-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WQFLn4MhAGCg2NWGUK2aGzSGPpzFdD6ANKbo5qzEr9HTc4GNR1BiNzEuSkgD9UBH LPZKthq7EbXYcV7Qfo3ibw== 0000889812-97-002666.txt : 19971217 0000889812-97-002666.hdr.sgml : 19971217 ACCESSION NUMBER: 0000889812-97-002666 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971101 FILED AS OF DATE: 19971216 SROS: NYSE 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: 0129 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12302 FILM NUMBER: 97738894 BUSINESS ADDRESS: STREET 1: 1400 OLD COUNTRY ROAD CITY: WESTBURY STATE: NY ZIP: 11590-5130 BUSINESS PHONE: 5163388119 MAIL ADDRESS: STREET 1: 1400 OLD COUNTRY ROAD CITY: WESTBURY STATE: NY ZIP: 590-5130 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 1, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________ Commission File Number: 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) (212) 633-3300 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) 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 / / Number of shares of $.001 par value common stock outstanding as of November 28, 1997: 67,878,084. BARNES & NOBLE, INC. AND SUBSIDIARIES November 1, 1997 Index to Form 10-Q Page No. -------- PART I - FINANCIAL INFORMATION Item 1: Financial Statements Consolidated Statements of Operations - For the 13 weeks and the 39 weeks ended November 1, 1997 and October 26, 1996.............................. 3 Consolidated Balance Sheets - November 1, 1997, October 26, 1996 and February 1, 1997............. 4 Consolidated Statements of Cash Flows - For the 39 weeks ended November 1, 1997 and October 26, 1996.......................................... 6 Notes to Consolidated Financial Statements.......... 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations............... 9 PART II - OTHER INFORMATION................................... 14 PART I - FINANCIAL INFORMATION Item 1: Financial Statements BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Statements of Operations (thousands of dollars, except per share data) (unaudited)
13 weeks ended 39 weeks ended ------------------------------------------ ---------------------------------------- November 1, October 26, November 1, October 26, 1997 1996 1997 1996 ------------------ ------------------ ------------------- ---------------- Revenues $ 614,831 532,563 1,828,310 1,565,639 Cost of sales, buying and occupancy 388,863 341,171 1,176,103 1,014,883 ---------- ---------- ----------- ----------- Gross profit 225,968 191,392 652,207 550,756 ---------- ---------- ----------- ----------- Selling and administrative expenses 129,080 110,047 375,506 319,459 Rental expense 64,065 56,669 189,441 163,933 Depreciation and amortization 19,746 15,464 56,419 43,319 Pre-opening expenses 3,076 4,634 10,297 13,986 ---------- ---------- ----------- ----------- Operating profit 10,001 4,578 20,544 10,059 Interest (net of interest income of $93, $1,303, $312, and $1,580, respectively) and amortization of deferred financing fees 9,889 9,592 29,293 28,105 ---------- ---------- ----------- ----------- Earnings (loss) before provision (benefit) for income taxes 112 (5,014) (8,749) (18,046) Provision (benefit) for income taxes 47 (2,392) (3,587) (7,310) ---------- ---------- ----------- ------------ Net earnings (loss) $ 65 (2,622) (5,162) (10,736) ========== ========== =========== ============ Net earnings (loss) per common share $ 0.00 (0.04) (0.08) (0.16) Weighted average common shares outstanding 72,508,000 66,090,000 67,017,000 66,012,000
See accompanying notes to consolidated finacial statements. 3 BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Balance Sheets (thousands of dollars)
November 1, October 26, February 1, 1997 1996 1997 ------------------- ---------------- ---------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 11,753 19,019 12,447 Receivables, net 63,501 61,366 45,558 Merchandise inventories 936,923 827,845 732,203 Prepaid expenses and other current assets 88,908 42,571 76,747 --------- ---------- ---------- Total current assets 1,101,085 950,801 866,955 --------- ---------- ---------- Property and equipment: Land and land improvements 681 681 681 Buildings and leasehold improvements 341,562 332,176 326,392 Fixtures and equipment 345,927 260,930 289,684 ---------- ---------- ---------- 688,170 593,787 616,757 Less accumulated depreciation and amortization 230,067 172,183 181,983 ---------- ---------- ---------- Net property and equipment 458,103 421,604 434,774 ---------- ---------- ---------- Intangible assets, net 91,052 94,220 93,494 Other noncurrent assets 59,391 65,108 51,424 ----------- ----------- ----------- Total assets $ 1,709,631 1,531,733 1,446,647 =========== =========== ===========
