Delaware 06-1196501
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
122 Fifth Avenue, New York, NY 10011
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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 22, 1996: 33,173,423
Item 1: Financial Statements
Consolidated Statements of Operations - For the 13 weeks and the 39 weeks ended October 26, 1996 and October 28, 1995......................................................... 3
Consolidated Balance Sheets - October 26, 1996, October 28, 1995 and January 27, 1996.................................... 4
Consolidated Statements of Cash Flows - For the 39 weeks ended October 26, 1996 and October 28, 1995.................. 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8
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13 weeks ended 39 weeks ended
---------------------------- --------------------------
October 26, October 28, October 26, October 28,
1996 1995 1996 1995
---- ---- ---- ----
Revenues $ 532,563 432,315 1,565,639 1,254,366
Cost of sales, buying and
occupancy 341,171 279,828 1,014,883 815,006
------------ ------------ ------------ ------------
Gross profit 191,392 152,487 550,756 439,360
------------ ------------ ------------ ------------
Selling and administrative
expenses 110,047 90,049 319,459 263,606
Rental expense 56,669 44,948 163,933 129,505
Depreciation and amortization 15,464 11,977 43,319 33,668
Pre-opening expenses 4,634 2,976 13,986 8,495
------------ ------------ ------------ ------------
Operating profit 4,578 2,537 10,059 4,086
Interest (net of interest income of $1,303,
$582, $1,580 and $1,682, respectively) and
amortization of deferred financing fees 9,592 7,685 28,105 20,810
------------ ------------ ------------ ------------
Loss before benefit for income taxes (5,014) (5,148) (18,046) (16,724)
Benefit for income taxes (2,392) (1,603) (7,310) (5,314)
------------ ------------ ------------ ------------
Net loss $ (2,622) (3,545) (10,736) (11,410)
============ ============ ============ ============
Net loss per common share $ (0.08) (0.11) (0.33) (0.37)
Weighted average common shares outstanding 33,045,000 31,192,000 33,006,000 30,637,000
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See accompanying notes to consolidated financial statements.
- ----------------------------------------------------------------------------------------------------------------
October 26, October 28, January 27,
1996 1995 1996
---- ---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 19,019 7,600 9,276
Receivables, net 61,366 67,051 49,019
Merchandise inventories 827,845 780,757 740,351
Prepaid expenses and other current assets 42,571 47,668 49,542
---------- ---------- ----------
Total current assets 950,801 903,076 848,188
---------- ---------- ----------
Property and equipment:
Land and land improvements 681 759 681
Buildings and leasehold improvements 332,176 254,526 249,603
Fixtures and equipment 260,930 194,121 204,528
---------- ---------- ----------
593,787 449,406 454,812
Less accumulated depreciation and amortization 172,183 134,898 134,932
---------- ---------- ----------
Net property and equipment 421,604 314,508 319,880
---------- ---------- ----------
Intangible assets, net 94,220 131,144 96,799
Other noncurrent assets 65,108 34,625 50,475
---------- ---------- -----------
Total assets $1,531,733 1,383,353 1,315,342
========== ========= =========
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- -----------------------------------------------------------------------------------------------------------------
October 26, October 28, January 27,
1996 1995 1996
---- ---- ----
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility $ 140,000 59,500 -
Accounts payable 477,873 540,968 415,698
Accrued liabilities 187,448 124,150 205,990
---------- ---------- ----------
Total current liabilities 805,321 724,618 621,688
---------- ---------- ----------
Long-term debt 290,000 190,000 262,400
Other long-term liabilities 42,795 26,984 31,019
Stockholders' equity:
Common stock; $.001 par value; 100,000,000
shares authorized; 33,169,189, 32,956,758
and 32,958,614 shares issued and outstand-
ing, respectively 34 33 33
Additional paid-in capital 445,886 441,719 441,769
Accumulated deficit (52,303) (1) (41,567)
---------- ---------- ----------
Total stockholders' equity 393,617 441,751 400,235
---------- ---------- ----------
Commitments and contingencies
---------- ---------- ----------
Total liabilities and stockholders' equity $1,531,733 1,383,353 1,315,342
========== ========== =========
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See accompanying notes to consolidated financial statements.
