Barnes and Noble 1998 Annual Report Download

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B A R N E S & N O B L E
1 9 9 8 A N N U A L R E P O R T

Table of contents

  • Page 1
    B A R N E S & N O B L E 1 9 9 8 A N N U A L R E P O R T

  • Page 2
    C O N T E N T S Consolidated Financial Highlights Letter to Our Shareholders 1998 in Review Our Customers Speak 2 3 4 11 Community Events Authors' Showcase Looking Ahead 12 14 15 16 1998 Bestsellers and Award Winners I N P O C K E T Financial Data and Shareholder Information

  • Page 3
    The 500th Barnes & Noble Store Dallas, Texas Store photo: Whitney Cox

  • Page 4
    Barnes & Noble, I nc. C O N S O L I D A T E D F I N A N C I A L H I G H L I G H T S Fiscal Ye ar (In millio ns o f do llars, e xce pt Pe r Share data) 1998 $ 3,0 05.6 188.6 92.4 (2) 1997 $ 2,796.9 147.3 64.7 .93 13.1% 1996 (1) $ 2,448.1 119.7 51.2 .75 12.0% Sale s O p e rating Pro fit Ne t ...

  • Page 5
    ... 35 ye ars into the future to do a five -ye ar plan. We ll, I'm no t g o ing to say I can se e that far ahe ad (sho w me so me o ne who can), b ut o ur share ho lde rs and custo me rs can b e sure o f o ne thing : The b o o k o n Barne s & No b le is o nly up to the se co nd...

  • Page 6
    ...W The 500th Barnes & Noble store in Dallas, Texas I NTRODUCTI ON In 1998, Barne s & No b le ce le b rate d the o pe ning o f its 50 0th sto re in Dallas, Te xas. That sto re , picture d he re and o n the inside co ve r, stands as a symb o l o f the e nduring succe ss o f o ur missio n: b ring ing...

  • Page 7
    ...: Calabasas, California; Baltimore, M aryland; Salt Lake City, Utah; In the marke tplace , Barne s & No b le is a ho use ho ld name and the do minant b o o kse lling franchise . O ur sto re s are ne ig hb o rho o d institutio ns that have b e co me part o f the so cial fab ric o f the ir lo cal co...

  • Page 8
    ... Salt Lake City sto re mirro rs, in its cle ar simplicity, the g rande ur o f the Ro cky Mo untains. The sto re is a natural e xte nsio n o f the surro unding e nviro nme nt; o ur b o o k o ffe ring s are a re fle ctio n o f the taste s o f the lo cal co mmunity. In Calab asas, Califo rnia, o ur ne...

  • Page 9
    Clockwise from top left: Orange, California; Birmingham, Alabama; Boynton Beach, Florida pub lishe r imprints we carry, including many small inde pe nde nt pub lishe rs and unive rsity pre sse s. Re ce ntly, a study b y the Bo o k Industry Study Gro up and the Pub lishe rs' Marke ting Asso ciatio n...

  • Page 10
    Barnes & Noble's music and children's departments,and café. Custo me r spe cial o rde rs incre ase d in 1998, due in part to the ro llo ut o f Bo o kMaste r, o ur ne w in-sto re o pe rating syste m, no w installe d in appro ximate ly 25 pe rce nt o f the Barne s & No b le sto re s. Bo o kMaste r ...

  • Page 11
    ... A. Tolworthy, President, Barnes & Noble Booksellers; J. Alan Kahn, Chief Operating Officer; M itchell S. Klipper, President, Barnes & Noble Development RETAI L OPERATI NG PROFI TS The re tail b usine ss ag ain po ste d o pe rating pro fits in all fo ur q uarte rs. O pe rating pro fit fo r the ye...

  • Page 12
    Barnes & Noble, I nc. EARNI NGS Co nso lidate d ne t e arning s fo r 1998 we re $92.4 millio n, $1.29 pe r dilute d share . The y include 10 0 pe rce nt o f the re sults o f b arne sandno b le .co m fo r the first thre e q ...

  • Page 13
    ..., Alabama; Cape Girardeau, M issouri; Lincoln, Nebraska; Cleveland Heights, Ohio; Corpus Christi, Texas; and Cincinnati, Ohio. The social worker at Etta's school wrote that the children " had never before received a new book that was gift wrapped with their name on it." OUR CUSTOMERS SPEAK Barnes...

