BARNES & NOBLE INC - 10-Q 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 May 3, 2003


o		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 Incorporation or Organization)		(I.R.S. Employer 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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

Number of shares of $.001 par value common stock outstanding as of May 30, 2003: 64,690,099.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1: Financial Statements
		Consolidated Statements of Operations
		Consolidated Balance Sheets
		Consolidated Statement of Changes in Shareholders’ Equity
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3: Quantitative and Qualitative Disclosures About Market Risk
	Item 4: Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATION
CERTIFICATION
EXHIBIT INDEX
EX-99.1: CERTIFICATION
EX-99.2: CERTIFICATION

BARNES & NOBLE, INC. AND SUBSIDIARIES

May 3, 2003

Index to Form 10-Q


		Page No.

PART I -	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Operations — For the 13 weeks ended May 3, 2003 and May 4, 2002		3
	Consolidated Balance Sheets – May 3, 2003, May 4, 2002 and February 1, 2003		4
	Consolidated Statement of Changes in Shareholders’ Equity – For the 13 weeks ended May 3, 2003		6
	Consolidated Statements of Cash Flows — For the 13 weeks ended May 3, 2003 and May 4, 2002		7
	Notes to Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		20
Item 4.	Controls and Procedures		20
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings		21
Item 6.	Exhibits and Reports on Form 8-K		21
SIGNATURES			22
Certification of Chief Executive Officer			23
Certification of Chief Financial Officer			24
Exhibit Index			E-1

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

			May 3, 2003			May 4, 2002

Sales			$	1,185,605			1,133,126
Cost of sales and occupancy				884,960			849,990

	Gross profit			300,645			283,136

Selling and administrative expenses				250,673			230,544
Depreciation and amortization				39,040			35,750
Pre-opening expenses				1,502			1,750
Impairment charge				—			25,328

	Operating profit (loss)			9,430			(10,236	)
Interest (net of interest income of $554 and $1,018, respectively) and amortization of deferred financing fees				(4,643	)		(5,406	)
Equity in net loss of Barnes & Noble.com				(4,972	)		(7,435	)
Other expense, net				—			(1,813	)

	Loss before income taxes and minority interest			(185	)		(24,890	)
Income taxes				(75	)		(10,227	)

	Loss before minority interest			(110	)		(14,663	)
Minority interest				(1,916	)		(1,658	)

	Net loss		$	(2,026	)		(16,321	)

Loss per common share:
		Basic	$	(0.03	)		(0.25	)
		Diluted	$	(0.03	)		(0.25	)
Weighted average common shares outstanding
		Basic		64,867,000			67,252,000
		Diluted		64,867,000			67,252,000

See accompanying notes to consolidated financial statements.

BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars, except per share data)


					May 3,		May 4,		February 1,
					2003		2002		2003

					(unaudited)
				ASSETS
Current assets:
	Cash and cash equivalents				$	195,987		183,262		267,642
	Receivables, net					64,014		52,474		66,948
	Barnes & Noble.com receivable					35,920		43,618		55,174
	Merchandise inventories					1,418,377		1,354,708		1,395,872
	Prepaid expenses and other current assets					103,539		105,964		101,232

		Total current assets				1,817,837		1,740,026		1,886,868

Property and equipment:
	Land and land improvements					3,247		3,247		3,247
	Buildings and leasehold improvements					493,954		466,174		495,499
	Fixtures and equipment					949,266		842,373		936,136

						1,446,467		1,311,794		1,434,882
	Less accumulated depreciation and amortization					842,580		719,777		812,579

			Net property and equipment			603,887		592,017		622,303

Goodwill						391,704		340,881		390,396
Intangible assets, net						47,713		—		48,176
Investment in Barnes & Noble.com						19,782		40,782		23,280
Other noncurrent assets						23,009		39,317		24,404

	Total assets				$	2,903,932		2,753,023		2,995,427

(Continued)

BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars, except per share data)


				May 3,			May 4,			February 1,
				2003			2002			2003

				(unaudited)
			LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	661,556			677,850			710,907
	Accrued liabilities				423,537			335,200			520,541

