Barnes and Noble 2000 Annual Report Download

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2000 ANNUAL REPORT
BUILDING A CUSTOMER NETWORK

Table of contents

  • Page 1
    B U I L D I N G A C U S T O M E R N E T W O R K 2000 ANNUAL REPORT

  • Page 2
    ... of Barnes & Noble store in Cityplace, West Palm Beach, Florida. CONTENTS 1 2 4 6 8 8 14 16 18 20 22 61 CONSOLIDATED FINANCIAL HIGHLIGHTS LET TER TO OUR SHAREHOLDERS 2000 FINANCIAL HIGHLIGHTS BUILDING A CUSTOMER NETWORK THE COMPONENTS OF OUR CUSTOMER NETWORK RETAIL ONLINE VIDEO GAMES LOOKING...

  • Page 3
    ...69 0.63 $3,486.0 2 3 2 .1 122.9 124.5 1 .7 2 1 .7 5 $3,005.6 1 8 5 .1 94.8 92.4 1.32 1.29 T O TA L R E TA I L S A L E S in millions 4,376 3,486 3,006 BARNES & NOBLE BOOKSTORE SALES in millions 3,618 3,262 3,006 98 99 2000 98 99 2000 R E TA I L E B I T D A ( 1 ) in millions 344.4 273.5 385...

  • Page 4
    ...," which involved the thorny issue of the physical distribution of goods, was proclaimed to be a new "paradigm," notwithstanding the reality that warehouse operations, customer service centers, merchandise organizations and a myriad of other details had to be rationalized in accordance with tried...

  • Page 5
    ... their customers require it and because their shareholders will benefit from the long-range value of the sophisticated delivery mechanisms that have been created. For Barnes & Noble, which exists on the cutting edge of the information revolution, the future could not be brighter. Our store systems...

  • Page 6
    .... Our "super" stores accounted for 72.4 percent of those revenues and continued to lead the industry with comparable store sales increases of 4.9 percent. The opening of 32 new "super" stores further contributed to our top-line growth, as did our June acquisition of Funco, Inc., an electronic games...

  • Page 7
    ... our Internet Service Counters, a membership program called Readers' Advantage and a new returns policy. Barnes & Noble.com - in which Barnes & Noble, Inc. holds a 36 percent stake - reported a 65 percent surge in sales to $320 million for its fiscal year ended December 31, 2000. Their gross margin...

  • Page 8
    ... K initiatives as key to increasing sales in both our retail and online channels. Our Internet Service Counters leverage the real strength of the Barnes & Noble network - tens of millions of affluent, educated consumers who are the most desirable retail demographic group in America. We believe this...

  • Page 9
    300,000,000 ANNUAL VISITS 40,000,000 CUSTOMERS 180,000,000 TRANSACTIONS 215,000,000 BOOKS DISTRIBUTED 7

  • Page 10
    ...titles available for shipping within 24 hours than any other online bookseller. Babbage's Etc. is the world's largest specialty retailer of new and pre-played software, hardware and game accessories for the PC and game-console systems. iUniverse.com, the world's largest publishing portal, is shaking...

  • Page 11
    ...inventory of Barnes & Noble.com for delivery to the destination of their choice or to their local Barnes & Noble store. A membership program called Readers' Advantage rewards customers with special offers and additional discounts at Barnes & Noble stores and on Barnes & Noble.com. Our Returns Policy...

  • Page 12
    T H E C O M P O N E N T S O F O U R C U S T O M E R N E T W O R K Retail Ex terior above: Barnes & Noble store in Mira Mesa Marketplace, Mira Mesa, California. Ex terior right: Barnes & Noble store in the Glendale Fashion Center, Glendale, California.

  • Page 13
    ...'s ®, Software, Etc.™, GameStop.com®‚ and FuncoLand® video-game and entertainment-software stores. Over the course of the year, we opened 32 new Barnes & Noble "super" stores in widely diverse locations ranging from The Bronx, New York to West Palm Beach, Florida to Dallas, Texas. Our store...