(Continued) 4 BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Balance Sheets (thousands of dollars)
November 1, October 26, February 1, 1997 1996 1997 ------------------- ------------------ ----------------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Revolving credit facility $ - 140,000 40,000 Accounts payable 555,614 477,873 373,340 Accrued liabilities 218,160 187,448 240,923 --------- ---------- ---------- Total current liabilities 773,774 805,321 654,263 --------- ---------- ---------- Long-term debt 405,200 290,000 290,000 Other long-term liabilities 57,866 42,795 46,395 Shareholders' equity: Common stock; $.001 par value; 100,000,000 shares authorized; 67,875,339, 66,338,378 and 66,376,250 shares issued and outstanding, respectively 68 66 66 Additional paid-in capital 468,227 445,854 446,265 Retained earnings (deficit) 4,496 (52,303) 9,658 --------- ---------- ---------- Total shareholders' equity 472,791 393,617 455,989 --------- ---------- ---------- Commitments and contingencies --------- ---------- ---------- Total liabilities and shareholders' equity $1,709,631 1,531,733 1,446,647 ========= ========== ==========
See accompanying notes to consolidated financial statements. 5 BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (thousands of dollars) (unaudited)
39 weeks ended ------------------------------------------- November 1, October 26, 1997 1996 ------------------ ------------------- Cash flows from operating activities: Net loss $ (5,162) (10,736) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 57,913 44,669 Loss (gain) on disposals of property and equipment 388 (172) Increase in other long-term liabilities for scheduled rent increases in long-term leases 12,125 11,479 Changes in operating assets and liabilities, net (75,967) (48,449) ---------- --------- Net cash flows from operating activities (10,703) (3,209) ---------- ---------- Cash flows from investing activities: Purchases of property and equipment (77,694) (142,954) Proceeds from sales of property and equipment - 171 Net increase in other noncurrent assets (9,461) (15,983) ----------- --------- Net cash flows from investing activities (87,155) (158,766) ---------- -------- Cash flows from financing activities: Net increase in revolving credit facility 75,200 67,600 Proceeds from issuance of long-term debt - 100,000 Proceeds from exercise of common stock options including related tax benefits 21,964 4,118 ---------- -------- Net cash flows from financing activities 97,164 171,718 ---------- -------- Net (decrease) increase in cash and cash equivalents (694) 9,743 Cash and cash equivalents at beginning of period 12,447 9,276 ---------- ---------- Cash and cash equivalents at end of period $ 11,753 19,019 ========== ========= Changes in operating assets and liabilities, net: Receivables, net $ (17,943) (7,347) Merchandise inventories (204,720) (87,494) Prepaid expenses and other current assets (12,161) 3,184 Accounts payable and accrued liabilities 158,857 43,208 -------- --------- Changes in operating assets and liabilities, net $ (75,967) (48,449) ========= ========= Supplemental cash flow information: Cash paid during the period for: Interest $ 22,204 21,334 Income taxes $ 18,234 17,099
See accompanying notes to consolidated financial statements. 6 BARNES & NOBLE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the 39 weeks ended November 1, 1997 and October 26, 1996 (thousands of dollars) (unaudited) The unaudited consolidated financial statements include the accounts of Barnes & Noble, Inc. and its wholly-owned subsidiaries (collectively, the Company). In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position as of November 1, 1997 and the results of its operations and its cash flows for the 39 weeks then ended. These consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements should be read in conjunction with the Company's annual report on Form 10-K for the 53 weeks ended February 1, 1997. The Company follows the same accounting policies in preparation of interim reports. Due to the seasonal nature of the business, the results of operations for the 39 weeks ended November 1, 1997 are not indicative of the results to be expected for the 52 weeks ending January 31, 1998. (1) Merchandise Inventories Merchandise inventories are stated at the lower of cost or market. Cost is determined using the retail inventory method on the first-in, first-out (FIFO) basis for 81%, 78% and 79% of the Company's merchandise inventories as of November 1, 1997, October 26, 1996 and February 1, 1997, respectively. 