  • Page 14
    ... n at o ur Inne r Harb o r sto re ; " Sto ry Time " in o ur childre n's de partme nt in Se attle , WA; wo me n spinning wo o l at the " Re naissance Gala" in o ur Ro che ste r, MN, sto re ; and in the ce nte r, Cliffo rd the Big Re d Do g e nte rtains childre n in o ur sto re in Salt Lake City, UT.

  • Page 15
    Barnes & Noble, I nc. O ur...ur sto re s and the ir co mmunitie s, Barne s & No b le 's spo nso rship o f First Bo o k put b o o ks in the hands o f 50,0 0 0 disadvantag e d childre n in 1998. With o ur... , in Cincinnati, in ho no r o f Dr. Martin Luthe r King , Jr. Day, o ur sto re and a lo cal o rg ...

  • Page 16
    ... ro up fo r autho rs. Its annual award, spo nso re d b y Barne s & No b le , this ye ar re co g nize d E.L. Do ctro w, Edward Alb e e and Susan So ntag fo r the ir co ntrib utio ns to suppo rting ne w write rs. O ur hig hly acclaime d " Disco ve r Gre at Ne w Write rs" award re co g nize s an autho...

  • Page 17
    ... pub lic o ffe ring (IPO ) fo r this co mpany, has place d us in an e xtre me ly e nviab le po sitio n, e spe cially g ive n the incre asing ly co mpe titive nature o f the b o o kse lling industry. Ve ry simply, we no w have two we ll-capitalize d ve hicle s that can b e use d to e xplo re ne...

  • Page 18
    Barnes & Noble, I nc. 1 9 9 8 B E S T S E L L E R S & A W A R D W I N N E R S Hardcover Fiction The Street Lawyer Jo hn Grisham Do ub le day (265,294) Hardcover Nonfiction Tuesdays With Morrie Mitch Alb o m Do ub le day (321,707) Paperback Fiction Divine Secrets of the Ya-Ya Sisterhood Re b ...

  • Page 19
    ... of Jazz Gary Giddins Oxford University Press Poetry: The Bird Catcher Marie Ponsot Knopf 1998 Barnes & Noble Maiden Voyage Award Rewind Terry England Avon CHILDREN'S BOOK AWARDS Caldecott Medal Illustrator: Mary Azarian Snowflake Bentley Houghton Mifflin Newbery Medal Holes Louis Sachar Farrar...

  • Page 20
    B A R N E S & N O B L E 1 9 9 8 A N N U A L R E P O R T

  • Page 21
    ..., more than eight million. A powerful search engine, one-click ordering, extensive author chats, book reviews and expert commentary provide a fast, convenient and informed shopping experience. barnesandnoble.com is the exclusive bookseller to America Online (AOL)'s more than 16 million subscribers...

  • Page 22
    The virtual bookstore as seen on our television campaign.

  • Page 23
    ... custo me rs and affiliate s. Fo r the 1998 fiscal year (fro m January 31, 1998 to January 30, 1999), we acco mplished the fo llo wing : Sale s ro se 381 pe rce nt, fro m $14.6 millio n to $70.2 millio n; 1,250,0 0 0 custo me rs fro m 177 co untrie s sho ppe d at o ur site , an incre ase o f appro...

  • Page 24
    ... William Duffy, Vice President, Operations Built by bo o ksellers fo r bo o k lo vers, barnesandno ble.co m o ffers the widest selectio n o f bo o ks, 3 extensive bo o k reviews and expert co mmentary, alo ng with co mpetitive disco unts. Visito rs to o ur site have access to the larg est o nline...

  • Page 25
    ... a vast array o f b o o ks in multiple lang uag e s. O n March 18, 1999, Barne s & No b le anno unce d the filing o f a re g istratio n state me nt with the Se curitie s and Exchang e Co mmissio n fo r an initial pub lic o ffe ring (IPO ) o f Class A Co mmo n Sto ck in b arne sandno b le .co m. Whe...

  • Page 26
    ...THANK YOU! - I recently ordered a book titled Urshurak. I used your Used Book service on " The book arrived in less time than the post on the Internet! Order to delivery took less than 20 hrs!" - Wayne " Thank you for taking care of my recent book order. What a great your web page. I have been...

