Barnes and Noble 1999 Annual Report Download

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1999 ANNUAL REPORT

Table of contents

  • Page 1
    1999 ANNUAL REPORT

  • Page 2
    ... ANNUAL REPORT A N Y B O O K ...A N Y T I M E ...A N Y W H E R E Books Music e Browse Subjects QUICK SEARCH Keyword Welcome to the new sound of shopping! Clockwise from top left: Barnes & Noble store in Flagstaff, Arizona; Barnes & Noble.com; Barnes & Noble store in Mayfair Mall, Milwaukee...

  • Page 3
    Consolidated Financial Highlights 3 Letter to Our Shareholders 4 1999 in Review 6 MULTI-CHANNEL ACCESS: Retail 8 Online 16 Digital 18 Looking Ahead 19 1999 Bestsellers & Award Winners 20 1999 Financial Review 22 A N N UA L R E P O RT Shareholder Information 59 1999 2

  • Page 4
    ... $3.0 BARNES & NOBLE BOOKSTORE SALES in billions RETAIL EBITDA in millions $3.3 $2.8 $3.0 $273.5 $222.3 $344.4 $2.8 '97 '98 '99 '97 '98 '99 '97 '98 '99 DILUTED EARNINGS PER COMMON SHARE $1.81 ( 1 ) BARNES & NOBLE.COM SALES ( 2) in millions MARKET VALUE OF PUBLICLY TRADED INVESTMENTS...

  • Page 5
    ...: the Internet is increasing consumer spending and, as a result, consumers are driving the new economy. While it is true that some online sales are transfers of traditional store business, the numbers clearly show that consumers are spending more. Just look at the results Barnes & Noble posted for...

  • Page 6
    ... the ultimate enabler. As it applies to Barnes & Noble, the Internet enables us to put a super bookstore on every customer's desk. It also enables us to create a virtual community, and enables us to render the community we already have, whole. In short, online technology is making us even better...

  • Page 7
    ..., Barnes & Noble Booksellers; Darrell Meussner, Vice President & Chief Financial Officer of Retail & Distribution; Mitchell Klipper, President, Barnes & Noble Development; Alan Kahn, Chief Operating Officer; Mary Ellen Keating, Senior Vice President, Corporate Communications & Public Affairs. 1999...

  • Page 8
    ... itself. Barnes & Noble has moved assertively to position itself at the forefront of this revolution, investing heavily in online publishing, print-on-demand, and e-book technologies. In many respects, 1999 was a pivotal year for Barnes & Noble. We proved our belief that retailing and e-commerce can...

  • Page 9
    ... and PC entertainment market has been growing at an 18 percent compounded annual growth rate for the past five years. its retail base throughout 1999, opening 38 new superstores across the United States from Clifton, New Jersey to San Mateo, California. Featured in the pages of this annual report...

  • Page 10
    9 Barnes & Noble stores From top: Flagstaff, Arizona; Burlington, Massachusetts; Columbus, Ohio; Clifton, New Jersey.

  • Page 11
    ... Officer; Daniel DeMatteo, President & Chief Operating Officer. AA NN NN UA R ER PE OP RT UL AL O RT Real Estate From left: Mitchell Klipper, President, Barnes & Noble Development; David Deason, Vice President, Barnes & Noble Development. 199 99 9 10 Barnes & Noble store in Columbus, Ohio...

  • Page 12
    ... Internet technology into our stores, connecting more than 500 Barnes & Noble stores to the vast inventory of our Web site, which includes a substantial number of out-of-print selections. Our customers now have access to some 3 million titles, all ready for immediate delivery to their homes, offices...

  • Page 13
    ... on the receipt. Barnes & Noble EGCs can be re-used as many times as needed until their stored value is depleted. They are a great advance in customer service. Since a seamless network of integrated services is our goal, we are also crosspromoting our various distribution channels as evidenced...

  • Page 14
    13 Authors' Showcase Clockwise from top left: Lily King, The Pleasing Hour ; Peter Jennings and Todd Brewster, The Century ; J.K. Rowling, Harry Potter and the Prisoner of Azkaban ; Frank McCourt, 'Tis.

  • Page 15
    ... Manager of Barnes & Noble Distribution Center; Robert Wietrak, Vice President, Merchandising; Marcella Smith, Director of Small Press & Vendor Relations. O ur author events drew record crowds across the country in 1999, with some signings inspiring all-night vigils outside the store to ensure...

  • Page 16
    ... is emotional and personal. In an environment being transformed by technology, new information and entertainment options, that personal brand relationship is the key to our enduring success and our mark of distinction. Barnes & Noble children's department at Lincoln Triangle store, New York City.

  • Page 17
    ... will create more store traffic." STE P H E N R I G G I O VI C E C HAI R MAN, BAR N E S & N O B LE.C O M O n May 25, 1999, Barnes & Noble took its two-year-old online bookselling subsidiary - Barnes & Noble.com - public in what was the largest Internet IPO in history at the time. Total proceeds...