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 increase approximately $7,300, $6,026 and $8,800 as of November 1, 1997, October 26, 1996 and February 1, 1997, respectively. (2) Income Taxes The tax provisions for the periods ended November 1, 1997 and October 26, 1996 are based upon management's estimate of the Company's annualized effective tax rate. (3) Shareholders' Equity On August 21, 1997, the Company declared a two-for-one stock split in the form of a stock dividend, distributed on September 22, 1997, to shareholders of record as of September 2, 1997. All common share and per share amounts have been adjusted to give retroactive effect to this split. 7 BARNES & NOBLE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the 39 weeks ended November 1, 1997 and October 26, 1996 (thousands of dollars) (unaudited) During the 39 weeks ended November 1, 1997, options to purchase approximately 1,384,300 shares of the Company's Common Stock were granted, at market value on date of grant, to employees under the 1996 Incentive Plan. (4) Subsequent Event On November 18, 1997, the Company closed an $850,000 senior credit facility (the New Facility) with a syndicate led by The Chase Manhattan Bank. The New Facility, structured as a five-year revolving credit, refinanced an existing $450,000 revolving credit and $100,000 term loan facility (the Old Facility). Net proceeds will be used for general corporate purposes and to redeem all of the Company's outstanding $190 million 11 7/8% senior subordinated notes which are callable on January 15, 1998. The New Facility permits borrowings at various interest rate options based on the prime rate or London Interbank Offer Rate (LIBOR) depending upon certain financial tests. The initial LIBOR spread was set at 0.625% as of November 18, 1997. 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 initial commitment fee was set at 0.175% of the unused portion of the facility as of November 18, 1997. The New Facility contains covenants, limitations and events of default typical of credit facilities of this size and nature. The amount outstanding under the Company's Old Facility as of November 1, 1997, which was refinanced pursuant to the consummation of the New Facility, has been classified as long-term debt in the accompanying consolidated balance sheets due to the terms of the New Facility, and the Company's intent and ability to maintain principal amounts outstanding through November 2002. As a result of these refinancings, the Company expects to record an extraordinary loss due to the early extinquishment of debt approximating $11,500 (net of applicable taxes) during its fourth quarter. The extraordinary loss represents the payment of a call premium associated with the redemption of the senior subordinated notes and the write-off of unamortized fees. (5) Earnings Per Common Share In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). Under SFAS No. 128, the presentation of Primary and Fully Diluted Earnings per Share will be replaced by Basic and Diluted Earnings per Share. The presentation of Basic Earnings per Share includes no potential common shares and thus no dilution. In accordance with SFAS 128, the Company will adopt the provisions of SFAS No. 128 effective January 31, 1998 and restate all prior periods to conform to this new pronouncement. Adoption is not expected to have any material effect on the Company's reported Earnings per Share. 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The primary sources of the Company's cash are net cash flows from operating activities, funds available under its revolving credit facility and short-term vendor financing. During the 39 weeks ended November 1, 1997, earnings before interest, taxes, depreciation and amortization (EBITDA) increased 44.2% to $77.0 million from $53.4 million during the prior year period and reflected increasing gross margins attributable to lower merchandise costs and a better sales mix, plus improving expense leverage, primarily in Barnes & Noble store operating, rental and pre-opening costs. In addition, the Company's EBITDA margin increased to 4.2% during 1997 from 3.4% during 1996. Correspondingly, the Company generated sufficient net cash flows from operating activities of $112.0 million on a trailing 12-month basis as of November 1, 1997, to fund its capital expenditures and working capital of $106.6 million which compared to a net deficit of ($157.4) million during the corresponding prior 12-month period. Merchandise inventories increased $109.1 million to $936.9 million as of November 1, 1997, up 13.2% from $827.8 million as of October 26, 1996, primarily due to the 78 new Barnes & Noble stores opened since October 26, 1996. The Company's investing activities consist principally of capital expenditures for new store construction, system enhancements and store