  • Page 27
    ...o the r o nline b o o kse lle r, disco unte d up to 90 pe rce nt; A cle ane r de sig n and sho rte ne d do wnlo ad time , e nab ling sho ppe rs to g e t whe re the y want faste r; An unsurpasse d inve nto ry o f o ve r six millio n o ut-o f-print and rare b o o ks; â- â- â- â- â- â- â-

  • Page 28
    ...ic partne rships with te n o f the to p twe nty We b site s, including CNN, Lyco s and USA To day. The co mpany's affiliate ne two rk pro vide s the b e st linkag e and b e st re po rting to o ls, including daily update d sale s info rmatio n. Ne w pro g rams and sig nificant ag re e me nts include...

  • Page 29
    ...30 0,0 0 0 alb um title s and 140,0 0 0 mo vie listing s. In 1999, we will sig nificantly e xpand o ur pro duct o ffe ring s in music CDs and vide o ; and Reader's Catalog. b arne sandno b le .co m acq uire d the rig hts to The Re ade r's Catalo g , a siste r pub licatio n o f The Ne w Yo rk Re vie...

  • Page 30
    ... Center"; and a permanent "Africana" area. Two new superstores, Music and Video, will debut later this year. We entered 1999 poised to increase our market share in the fast-growing world of online retailing. Our goal is to be the leading Internet retailer of books and related products, offering...

  • Page 31
    B A R N E S & N O B L E 1 9 9 8 A N N U A L R E P O R T & F I N A N C I A L D A T A S H A R E H O L D E R I N F O R M A T I O N

  • Page 32
    ... data of Barnes & Noble, Inc. and its wholly owned 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. T he Company's fiscal year is comprised of 52 or 53 weeks...

  • Page 33
    ...ENT OF OPERATI ONS DATA: Sales Barnes & Noble stores B. Dalton stores barnesandnoble.com Other Total sales Cost of sales and occupancy Gross profit Selling and administrative expenses Depreciation and amortization Pre-opening expenses Restructuring charge(1) Operating profit (loss) Interest expense...

  • Page 34
    ... Book Shops, eight Scribner's Bookstores and seven smaller format bookstores operated under the Barnes & Noble trade name representing the Company's original retail strategy as of J anuary 30, 1999. (8) Comparable store sales increase (decrease) is calculated on a 52-week basis, and includes sales...

  • Page 35
    ... friendly search engine, email book reviews and product-notification services, Software and Magazine stores, a Gift Center and Bargain Book store and online gift certificates. Also during 1998, the site began to add music and video to its product offerings, as well as an out-of-print book service...

  • Page 36
    ... & Noble stores are determined using stores open at least 15 months, due to the high sales volume associated with grand openings. Comparable store sales increase (decrease) is computed on a 52-week basis for fiscal 1996. * Based upon information reported in trade publications and public filings. 5

  • Page 37
    ... dues, lease-required advertising and adjustments for LIFO. Cost of sales and occupancy increased to $2.143 billion in fiscal 1998 from $2.019 billion in fiscal 1997. T he Company' s gross margin rate increased to 28.7% in fiscal 1998 from 27 .8% in fiscal 1997. Excluding barnesandnoble.com in...

  • Page 38
    ... have increased 9.9% in fiscal 1998. T he current year increase in retail selling and administrative expenses reflects the opening of an additional 50 Barnes & Noble stores, the full year implementation of a new wage plan, and expenses associated with new store system enhancements. Depreciation and...

  • Page 39
    ... T he Company's business, like that of many retailers, is seasonal, with the major portion of sales and operating pro fit realized during the quarter which includes the Christmas selling season. T he growth in Barnes & Noble stores continues to reduce such seasonal fluctuation. The Company has...

  • Page 40
    ...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 as well...

  • Page 41
    ... of operations of barnesandnoble.com as a consolidated wholly owned subsidiary for all other periods presented. In March 1999, the Company announced the filing of a registration statement with the Securities and Exchange Commission (SEC) for an initial public offering of Class A co mmon stock in...

  • Page 42
    ... under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Newly I ssued Accounting Pronouncements In April 1998, the Acco unting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SO P 98-5 requires an entity to expense...

  • Page 43
    ... 2000 compliant, is an inventory management system with integrated point-of-sale features that utilizes a proprietary data-warehouse-based just-intime replenishment system. It enhances communications and real-time access to the Company's network of stores, distribution center, and wholesalers. T he...