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39 weeks ended
--------------------------
October 26, October 28,
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (10,736) (11,410)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 44,669 35,396
(Gain) loss on disposals of property
and equipment (172) 4,335
Increase in other long-term liabilities
for scheduled rent increases in
long-term leases 11,479 6,635
Changes in operating assets and
liabilities, net (48,449) (129,804)
--------- ---------
Net cash flows from operating activities (3,209) (94,848)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (142,954) (105,692)
Proceeds from sales of property and equipment 171 16
Net increase in other noncurrent assets (15,983) (1,786)
--------- ---------
Net cash flows from investing activities (158,766) (107,462)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net -- 88,725
Net increase in revolving credit facility 67,600 59,500
Proceeds from issuance of long-term debt 100,000 --
Proceeds from exercise of common stock options 4,118 6,263
--------- ---------
Net cash flows from financing activities 171,718 154,488
--------- ---------
Net increase (decrease) in cash and cash equivalents 9,743 (47,822)
Cash and cash equivalents at beginning of period 9,276 55,422
--------- ---------
Cash and cash equivalents at end of period $ 19,019 7,600
========= =========
Changes in operating assets and liabilities, net:
Receivables, net $ (7,347) (36,912)
Merchandise inventories (87,494) (276,788)
Prepaid expenses and other current assets 3,184 (23,326)
Accounts payable and accrued liabilities 43,208 207,222
--------- ---------
Changes in operating assets and
liabilities, net $ (48,449) (129,804)
========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 21,334 15,123
Income taxes $ 17,099 19,555
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See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
For the 39 weeks ended October 26, 1996 and October 28, 1995
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 October 26, 1996 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 52 weeks ended January 27, 1996. The Company follows the same accounting policies in preparation of interim reports. Certain amounts in the consolidated financial statements for periods prior to January 27, 1996 have been reclassified to conform to the current presentation.
Due to the seasonal nature of the business, the results of operations for the 39 weeks ended October 26, 1996 are not indicative of the results to be expected for the 53 weeks ending February 1, 1997.
(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 78%, 72% and 73% of the Company's merchandise inventories as of October 26, 1996, October 28, 1995 and January 27, 1996, 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 $6,026, $13,107 and $8,326 as of October 26, 1996, October 28, 1995 and January 27, 1996, respectively.
(2) Income Taxes
The tax provisions for the 39 weeks ended October 26, 1996 and October 28, 1995 are based upon management's estimate of its annualized effective tax rates. Permanent differences include amortization of
goodwill which decreases the benefit for income taxes and certain tax credits during 1996 which increase the benefit for income taxes.
The primary sources of the Company's cash for seasonal working capital requirements and capital investments are net cash flows from operating activities, funds available under its revolving credit facility and vendor financing.
Cash and cash equivalents were $19.0 million as of October 26, 1996 in comparison to $7.6 million as of October 28, 1995. Cash flows from operating activities improved significantly during the 39 weeks ended October 26, 1996 to ($3.2) million from ($94.8) million during the same period of the prior fiscal year, primarily due to improved inventory turnover and lower inventory levels per square foot.
During the 39 weeks ended October 26, 1996, cash flows were used primarily for capital expenditures related to the Company's superstore expansion and, to a lesser extent, for increases in working capital related to such expansion. The Company opened 59 superstores comprising over 1.6 million square feet of retail space during each of the 39 weeks ended October 26, 1996 and October 28, 1995. The Company opened more superstores during the first half of fiscal 1996 in comparison to fiscal 1995. While the acceleration of openings will optimize sales during the fourth quarter, it resulted in increased depreciation and pre-opening expenses during the 39 weeks ended October 26, 1996. The Company will open 91 superstores during fiscal 1996. Capital expenditures totaled $143.0 million and $105.7 million during the 39 weeks ended October 26, 1996 and October 28, 1995, respectively. These expenditures were primarily for new superstores, refurbishments of existing mall bookstores and enhancements to the Company's management information and in-store systems.