relocations/remodels. Capital expenditures totaled $77.7 million and $143.0 million during the 39 weeks ended November 1, 1997 and October 26, 1996, respectively. Capital expenditures during 1997 reflected 13 fewer new Barnes & Noble stores; in addition, 1996 capital expenditures included significant technology and systems expenditures. On November 18, 1997, the Company closed an $850.0 million senior credit facility with a syndicate led by The Chase Manhattan Bank. The new facility, structured as a five-year revolving credit, refinanced an existing $450.0 million revolving credit and a $100.0 million term loan. The pricing, relative to LIBOR, has been significantly reduced, primarily in recognition of the Company's strong financial performance. Under the old credit agreement, the Company's LIBOR spread ranged from 1.000% to 2.250% depending upon certain financial tests. Under the new credit agreement, the LIBOR spread ranges from 0.375% to 0.875%, depending upon certain financial tests, with the initial spread set at 0.625% as of November 18, 1997. Net proceeds will be used for general corporate purposes and to redeem all of the Company's outstanding $190.0 million 11 7/8% senior subordinated notes which are callable on January 15, 1998. During the fourth quarter, the Company expects to record an extraordinary loss of $11.5 million (net of applicable taxes) due to the early extinquishment of debt which represents a call premium of 5.9% to be paid on the notes and the write-off of unamortized fees. Total debt decreased 5.8% to $405.2 million as of November 1, 1997 from $430.0 million as of October 26, 1996. Average borrowings under the old senior credit facility decreased $7.8 million during 1997 in comparison to 1996, and peaked at $222.9 million and $263.8 million during the same periods, respectively. The reduced borrowings, which reflected continued emphasis on working capital management, inventory turnover and expense controls, were accomplished during a period of 16.8% revenue growth. The amount outstanding under the old revolving credit facility as of November 1, 1997 was classified as long-term 9 debt in the accompanying consolidated balance sheets, as the Company has the intent and the ability, supported by the terms of the new revolving credit agreement, to maintain through November 2002, principal amounts outstanding under the agreement. Based upon the Company's current operating levels and expansion plans, management believes net cash flows from operating activities and the capacity under its revolving credit facility will be sufficient to meet the Company's working capital, capital investments and debt service requirements for at least the next twelve months. On August 21, 1997, the Company's Board of Directors declared a two-for-one stock split of its common stock effective for all shareholders of record as of September 2, 1997. The split was effected in the form of a stock dividend. The two-for-one stock split occurred on September 22, 1997, by the distribution of one additional share for each share of common stock held at the close of business on September 2, 1997. The Company did not declare or pay any cash dividends during the 39-week periods ended November 1, 1997 and October 26, 1996. Results of Operations 13 weeks ended November 1, 1997 compared with the 13 weeks ended October 26, 1996 Revenues During the 13 weeks ended November 1, 1997, the Company's revenues grew 15.4% to $614.8 million from $532.6 million during the 13 weeks ended October 26, 1996. During the third quarter, Barnes & Noble store revenues rose 22.0% to $503.7 million from $412.7 million during the same period a year ago. As a percentage of total revenues, Barnes & Noble store revenues represented 81.9% during 1997, up from 77.5% during 1996. During the third quarter, the 22.0% increase in Barnes & Noble store revenues resulted from a same store sales gain of 9.3% coupled with 78 new stores opened since October 26, 1996 which contributed a 21.2% increase in square footage. Management attributed the strong same store sales performance to, among other things, an increase in the number of stores eligible for inclusion in the same store sales base and a reduction in self-cannibalization. The number of comparable Barnes & Noble stores, as a percentage of total Barnes & Noble stores, increased to 76.5% as of November 1, 1997 compared to 61.0% as of October 26, 1996. Revenues generated by BarnesandNoble.com, which were not significant during the third quarter, were classified as Barnes & Noble store revenues. During the third quarter, B. Dalton revenues, which represented 17.1% of total revenues during 1997 in comparison to 21.6% during 1996, declined 8.3% primarily as a result of six B. Dalton store closings and a 7.4% reduction in its square footage since October 26, 1996. In addition, B. Dalton's same store sales decreased (0.4%) during the third quarter. During the third quarter, the Company opened 16 Barnes & Noble stores and closed one, bringing its total number of Barnes & Noble stores to 469 and their total square footage to 10.4 million square feet. During the same period, the Company opened three and closed six B. Dalton stores, ending the period with 556 stores and 2.1 million square feet. As of November 1, 1997 the Company operated 1,025 stores in 50 states and the District of Columbia. 