  • Page 44
    ... of sales and occupancy Gross profit Selling and administrative expenses Depreciation and amortization Pre-opening expenses Operating profit Interest (net of interest income of $976, $446 and $2,288, respectively) and amortization of defer red financing fees Equity in net loss of barnesandnoble.com...

  • Page 45
    ...except per share data) January 30, 1999 January 31, 1998 Assets Current assets: Cash and cash equivalents Receivables, net Merchandise inventories Prepaid expenses and other current assets Total current assets Property and equipment: Land and land improvements Buildings and leasehold improvements...

  • Page 46
    ... benefits of $9,002 barnesandnoble.com llc issuance of membership units (net of deferred income taxes of $26,325) Net earnings Balance at January 30, 1999 See accompanying notes to consolidated financial statements. - - $ 69 36,351 - 523,517 - 92,376 155,203 36,351 92,376 678,789 Barnes & Noble...

  • Page 47
    ... of common stock options including related tax benefits Payment of note premium Net cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Changes in operating assets and liabilities...

  • Page 48
    .... Capitalized lease acquisition costs are being amortized over the average lease terms of the underlying leases. In March 1998, the Acco unting Standards Ex ecutive C ommittee issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use...

  • Page 49
    ... and February 1, 1997 contained 52 weeks, 52 weeks and 53 weeks, respectively. Pre-opening Expenses In April 1998, the Acco unting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SO P 98-5 requires an entity to expense all...

  • Page 50
    ..., because of its recent and frequent repricing based upon market conditions. Interest rate swap agreements are valued based on market quotes obtained from dealers. T he Company also maintains an investment in Chapters Inc., a Canadian book retailer. T he fair value of the investment in Chapters Inc...

  • Page 51
    ... Total Company contributions charged to employee benefit expenses for the Savings plan were $3,090, $2,545 and $2,115 during fiscal 1998, 1997 and 1996, respectively. Weighted-average actuarial assumptions used in determining the net periodic pension and other post retirement benefit costs and the...

  • Page 52
    ... of year Actual return on assets Employer contributions Benefits paid Transfer to barnesandnoble.com Fair value of plan assets at end of year Funded status Unrecognized net actuarial loss (gain) Unrecognized prior service cost Unrecognized net obligation remaining Accrued Benefit Cost 1998 $ 30,734...

  • Page 53
    ...and J anuary 31, 1998 are as follows: January 30, 1999 Deferred tax liabilities: Operating expenses Depreciation barnesandnoble.com Total deferred tax liabilities Deferred tax assets: Inventory Lease transactions Reversal of estimated accruals Restructuring charge Insurance liability Deferred income...

  • Page 54
    ... Company has granted stock options to certain key executives and directors. T he vesting terms and contractual lives of these grants are similar to that of the incentive plans. 9. Restructuring Charge From 1989 through 1995, the Company closed, on average, between 40 and 60 mall bookstores per year...

  • Page 55
    ... valuation model was develo ped 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 vo latility. Because the...

  • Page 56
    ..., 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. T he Complaint seeks certification of a class consisting of all retail booksellers in the United States, whether...

  • Page 57
    ... the operations of 14 retail software departments located within Barnes & Noble stores. As of J anuary 30, 1999 there are 13 of these departments remaining. T he Company pays all rent related to these properties for which it receives a license fee fro m Babbage's equal to 7.0% of the gross sales of...

  • Page 58
    for pay roll pro cessing, 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 ...

  • Page 59
    ...Barnes & Noble, Inc. and subsidiaries as of J anuary 30, 1999 and J anuary 31, 1998 and the related consolidated statements of operations, changes in shareholders... hose standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ...

  • Page 60
    ... & Noble, Inc. Stephen Riggio V ice Chairman, Barnes & Noble, Inc. Matthew A. Berdo n Chairman of the New York Division Urbach, Kahn & Werlin W illiam Dillard II President and C hief Operating Officer D illard Department Stores, Inc. J an Michiel Hessels Chief Executive Officer Vendex International...

  • Page 61
    ...from our shareholders and potential investors are always welco me. General financial information can be obtained via the Internet by visiting the Company's Investor Relations Web site: http: //www.shareho lder.co m/bks/ Up-to-the-minute news about Barnes & Noble, requests for Annual Reports, Form 10...