  • Page 18
    ... key to delivering on the promise of retail Internetting. This past holiday season, Barnes & Noble.com's execution was among the best in e-commerce. And we have two new fulfillment centers with nearly one million square feet in total space opening in Memphis and Reno in 2000 that will improve that...

  • Page 19
    ... 10 times the number we stocked just three years ago, and vastly larger than the inventory of any other book vendor, including wholesalers. Our goal is to stock every known book in print. Our out-of-print selection alone - now A N N UA L R E P O RT and online. Barnes & Noble.com has recently opened...

  • Page 20
    ... created is a real-time digital book network, capable of delivering any book, anytime, anywhere." Barnes & Noble store in Sioux Falls, South Dakota. L E O NA R D R I G G I O C HAI R MAN & C E O, BAR N E S & N O B LE, I N C. distribution centers. With this technology, we can print books to order...

  • Page 21
    ...Strategies: Doing What Works, Doing What Matters Phillip C. McGraw Hyperion (134,772) Suzanne Somers' Get Skinny on Fabulous Food Suzanne Somers Crown Publishing...Bret Lott Washington Square Press (123,552) TOP 10 PAPERBACK NON-FICTION Dr. Atkins' New Diet Revolution Robert C. Atkins, M.D. Avon (643,...

  • Page 22
    ... Hour Lily King Atlantic Monthly Press Barnes & Noble Maiden Voyage Award The Jackal of Nar, Book One of Tyrants and Kings John Marco Spectra The New Yorker Book Awards Fiction: Close Range Annie Proulx Scribner Non-fiction Winner: Out of Place Edward Said Knopf Poetry Winner: Vita Nova Louise...

  • Page 23
    ... 37 Consolidated Balance Sheets 38 Consolidated Statements of Changes in Shareholders' Equity 39 Consolidated Statements of Cash Flows 40 Notes to Consolidated Financial Statements 41 Report of Independent A N N UA L R E P O RT Certified Public Accountants 58 1999 Shareholder Information 59...

  • Page 24
    ... financial 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. The Company's fiscal year is comprised of...

  • Page 25
    ...d Fiscal Year (Thousands of dollars, except per share data) 1999(1) 1998 1997 1996 1995 STATEMENT OF OPERATIONS DATA: Sales Barnes & Noble stores B. Dalton stores Barnes & Noble.com Other Total bookstore sales Babbage's Etc. stores Total sales Cost of sales and occupancy Gross profit Selling...

  • Page 26
    ... 62,434,000 62,434,000 OTHER OPERATING DATA: Number of stores Barnes & Noble stores(8) B. Dalton stores(9) Babbage's Etc. stores(10) Total Comparable store sales increase (decrease)(11) Barnes & Noble stores B. Dalton stores Babbage's Etc. stores Capital expenditures $ 542 400 526 1,468 520 489...

  • Page 27
    ...for Barnes & Noble stores (due to the high sales volume associated with grand openings). Comparable store sales for fiscal years 1999, 1998 and 1997 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...

  • Page 28
    ... 526 video game and entertainment software stores under the Babbage's, Software Etc. and GameStop trade names, and a Web site, gamestop.com. The Company employed approximately 37,400 full- and part-time employees and created nearly 3,000 new jobs nationwide during fiscal 1999. Barnes & Noble is...

  • Page 29
    ...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...

  • Page 30
    ... 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: Fiscal Year (Thousands of dollars) 1999 1998 1997 Sales Bookstores(1) Video game and entertainment software stores Total Operating Profit...

  • Page 31
    ...Company: Fiscal Year 1999 1998 1997 Sales Cost of sales and occupancy Gross margin Selling and administrative expenses Depreciation and amortization Pre-opening expenses Operating margin* Interest expense, net and amortization of deferred financing fees Equity in net loss of Barnes & Noble.com Gain...

  • Page 32
    ...'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...

  • Page 33
    ... in net losses of Barnes & Noble.com Share of net earnings (losses) from other equity investments Gain on sale of investment in NuvoMedia Total Investing Activities Other Adjustments Ingram write-off Change in accounting for pre-opening costs Total Other Adjustments Consolidated EPS $ 1.62 0.10...

  • Page 34
    ... 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 Amortization As a result of the formation of the limited liability company with Bertelsmann, the Company began accounting...

  • Page 35
    ...-average age per square foot of the Company's 542 Barnes & Noble stores was 3.9 years as of January 29, 2000 and is expected to increase to approximately 4.5 years by February 3, 2001. As the relatively young Barnes & Noble stores mature, and as the number of new stores opened during the fiscal year...

  • Page 36
    ... the store expansion planned for the next fiscal year, management believes cash flows generated from operating activities, 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...

  • Page 37
    ... with Year 2000 compliance by the Company or its service or supply providers, 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...

  • Page 38
    ... Cost of sales and occupancy Gross profit Selling and administrative expenses Depreciation and amortization Pre-opening expenses Operating profit Interest (net of interest income of $1,449, $976 and $446, respectively) and amortization of deferred financing fees Equity in net loss of Barnes & Noble...