10 Cost of Sales, Buying and Occupancy During the 13 weeks ended November 1, 1997, cost of sales, buying and occupancy increased $47.7 million, or 14.0%, to $388.9 million from $341.2 million during the 13 weeks ended October 26, 1996. As a percentage of revenues, cost of sales, buying and occupancy decreased to 63.3% during the third quarter from 64.1% during the same period one year ago. Increasing distribution center fulfillment, a better sales mix and enhancements to fast inventory replenishment systems, resulted in lower inventory growth relative to cost of sales, a better in-stock position and increasing gross margins. Selling and Administrative Expenses Selling and administrative expenses increased $19.1 million, or 17.3%, to $129.1 million during the 13 weeks ended November 1, 1997 from $110.0 million during the 13 weeks ended October 26, 1996. During the third quarter, selling and administrative expenses increased as a percentage of revenues to 21.0% from 20.7% during the prior year period. The increase was primarily attributable to BarnesandNoble.com's operating costs. Rental Expense, Depreciation and Amortization Rental expense increased $7.4 million, or 13.1%, to $64.1 million during the 13 weeks ended November 1, 1997 from $56.7 million during the 13 weeks ended October 26, 1996. As a percentage of revenues, rental expense decreased to 10.4% during the third quarter from 10.6% during the same period last year due to the improving expense leverage of the Barnes & Noble stores. During the third quarter, depreciation and amortization increased $4.2 million, or 27.7%, to $19.7 million from $15.5 million during the same period last year, as a result of the depreciation on the 78 new Barnes & Noble stores opened since October 26, 1996 and depreciation attributable to BarnesandNoble.com.'s capital expenditures. Pre-opening Expenses Pre-opening expenses decreased $1.6 million, or 33.6%, to $3.1 million during the 13 weeks ended November 1, 1997 from $4.6 million during the 13 weeks ended October 26, 1996, primarily as a result of 19 fewer Barnes & Noble store openings during the 52 weeks ended November 1, 1997 in comparison to the corresponding prior year period. Operating Profit The Company's operating profit increased to $10.0 million during the 13 weeks ended November 1, 1997 from $4.6 million during the 13 weeks ended October 26, 1996. As a percentage of revenues, the operating profit margin increased to 1.6% during 1997 from 0.9% during 1996. Net Earnings (Loss) As a result of the factors discussed above, the Company reported net earnings of $0.1 million during the 13 weeks ended November 1, 1997 compared to a net loss of ($2.6) million during the 13 weeks ended October 26, 1996. During the third quarter, the net earnings per common share improved to $0.00 per share (based on 72.5 million shares) from a net loss of ($0.04) per share (based on 66.1 million shares) during the same period a year ago. 11 39 weeks ended November 1, 1997 compared to the 39 weeks ended October 26, 1996 Revenues Revenues totaled $1.828 billion during the 39 weeks ended November 1, 1997, a 16.8% increase over revenues of $1.566 billion during the 39 weeks ended October 26, 1996. During 1997, total revenues rose primarily as a result of the 24.8% increase in Barnes & Noble store revenues to $1.489 billion from $1.193 billion during 1996. Barnes & Noble store revenues, as a percentage of total revenues, rose to 81.4% during 1997 up from 76.2% during 1996. The year-to-date increase in Barnes & Noble store revenues was attributable to a 9.7% gain in same store sales and 78 new stores opened since October 26, 1996. B. Dalton stores generated 17.7% of total revenues during 1997 in comparison to 22.8% during 1996. Year-to-date B. Dalton revenues declined 9.8% as a result of the decrease in square footage and the decline in same store sales of (2.7%). Revenues generated by BarnesandNoble.com, which were not significant, were classified as Barnes & Noble store revenues. During the 39 weeks ended November 1, 1997, the Company opened 46 and closed eight