  • Page 14
    ... that helps booksellers better manage time-consuming tasks such as receiving, sorting, shelving, returning and scheduling; CPO, a centralized system that collapses the delivery time on publisher orders; and bninside, our new corporate intranet. As we have grown over the years, our customers have...

  • Page 15
    ... retrof itting our older listening posts to triple the hours of sample music available and introducing new listening stations with 400 CDs in 170 stores. memorable. As an example, when Anne Rice showed up for a book signing in Houston, our local booksellers arranged for live jazz music to be played...

  • Page 16
    ...Barnes & Noble stores and a special "boutique" on Barnes & Noble.com drew customer attention to these recommended books of fiction, nonfiction, photography and poetry, increasing total sales of these titles 66 percent during the campaign's first week. Together with the ADL's 30 local offices, Barnes...

  • Page 17
    ...think of us not only as their favorite bookstore, but also as a community center, study hall, children's learning space, cof feehouse and an inviting , comfor table place to meet. Former First Lady Hillary Clinton reading to a group of children at the Barnes & Noble store in Forest Hills, New York.

  • Page 18
    T H E C O M P O N E N T S O F O U R C U S T O M E R N E T W O R K Customers taking advantage of Barnes & Noble's retail Internet Service Counter. Online 7 Million Unique Visitors P e r M o n t h (1) 7. 3 M i l l i o n Customers Served (1) Nielsen/NetRatings

  • Page 19
    ... of Print College Textbooks Bargain Books eBooks Articles for Music Download DVD & PC & Video Video Games Magazine Subscriptions Online Courses ONLINE BOOKSELLING INCREASES OVERALL BOOK SALES. In fact, it is our contention that an effective e-commerce strategy can drive store traffic. Last...

  • Page 20
    ...M E R N E T W O R K Video Games " As the leader in providing video-game enter tainment in retail outlets and on the Internet, we are in a strong position to serve this rapidly growing and diversif ying market, a market whose revenues easily surpass the combined gross box of f ice receipts for all...

  • Page 21
    ... limited supply over the holiday season. Available inventory sold out within minutes, and software sales slowed as consumers waited for the new machines. As a result, sales declined across the industry, an outcome we anticipated in our strategy and marketing plan. Our investment in the video-game...

  • Page 22
    ... FOR GROWTH IN Barnes & Noble.com gives our store customers access to an unrivaled in-stock inventory of more than one million titles and an additional 20 million listings from a nationwide network of out-of-print, rare and used book dealers. Moreover, it gives our online customers the convenience...

  • Page 23
    ...And we'll continue to do that profitably in whatever way makes sense for our customers. 19 Above: Barnes & Noble store in Shor t Pump, Richmond, Virginia. Opposite page, from lef t: Barnes & Noble store in Palmdale, California; Barnes & Noble store in Waterford Lakes Town Center, Orlando, Florida.

  • Page 24
    ...Bill Phillips, Michael D'Orso, HarperCollins (371,387) Tuesdays with Morrie Mitch Albom, Doubleday (313,297) The O'Reilly Factor Bill O'Reilly, Broadway (161,933) Relationship Rescue Phillip...Eating Well for Optimum Health Andrew Weil, M.D., ...) The Poisonwood Bible Barbara Kingsolver, HarperCollins...

