) (6,532) (8,736) (15,235) (42,047)
Earnings (loss) before cumulative effect of a
change in accounting principle $ (1,444) 23,543 3,387 103,512 128,998
Net earnings (loss) (d) (e) $ (5,944) 23,543 3,387 103,512 124,498
Basic earnings (loss) per common share
Earnings (loss) before cumulative effect of a
change in accounting principle $ (0.02) 0.34 0.05 1.52 1.87
Net earnings (loss) $ (0.09) 0.34 0.05 1.52 1.80
Diluted earnings (loss) per common share
Earnings (loss) before cumulative effect of a
change in accounting principle $ (0.02) 0.33 0.05 1.48 1.81
Net earnings (loss) $ (0.09) 0.33 0.05 1.48 1.75
</TABLE>
(a) As a result of the Company's additional investment in Calendar Club in
fiscal 2000, the consolidated statement of operations includes the
operations of Calendar Club. Prior to fiscal 2000, the Company's
consolidated statement of operations included its equity in the results of
operations of Calendar Club as a component of other income (expense).
(b) Based on varying ownership interests as more fully discussed in Note 7 of
the Notes to Consolidated Financial Statements.
(c) In the fourth quarter of fiscal 2000, the Company recorded a non-cash
charge of $106,833 ($92,440 after taxes or $1.44 per share) to operating
earnings as more fully discussed in Note 14 of the Notes to Consolidated
Financial Statements.
(d) Included in net earnings for the second quarter of fiscal 1999 is a pre-tax
gain of $25,000 ($14,750 after taxes) or $0.21 per diluted share from the
receipt of $25,000 from Bertelsmann as a result of the Barnes & Noble.com
Inc. IPO, as well as a pre-tax gain of $10,975 ($6,475 after taxes) or
$0.09 per diluted share resulting from the partial sale of the Company's
investment in Chapters.
(e) Included in net earnings for the fourth quarter of fiscal 1999 is a pre-tax
gain of $22,356 ($13,190 after taxes) or $0.18 per diluted share in
connection with the sale of the Company's investment in NuvoMedia. In
addition, the fourth quarter of fiscal 1999 includes the results of the
Company's acquisition of Babbage's Etc.
<PAGE> 48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Barnes & Noble, Inc.
We have audited the accompanying consolidated balance sheets of Barnes &
Noble, Inc. and subsidiaries as of February 3, 2001 and January 29, 2000 and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three fiscal years in the period ended February
3, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Barnes &
Noble, Inc. and its subsidiaries as of February 3, 2001 and January 29, 2000 and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended February 3, 2001, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 1 to the Consolidated Financial Statements,
effective January 31, 1999, the Company changed its method of accounting for
pre-opening expenses.
New York, New York
March 22, 2001
BDO Seidman, LLP
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>4
<FILENAME>y48586ex21-1.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Barnes & Noble, Inc.
1. Barnes & Noble Booksellers, Inc. ("B&N Booksellers"), a Delaware
corporation, a wholly owned subsidiary of Barnes & Noble, Inc. (the
"Company").
2. B. Dalton Bookseller, Inc., a Minnesota corporation ("B. Dalton"), a wholly
owned subsidiary of the Company.
3. Doubleday Book Shops, Inc., a Delaware corporation, a wholly owned
subsidiary of B. Dalton.
4. B&N.com Holding Corp., a Delaware corporation, a wholly owned subsidiary of
the Company.
5. Gamestop, Inc. (formerly Funco, Inc.), a Minnesota corporation, a wholly
owned subsidiary of B. Dalton.
6. Babbage's Etc. LLC, a Delaware limited liability company, a wholly owned
subsidiary of Gamestop, Inc.
7. B&N Limited Partner (Texas) Corp., a New York corporation, a wholly owned
subsidiary of B&N Booksellers.
8. Barnes & Noble Booksellers (Texas) L.P., a Texas limited partnership, an
indirect wholly owned subsidiary of B&N Booksellers.
9. B&N Limited Partner (Georgia) Corp., a New York corporation, a wholly owned
subsidiary of B&N Booksellers.
10. Barnes & Noble Booksellers (Georgia) L.P., a Georgia limited partnership,
an indirect wholly owned subsidiary of B&N Booksellers.
11. B&N General Partner (Pennsylvania) Corp. II, a New York corporation, a
wholly owned subsidiary of B&N Booksellers.
12. Barnes & Noble Booksellers (Pennsylvania) G.P., a Pennsylvania general
partnership, an indirect wholly owned subsidiary of B&N Booksellers.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>5
<FILENAME>y48586ex23-1.txt
<DESCRIPTION>CONSENT OF BDO SEIDMAN LLP
<TEXT>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Barnes & Noble, Inc.
New York, New York
We hereby consent to the incorporation by reference of our report dated March
22, 2001 relating to the consolidated financial statements of Barnes & Noble,
Inc. and subsidiaries, incorporated by reference into the Company's Annual
Report on Form 10-K for the year ended February 3, 2001, into the prospectuses
constituting a part of the following registration statements: No. 33-84826 on
Form S-3, No. 33-89258 on Form S-3, No. 33-270333 on Form S-8, No. 33-89260 on
Form S-8, and No. 33-97410 on Form S-3.
We also consent to the references to us under the caption "Experts" in the
Prospectuses.
BDO Seidman, LLP
New York, New York
April 30, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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