Total debt as of October 26, 1996 and October 28, 1995 was $430.0 million and $249.5 million, respectively. Borrowings under the Company's revolving credit facility averaged $108.5 million and $55.2 million during the 39 weeks ended October 26, 1996 and October 28, 1995, respectively, and peaked at $163.8 million and $144.9 million during the same periods, respectively. The rise in short-term borrowings under the revolving credit facility and the corresponding increase in interest expense resulted, in part, from the capital requirements and working capital associated with the accelerated superstore openings during the period.
Based upon current operating levels and the planned superstore expansion, management believes cash flows generated from operations, short-term vendor financing and its borrowing capacity under its revolving credit facility will be sufficient to meet the Company's working capital and debt service requirements, fund restructuring reserves and support the continued rollout of superstores.
The Company did not declare or pay any cash dividends during the 39-week periods ended October 26, 1996 and October 28, 1995.
13 weeks ended October 26, 1996 and October 28, 1995
Revenues increased 23.2%, or $100.3 million, to $532.6 million during the 13 weeks ended October 26, 1996 from $432.3 million during the 13 weeks ended October 28, 1995. Superstore revenues grew 36.4% to $412.7 million during the 13 weeks ended October 26, 1996, an increase of $110.2 million from $302.5 million during the 13 weeks ended October 28, 1995. With the Company's continued expansion of its superstore business, superstore revenues, as a percentage of total revenues, rose to 77.5% during the 13 weeks ended October 26, 1996, up from 70.0% for the same period in the prior year. Mall bookstores generated 21.6% of total revenues during the 13 weeks ended October 26, 1996 in comparison to 28.8% of total revenues during the same period one year ago.
The increase in revenues during the 13 weeks ended October 26, 1996 was
primarily attributable to an increase in comparable superstore sales of
4.5% and revenues from the 97 new superstores opened since October 28,
1995.
During the 13 weeks ended October 26, 1996, the Company opened 23 superstores and closed five, bringing the Company's total number of superstores to 408. The Company opened three and closed nine mall bookstores during the quarter and ended the period with 611 mall bookstores. As of October 26, 1996 the Company operated 1,019 stores in 50 states and the District of Columbia.
During the 13 weeks ended October 26, 1996, cost of sales, buying and occupancy increased $61.4 million, or 21.9%, to $341.2 million from $279.8 million for the same period one year ago. As a percentage of revenues, cost of sales, buying and occupancy decreased to 64.1% during the 13 weeks ended October 26, 1996 from 64.7% during the 13 weeks ended October 28, 1995. The decrease in cost of sales, buying and occupancy as a percentage of revenues was derived from margin
improvements generated by the merchandise mix, improved merchandise systems, and the benefits derived from more-centralized distribution .
Selling and administrative expenses increased $20.0 million, or 22.2%, to $110.0 million during the 13 weeks ended October 26, 1996 from $90.0 million during the 13 weeks ended October 28, 1995. Selling and administrative expenses decreased as a percentage of revenues to 20.7% during the 13 weeks ended October 26, 1996 from 20.8% during the prior year period primarily due to the Company's focus on expense controls and the continued improvement in the Company's operating leverage resulting from the maturation of the Company's superstores.
Rental expense increased $11.8 million, or 26.1%, to $56.7 million
during the 13 weeks ended October 26, 1996 from $44.9 million during
the 13 weeks ended October 28, 1995. As a percentage of revenues,
rental expense was 10.6% and 10.4% for the 13 weeks ended October 26,
1996 and October 28, 1995, respectively. Depreciation and amortization
increased $3.5 million, or 29.1%, to $15.5 million during the 13 weeks
ended October 26, 1996 from $12.0 million during the 13 weeks ended
October 28, 1995. The increase was primarily a result of the 97 new
superstores opened since October 28, 1995 which comprised approximately
2.7 million square feet.
Pre-opening expenses increased $1.6 million, or 55.7%, to $4.6 million during the 13 weeks ended October 26, 1996 from $3.0 million during the 13 weeks ended October 28, 1995 primarily as a result of the increased number of superstores and superstore retail space discussed above. The Company opened 59 superstores, representing over 1.6 million square feet of retail space, during the 39 weeks ended October 26, 1996.
As a result of the factors discussed above, the Company's operating profit improved 80.4% to $4.6 million during the 13 weeks ended October 26, 1996 from $2.5 million during the 13 weeks ended October 28, 1995. As a percentage of revenues, operating profit increased to 0.9% for the 13 weeks ended October 26, 1996 from 0.6% for the 13 weeks ended October 28, 1995 reflecting continued improvements in operating leverage.