  • Page 25
    ... KING AWARD Miracle's Boys Jacqueline Woodson Putnam BARNES & NOBLE DISCOVER GREAT NEW WRITERS AWARD Girl with a Pearl Earring Tracy Chevalier Dutton / Plume BOOKER PRIZE The Blind Assassin Margaret Atwood Doubleday BARNES & NOBLE MAIDEN VOYAGE AWARD Glasswright's Apprentice Mindy L. Klasky Roc

  • Page 26
    ... 42 43 44 60 61 CONSOLIDATED STATEMENTS OF OPERATIONS CONSOLIDATED BAL ANCE SHEETS CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUIT Y CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS SHAREHOLDER INFORMATION

  • Page 27
    ...year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of January. The Statement of Operations Data for... and the 52 weeks ended January 30, 1999 (fiscal 1998) and the Balance Sheet Data as of February 3, 2001 and January 29, 2000 are derived from... BARNES & NOBLE, I NC. 23

  • Page 28
    ... DATA: Sales Barnes & Noble stores (4) B. Dalton stores (5) Barnes & Noble.com Other Total bookstore sales Video game and entertainment software stores (6) Total sales Cost of sales and occupancy Gross profit Selling and administrative expenses Depreciation and amortization Pre-opening expenses...

  • Page 29
    ... DATA: Number of stores Barnes & Noble stores (4) B. Dalton stores (5) Video game and entertainment software stores (6) Total Comparable store sales increase (decrease) (13) Barnes & Noble stores (4) B. Dalton stores (5) Video game and entertainment software stores (6) Capital expenditures $ 569...

  • Page 30
    ... of the fiscal year. In November 2000, Barnes & Noble.com acquired Fatbrain.com, Inc. (Fatbrain), the third largest online bookseller. Barnes & Noble.com issued shares of its common stock to Fatbrain shareholders. As a result of this merger, the Company and Bertelsmann each retained an approximate...

  • Page 31
    ... grand openings) and 12 months for B. Dalton stores. Comparable store sales include relocated Barnes & Noble stores and exclude B. Dalton stores which the Company has closed or has a formal plan to close. Comparable store sales increase (decrease) for the video game and entertainment software stores...

  • Page 32
    ... bookseller on America Online's (AOL) proprietary network, the Yahoo! Inc. (Yahoo) directory and Microsoft Network (MSN). The Company, through its acquisitions of Babbage's Etc. LLC (Babbage's Etc.) and Funco, Inc. (Funco), is the nation's largest video game and PC entertainment software specialty...

  • Page 33
    ...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 34
    ... stores Video game and entertainment software stores Total STORES CLOSED Barnes & Noble stores B. Dalton stores Video game and entertainment software stores Total NUMBER OF STORES OPEN AT YEAR END Barnes & Noble stores B. Dalton stores Video game and entertainment software stores (4) Total SQUARE...

  • Page 35
    ... Noble stores are determined using stores open at least 15 months, due to the high sales volume associated with grand openings. Comparable store sales for B. Dalton stores are determined using stores open at least 12 months. Comparable store sales for the video game and entertainment software stores...

  • Page 36
    ... Funco in June 2000 (the Acquisitions), the Company has become the nation's largest video game and PC entertainment software specialty retailer. Fiscal 2000 sales from Barnes & Noble "super" stores, which contributed 72.4% of total sales or 87.6% of total bookstore sales, increased 12.3% to $3.170...

  • Page 37
    ... 2000 from 6.6% of sales in fiscal 1999 as a result of the inclusion of Calendar Club operating results. Fatbrain.com, Inc. (Fatbrain), the third largest online bookseller. Barnes & Noble.com issued shares of its common stock to Fatbrain shareholders. As a result of this merger, the Company and...

  • Page 38
    ...the 50 new stores opened during fiscal 1998 and the opening of an additional 38 Barnes & Noble stores during 1999. This increase was partially offset by declining sales of B. Dalton, due to 89 store closings. Retail Earnings Per Share Bookstores Video Game & Entertainment Software Stores Retail EPS...

  • Page 39
    ...Ingram. The Company's application before the Federal Trade Commission for the purchase was formally withdrawn. As a result, other income reflects a one-time charge of $5.0 million for acquisition costs. These costs relate primarily to legal, accounting and other transaction related costs incurred in...