		Total current liabilities			1,085,093			1,013,050			1,231,448

Long-term debt					357,000			355,000			300,000
Deferred income taxes					119,845			115,079			119,823
Other long-term liabilities					115,142			107,462			115,415
Minority interest					202,979			183,664			200,951
Shareholders’ equity:
	Common stock; $.001 par value; 300,000,000 shares authorized; 73,470,067, 72,856,628 and 73,110,740 shares issued, respectively				73			73			73
	Additional paid-in capital				832,313			821,504			828,522
	Accumulated other comprehensive loss				(11,032	)		(813	)		(11,064	)
	Retained earnings				389,624			275,381			391,650
	Treasury stock, at cost, 8,807,700, 5,504,700 and 8,502,700 shares, respectively				(187,105	)		(117,377	)		(181,391	)

		Total shareholders’ equity			1,023,873			978,768			1,027,790

Commitments and contingencies					—			—			—

	Total liabilities and shareholders’ equity			$	2,903,932			2,753,023			2,995,427

See accompanying notes to consolidated financial statements.

BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders’ Equity
(thousands of dollars, except per share data)
(unaudited)


					Additional			Accumulated Other						Treasury
			Common		Paid-In			Comprehensive			Retained			Stock at
			Stock		Capital			Losses			Earnings			Cost			Total

Balance at February 1, 2003			$	73	$	828,522		$	(11,064	)	$	391,650		$	(181,391	)	$	1,027,790

Comprehensive loss:
	Net loss			—		—			—			(2,026	)		—
	Other comprehensive income:
		Unrealized income on available-for-sale securities (net of deferred tax of $19)		—		—			29			—			—
		Unrealized gain on derivative instrument (net of deferred tax of $2)		—		—			3			—			—
Total comprehensive loss																		(1,994	)
Exercise of 359,327 common stock options (including tax benefit of $1,902)				—		3,597			—			—			—			3,597
Exercise of common stock options of subsidiary (including tax benefit of $105)				—		220			—			—			—			220
Treasury stock acquired, 305,000 shares				—		—			—			—			(5,714	)		(5,714	)
Treasury stock of subsidiary acquired				—		(26	)		—			—			—			(26	)

Balance at May 3, 2003			$	73	$	832,313		$	(11,032	)	$	389,624		$	(187,105	)	$	1,023,873

See accompanying notes to consolidated financial statements.

BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(thousands of dollars)
(unaudited)


			13 weeks ended

			May 3, 2003			May 4, 2002

Cash flows from operating activities:
	Net loss		$	(2,026	)		(16,321	)
	Adjustments to reconcile net loss to net cash flows from operating activities:
		Depreciation and amortization (including amortization of deferred financing fees)		39,739			36,832
		Loss on disposal of property and equipment		799			2,708
		Increase in other long-term liabilities for scheduled rent increases in long-term leases		326			905
		Equity in net loss of Barnes & Noble.com		4,972			7,435
		Minority interest		1,916			1,658
		Impairment charge		—			25,328
		Deferred taxes		—			4,047
		Other expense, net		—			1,813
		Changes in operating assets and liabilities, net		(146,354	)		(204,518	)

		Net cash flows from operating activities		(100,628	)		(140,113	)

Cash flows from investing activities:
	Purchases of property and equipment			(23,461	)		(34,706	)
	Purchase of investments			(1,474	)		(534	)
	Net (increase) decrease in other noncurrent assets			745			(5,639	)

		Net cash flows from investing activities		(24,190	)		(40,879	)

Cash flows from financing activities:
	Proceeds from GameStop initial public offering			—			347,318
	Net increase (decrease) in revolving credit facility			57,000			(94,000	)
	Proceeds from exercise of common stock options			1,877			2,718
	Purchase of treasury stock through repurchase program			(5,714	)		—

		Net cash flows from financing activities		53,163			256,036

Net increase (decrease) in cash and cash equivalents				(71,655	)		75,044
Cash and cash equivalents at beginning of period				267,642			108,218

Cash and cash equivalents at end of period			$	195,987			183,262

Changes in operating assets and liabilities, net:
	Receivables, net		$	22,188			2,478
	Merchandise inventories			(22,505	)		(69,703	)
	Prepaid expenses and other current assets			(2,041	)		(6,763	)
	Accounts payable and accrued liabilities			(143,996	)		(130,530	)

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