Interest expense, net of interest income, and amortization of deferred
financing fees increased to $9.6 million during the 13 weeks ended October 26, 1996 from $7.7 million during the 13 weeks ended October 28, 1995. The increase in net interest expense reflects an increase in average borrowings during the 13 weeks ended October 26, 1996 in comparison to the prior year period related to the funding of capital expenditures and working capital for the Company's superstore expansion program. Capital expenditures were incurred earlier during fiscal 1996 compared to fiscal 1995 due to the accelerated superstore opening schedule.
The benefit for income taxes during the 13 weeks ended October 26, 1996 was $2.4 million compared to $1.6 million during the 13 weeks ended October 28, 1995. The tax benefits during the 13 weeks ended October 26, 1996 and October 28, 1995 were based upon management's estimate of the Company's annualized effective tax rates. Permanent differences include amortization of goodwill which decreases the benefit for income taxes and certain tax credits during 1996 which increase the benefit for income taxes.
As a result of the factors discussed above, the Company's results of operations were a net loss of ($2.6) million during the 13 weeks ended October 26, 1996 compared to a net loss of ($3.5) million during the 13 weeks ended October 28, 1995. During the 13 weeks ended October 28, 1996, the net loss per common share improved to ($0.08) per share from ($0.11) per share for the same period in the prior year.
39 weeks ended October 26, 1996 and October 28, 1995
Revenues increased 24.8%, or $311.2 million, to $1,565.6 million during the 39 weeks ended October 26, 1996 from $1,254.4 million for the 39 weeks ended October 28, 1995. Superstore revenues grew 39.7% to $1,193.3 million during the 39 weeks ended October 26, 1996, an increase of $339.2 million from $854.1 million during the 39 weeks ended October 28, 1995. As a result of the Company's expansion of its superstore business, superstore revenues, as a percentage of total revenues, rose to 76.2% during the 39 weeks ended October 26, 1996, up from 68.1% for the same period in the prior year. Mall bookstores generated 22.8% of total revenues during the 39 weeks ended October 26, 1996 in comparison to 30.5% of total revenues during the same period one year ago.
The increase in revenues during the 39 weeks ended October 26, 1996 was primarily attributable to an increase in comparable superstore sales of
4.9% and revenues from the 97 new superstores opened since October 28, 1995.
During the 39 weeks ended October 26, 1996, the Company opened 59 superstores and closed nine. The Company opened six and closed 34 mall bookstores during the 39 weeks ended October 26, 1996.
During the 39 weeks ended October 26, 1996, cost of sales, buying and occupancy increased $199.9 million, or 24.5%, to $1,014.9 million from $815.0 million for the same period one year ago. As a percentage of revenues, cost of sales, buying and occupancy remained relatively constant and were 64.8% and 65.0% during the 39 weeks ended October 26, 1996 and October 28, 1995, respectively.
Selling and administrative expenses increased $55.9 million, or 21.2%, to $319.5 million during the 39 weeks ended October 26, 1996 from $263.6 million during the 39 weeks ended October 28, 1995. Selling and administrative expenses decreased as a percentage of revenues to 20.4% during the 39 weeks ended October 26, 1996 from 21.0% during the prior year period primarily due to the Company's focus on expense controls and the continued improvement in the Company's operating leverage resulting from the maturation of the Company's superstores.
Rental expense increased $34.4 million, or 26.6%, to $163.9 million
during the 39 weeks ended October 26, 1996 from $129.5 million during
the 39 weeks ended October 28, 1995. As a percentage of revenues,
rental expense was 10.5% and 10.3% for the 39 weeks ended October 26,
1996 and October 28, 1995, respectively. Depreciation and amortization
increased $9.6 million, or 28.7%, to $43.3 million during the 39 weeks
ended October 26, 1996 from $33.7 million during the 39 weeks ended
October 28, 1995. The increase was primarily a result of the 97 new
superstores opened since October 28, 1995 which comprised approximately
2.7 million square feet and the opening of superstores earlier in the
1996 fiscal year.