  • Page 40
    ... number and timing of new store openings, as well as the amount and timing of sales contributed by new stores. Cash flows from operating activities, funds available under its revolving credit facility and vendor financing continue to provide the Company with liquidity and capital resources for store...

  • Page 41
    ... million and $141.4 million during fiscal 2000, 1999 and 1998, respectively. Capital expenditures in fiscal 2001, primarily for the opening of between 40 and 45 new Barnes & Noble stores and 75 new video game and entertainment software stores, are expected to be between $150 million and $170 million...

  • Page 42
    ... received a $25.0 million payment from Bertelsmann in connection with the IPO. The accompanying consolidated financial statements, in accordance with the equity method of accounting, reflect the Company's investment in Barnes & Noble.com as a single line item in the consolidated balance sheets...

  • Page 43
    ... in shipping service, effects of competition, possible disruptions or delays in the opening of new stores or the inability to obtain suitable sites for new stores, higher than anticipated store closing or relocation costs, higher interest rates, the performance of the Company's online initiatives...

  • Page 44
    ... financing fees Equity in net loss of Barnes & Noble.com Gain on formation of Barnes & Noble.com Other income (expense) Earnings (loss) before provision for income taxes and cumulative effect of a change in accounting principle Provision for income taxes Earnings (loss) before cumulative effect of...

  • Page 45
    ...,791 Less accumulated depreciation and amortization Net property and equipment Intangible assets, net Investment in Barnes & Noble.com Other noncurrent assets Total assets Liabilities and Shareholders' Equity Current liabilities: Accounts payable Accrued liabilities Total current liabilities Long...

  • Page 46
    ...: Net earnings Total comprehensive earnings Exercise of 837,281 common stock options, including tax benefits of $9,002 Barnes & Noble.com issuance of membership units (net of deferred income taxes of $26,325) Balance at January 30, 1999 Comprehensive earnings: Net earnings Other comprehensive...

  • Page 47
    ... flows from investing activities: Acquisition of consolidated subsidiaries, net of cash received Purchases of property and equipment Proceeds from the partial sale of iUniverse.com Proceeds from the partial sale of Chapters Inc. Proceeds from formation of Barnes & Noble.com Purchase of investments...

  • Page 48
    ... ACCOUNTING POLICIES Business Barnes & Noble, Inc. (Barnes & Noble), through its subsidiaries (collectively, the Company), is primarily engaged in the sale of books, video games and entertainment software products. The Company employs two principal bookselling strategies: its "super" store strategy...

  • Page 49
    ... to additional discounts. The membership revenue is deferred and recognized as income over the 12-month membership period. Sales returns (which are not significant) are recognized at the time returns are made. Pre-opening Expenses In April 1998, the Accounting Standards Executive Committee issued...

  • Page 50
    .... In addition, the agreement required the Company to pay a commitment fee of 0.375 percent of the unused portion. The seasonal credit facility was guaranteed by all restricted subsidiaries of Barnes & Noble. The Company from time to time enters into interest rate swap agreements to manage interest...

  • Page 51
    ... in publicly traded securities accounted for under SFAS 115 are carried at amounts approximating fair value. iUniverse.com (1) Equity in net losses of BOOK magazine (2) Gain on sale of NuvoMedia (3) Chapters (4) Equity in net earnings of Calendar Club (5) Termination of planned acquisition of...

  • Page 52
    ... share in the equity of Barnes & Noble.com. In November 2000, Barnes & Noble.com acquired Fatbrain.com, Inc. (Fatbrain), the third largest online bookseller. Barnes & Noble.com issued shares of its common stock to Fatbrain shareholders. As a result of this merger, the Company and Bertelsmann each...

  • Page 53
    ...Company provides certain health care and life insurance benefits (the Postretirement Plan) to retired employees, limited to those receiving benefits or retired as of April 1, 1993. A summary of the components of net periodic cost for the Pension Plan and the Postretirement Plan follows: Pension Plan...