  • Page 39
    ... Investment in Barnes & Noble.com Other noncurrent assets Total assets Liabilities and Shareholders' Equity Current liabilities: Accounts payable Accrued liabilities Total current liabilities Long-term debt Deferred income taxes Other long-term liabilities Shareholders' equity: Common stock; $.001...

  • Page 40
    ... of 794,728 common stock options, including tax benefits of $6,302 Barnes & Noble.com Inc. IPO (net of deferred income taxes of $84,114) Treasury stock acquired, 4,025,900 shares Balance at January 29, 2000 See accompanying notes to consolidated financial statements. $ 66 446,265 -- 9,658...

  • Page 41
    ... exercise of common stock options including related tax benefits Payment of note premium Purchase of treasury stock through repurchase program Net cash flows from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash...

  • Page 42
    ... 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...

  • Page 43
    ... Opinion No. 25, "Accounting for Stock Issued to Employees." Reclassifications A N N UA L R E P O RT 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...

  • Page 44
    ... expense associated with these agreements of $470 and $440 during fiscal years 1999 and 1998, respectively. Selected information related to the Company's revolving credit facility is as follows: Fiscal Year 1999 1998 1997 Trade accounts Bankcard receivables Receivables from landlords for leasehold...

  • Page 45
    ... 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. Prior to fiscal 1999, the Company accounted for...

  • Page 46
    ... 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...

  • Page 47
    .... Weighted-average actuarial assumptions used in determining the net periodic costs of the Pension Plan and the Postretirement Plan are as follows: Pension Plan Fiscal Year 1999 1998 1997 1999 Postretirement Plan 1998 1997 Discount rate Expected return on plan assets Assumed rate of compensation...

  • Page 48
    ... of benefit obligations, plan assets and funded status of the Pension Plan and the Postretirement Plan: Pension Plan Fiscal Year 1999 1998 Postretirement Plan 1999 1998 Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Transfer to Barnes & Noble.com...

  • Page 49
    ... Gain on equity increase in Barnes & Noble.com Total deferred tax liabilities Deferred tax assets: Inventory Lease transactions Reversal of estimated accruals Restructuring charge Insurance liability Deferred income Unrealized holding losses on available-for-sale securities Other Total deferred tax...

  • Page 50
    ...: bookstores and video game and entertainment software stores. Bookstores This segment includes 542 book "super" stores under the Barnes & Noble Booksellers, Bookstop and Bookstar names which generally offer a comprehensive title base, a café, a children's section, a music department, a magazine...

  • Page 51
    ...76,951 -76,951 Operating Profit Fiscal Year 1999 1998 1997 Equity Investment in Barnes & Noble.com 1999 1998 1997 Bookstores Operating margin $ 216,678 6.64% 185,142 6.16% 145,356 5.20% $ 240,531 82,307 -- Video game & entertainment software stores Operating margin 15,432 6.90% -NA -NA...

  • Page 52
    ... at that time of twice the exercise price of the Right. Furthermore, at any time after a person or group acquires 15 percent or more of the outstanding Common Stock of the Company but prior to the acquisition of 50 percent of such stock, the Board of Directors may, at its option, exchange part or...

  • Page 53
    ... per year primarily due to increasing competition from superstores and declining mall traffic. During the fourth quarter of fiscal 1995, the Company accelerated its mall bookstore closing program with the aim of forming a core of more profitable B. Dalton stores, and provided for these closing costs...

  • Page 54
    ... 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 1999, 1998 and 1997 were estimated at $10.00, $12.96 and $8.05 respectively, using the Black-Scholes option-pricing model with...

  • Page 55
    ...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: Fiscal Year 1999...

  • Page 56
    ..., 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...

  • Page 57
    ... in New Jersey. The Company has received from Barnes & Noble.com $473 and $310 for such subleased space during fiscal 1999 and 1998, respectively. 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...

  • Page 58
    ... to Consolidated Financial Statements. (d) As a result of the formation of Barnes & Noble.com on October 31, 1998, each quarter of fiscal 1998 presents the Company's equity in net loss of Barnes & Noble.com as a separate line item in accordance with the equity method of accounting. Accordingly, the...

  • Page 59
    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 January 29, 2000 and January 30, 1999 and the related consolidated statements of operations, ...

  • Page 60
    ... Chairman and Acting Chief Executive Officer Barnes & Noble.com Matthew A. Berdon Chairman of the New York Division Urbach, Kahn & Werlin Michael J. Del Giudice Managing Director Millennium Credit Markets LLC William Dillard II Chief Executive Officer Dillard Department Stores, Inc. Irene R. Miller...

  • Page 61
    ... Tape. Fiscal Year High 1999 Low High 1998 Low Corporate Headquarters: Barnes & Noble, Inc. 122 Fifth Avenue New York, New York 10011 (212) 633-3300 Common Stock: New York Stock Exchange, Symbol: BKS Transfer Agent and Registrar: The Bank of New York Shareholder Relations, Department 11E P.O. Box...

  • Page 62
    BARNES & NOBLE, INC. 122 FIFTH AVENUE NEW YORK, NEW YORK 10011