Barnes & Noble stores and opened three and closed 24 B. Dalton stores. Cost of Sales, Buying and Occupancy During the 39 weeks ended November 1, 1997, cost of sales, buying and occupancy increased $161.2 million, or 15.9%, to $1.176 billion from $1.015 billion during the 39 weeks ended October 26, 1996. As a percentage of revenues, cost of sales, buying and occupancy decreased to 64.3% during 1997 from 64.8% during 1996. The expanding gross margins were the result of the Company's strategic investments in distribution and technology along with a better sales mix. Selling and Administrative Expenses Selling and administrative expenses increased $56.0 million, or 17.5%, to $375.5 million during the 39 weeks ended November 1, 1997 from $319.5 million during the 39 weeks ended October 26, 1996. However, as a percentage of revenues, selling and administrative expenses were virtually flat at 20.5% and 20.4% during 1997 and 1996, respectively. These results reflected the improving Barnes & Noble store operating leverage which was largely offset by the operating expenses of BarnesandNoble.com. Rental Expense, Depreciation and Amortization Rental expense increased $25.5 million, or 15.6%, to $189.4 million during the 39 weeks ended November 1, 1997 from $163.9 million during the 39 weeks ended October 26, 1996. As a percentage of revenues, rental expense decreased to 10.4% during 1997 from 10.5% during 1996 due to the improving expense leverage of the Barnes & Noble stores. Depreciation and amortization increased $13.1 million, or 30.2%, to $56.4 million during the 39 weeks ended November 1, 1997 from $43.3 million during the 39 weeks ended October 26, 1996 as a result of the depreciation on the new Barnes & Noble stores opened since October 26, 1996 and depreciation attributable to BarnesandNoble.com.'s capital expenditures. 12 Pre-opening Expenses Pre-opening expenses decreased $3.7 million, or 26.4%, to $10.3 million during the 39 weeks ended November 1, 1997 from $14.0 million during the 39 weeks ended October 26, 1996 primarily as a result of 19 fewer Barnes & Noble store openings during the 52 weeks ended November 1, 1997 compared to the corresponding prior year period. Operating Profit As a result of the factors discussed above, the Company's operating profit increased to $20.5 million during the 39 weeks ended November 1, 1997 from $10.1 million during the 39 weeks ended October 26, 1996. As a percentage of revenues, the operating profit margin increased to 1.1% during 1997 from 0.6% during 1996. Benefit For Income Taxes The benefit for income taxes during the 39 weeks ended November 1, 1997, was $3.6 million compared to $7.3 million during the 39 weeks ended October 26, 1996. Tax benefits were based upon management's estimate of the Company's annualized effective tax rates. Net Loss As a result of the factors discussed above, the Company's net loss declined 51.9% to ($5.2) million during the 39 weeks ended November 1, 1997 from a net loss of ($10.7) million during the 39 weeks ended October 26, 1996. During 1997, the net loss per common share improved 50% to ($0.08) per share (based on 67.0 million shares) from a net loss of ($0.16) per share (based on 66.0 million shares) during 1996. 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, changes in product demand, real estate market fluctuations, possible disruptions in the Company's computer or telephone systems, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible disruptions or delays in the opening of new stores, the level and volatility of interest rates, changes in tax and other governmental rules and regulations applicable to the Company and other factors that may be outside of the Company's control. 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 herein 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. 13 PART II - OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K - ------ -------------------------------- (a) Exhibit filed with this Form 10-Q: None. (b) No report on Form 8-K was filed by the registrant during the fiscal quarter for which this report is filed. 14 SIGNATURES Pursuant to the requirements 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. BARNES & NOBLE, INC. (Registrant) Date: December 16, 1997 By: /s/ William F. Duffy -------------------- William F. Duffy Vice President, Finance and Chief Accounting Officer 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 9-MOS JAN-31-1998 FEB-02-1997 NOV-01-1997 11,753 0 63,501 0 936,923 1,101,085 688,170 230,067 1,709,631 773,774 405,200 0 0 68 468,227 1,709,631 1,828,310 1,828,310 1,176,103 1,176,103 256,157 0 29,293 (8,749) (3,587) (5,162) 0 0 0 (5,162) (0.08) (0.08)
-----END PRIVACY-ENHANCED MESSAGE-----