Pre-opening expenses increased $5.5 million, or 64.6%, to $14.0 million during the 39 weeks ended October 26, 1996 from $8.5 million during the 39 weeks ended October 28, 1995 primarily as a result of the increased number of superstores and superstore retail space, and the accelerated openings discussed above.
As a result of the factors discussed above, the Company's operating profit improved to $10.1 million during the 39 weeks ended October 26, 1996 from $4.1 million during the 39 weeks ended October 28, 1995. As a percentage of revenues, operating profit increased to 0.6% for the 39 weeks ended October 26, 1996 from 0.3% for the 13 weeks ended October 28, 1995 due to continued improvements in operating leverage.
Interest expense, net of interest income, and amortization of deferred financing fees increased to $28.1 million during the 39 weeks ended October 26, 1996 from $20.8 million during the 39 weeks ended October 28, 1995. The increase in net interest expense reflects an increase in average borrowings during the 39 weeks ended October 26, 1996 in comparison to the prior year period related to the funding of capital expenditures and working capital for the Company's superstore expansion program. Capital expenditures were incurred earlier during fiscal 1996 compared to fiscal 1995 due to the accelerated superstore opening schedule.
The benefit for income taxes during the 39 weeks ended October 26, 1996 was $7.3 million compared to $5.3 million during the 39 weeks ended October 28, 1995. The tax benefits for the 39 weeks ended October 26, 1996 and October 28, 1995 were based upon management's estimate of the Company's annualized effective tax rates. Permanent differences include amortization of goodwill which decreases the benefit for income taxes and certain tax credits during 1996 which increase the benefit for income taxes.
As a result of the factors discussed above, the Company's results of operations were a net loss of ($10.7) million during the 39 weeks ended October 26, 1996 compared to a net loss of ($11.4) million during the 39 weeks ended October 28, 1995. During the 39 weeks ended October 26, 1996, the net loss per common share improved to ($0.33) per share from ($0.37) per share for the same period in the prior year.
Certain information in this report includes forward looking statements regarding future events or the future financial performance of the Company, such as the Company's liquidity and capital requirements. The matters referred to in forward looking statements could be affected by the risks and uncertainties involved in the Company's business. These
risks and uncertainties include, but are not limited to, the effect of economic and market conditions, possible disruptions in the Company's computer systems or telephone systems, possible increases in shipping rates or interruptions in shipping service, delays in the construction or opening of new stores, and the level and volatility of interest rates. Actual events or the actual future results of the Company may differ materially from any forward looking statement due to such risks and uncertainties. Any forward looking statements attributable to the Company or persons acting on its behalf, including any made subsequent to the date of this report, are expressly qualified in their entirety by the cautionary statements in this paragraph.
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.
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.
Date: December 9, 1996
By: /s/ Irene R. Miller
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Irene R. Miller
Vice Chairman and Chief Financial
Officer (Principal Financial and
Accounting Officer and duly
authorized officer of the
Registrant)
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ARTICLE 5
MULTIPLIER: 1000
PERIOD TYPE
9 MOS
FISCAL YEAR END
JAN 27 1996
PERIOD START
JAN 28 1996
PERIOD END
OCT 26 1996
CASH
19,019
SECURITIES
0
RECEIVABLES
61,366
ALLOWANCES
0
INVENTORY
827,845
CURRENT ASSETS
950,801
PP&E
593,787
DEPRECIATION
172,183
TOTAL ASSETS
1,531,733
CURRENT LIABILITIES
805,321
BONDS
290,000
PREFERRED MANDATORY
0
PREFERRED
0
COMMON
34
OTHER SE
393,583
TOTAL LIABILITY AND EQUITY
1,531,733
SALES
532,563
TOTAL REVENUES
532,563
CGS
341,171
TOTAL COSTS
341,171
OTHER EXPENSES
76,767
LOSS PROVISION
0
INTEREST EXPENSE
9,592
INCOME PRETAX
(5,014)
INCOME TAX
(2,392)
INCOME CONTINUING
(2,622)
DISCONTINUED
0
EXTRAORDINARY
0
CHANGES
0
NET INCOME
(2,622)
EPS PRIMARY
(0.08)
EPS DILUTED
0.000