  • Page 54
    ... Plan 1999 1998 Discount rate Expected return on plan assets Assumed rate of compensation increase 7.8% 9.5% 4.8% 7.8% 9.5% 4.8% 7.3% 9.5% 4.3% 7.8% --- 7.8% --- 7.3% --- The following table provides a reconciliation of benefit obligations, plan assets and funded status of the Pension Plan...

  • Page 55
    ...for income taxes at federal statutory rate Amortization of nondeductible goodwill and trade names and write-down of goodwill State income taxes, net of federal income tax benefit Other, net Provision for income taxes $ ( 41,835 ) (100,601 ) $ ( 11,549 ) 76,522 54,799 51 10. ACQUISITIONS 26,669...

  • Page 56
    ... and video game and entertainment software stores. Bookstores This segment includes 569 book "super" stores under the Barnes & Noble Booksellers, Bookstop and Bookstar names which generally offer a comprehensive title base, a café, a children's section, a music department, a magazine section and...

  • Page 57
    ...90 % -NA -- -- -- Total $ 133,826 232,110 185,142 $ 136,595 240,531 82,307 Capital Expenditures Fiscal Year 2000 1999 1998 2000 Total Assets 1999 1998 Bookstores Video game & entertainment software stores Total $ 109,161 25,131 142,005 4,289 146,294 141,378 -141,378 $ 2,049,639...

  • Page 58
    ... with the purchase of B. Dalton and other mall bookstore assets. The Company's mall-based bookstores have experienced significant declines in sales and profitability as a result of increased competition from book "super" stores and Internet book retailers. In fiscal 2000, B. Dalton comparable...

  • Page 59
    ... A summary of the status of the Company's stock options is presented below: WeightedAverage Exercise Price (Thousands of shares) Shares Balance, January 31, 1998 Granted Exercised Forfeited Balance, January 30, 1999 Granted Exercised Forfeited Balance, January 29, 2000 Granted Exercised Forfeited...

  • Page 60
    ... filed a second amended complaint on October 19, 1999, adding Barnes & Noble.com Inc. as a defendant. In the second amended complaint, plaintiffs allege, among other things, that the Company entered into agreements with book publishers and distributors under which the Company received discounts...

  • Page 61
    ... entered into agreements with book publishers and distributors pursuant to which the Company receives discounts and other benefits that are not available to plaintiffs. Plaintiffs allege that such agreements were in violation of the Robinson-Patman Act and the Montana Unfair Trade Practices and...

  • Page 62
    ... Company has entered into agreements whereby Barnes & Noble.com receives various services from the Company, including, among others, services for payroll processing, benefits administration, insurance (property and casualty, medical, dental and life), tax, traffic, fulfillment and telecommunications...

  • Page 63
    ... April 1999 July 1999 October 1999 January 2000 Total Fiscal Year 1999 Sales Gross profit Equity in net loss of Barnes & Noble.com (b) Earnings (loss) before cumulative effect of a change in accounting principle Net earnings (loss) (d) (e) Basic earnings (loss) per common share Earnings (loss...

  • Page 64
    ... CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Barnes & Noble, Inc. We have audited the accompanying consolidated balance sheets of Barnes & Noble, Inc. and subsidiaries as of February 3, 2001 and January 29, 2000 and the related consolidated statements of operations, changes in shareholders...

  • Page 65
    ... and Public Affairs Michael Archbold Vice President and Chief Financial Officer of Barnes & Noble Booksellers David S. Deason Vice President of Barnes & Noble Development Joseph Giamelli Vice President and Chief Information Officer Michael N. Rosen Secretary 61 BABBAGE'S ETC. EXECUTIVE OFFICERS...

  • Page 66
    ... 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 11258, Church Street Station New York, New York...

  • Page 67

  • Page 68
    BARNES & NOBLE, INC. 122 FIFTH AVENUE NEW YORK, NY 10011