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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 August 2, 2003

OR

     
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 August 31, 2003: 66,616,306.

 

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
Report of Independent Certified Public Accountants
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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
AMENDMENT NO.2 TO REVOLVING CREDIT AGREEMENT
SECTION 302 CERTIFICATION OF THE CEO
SECTION 302 CERTIFICATION OF THE CFO
SECTION 906 CERTIFICATION OF THE CEO
SECTION 906 CERTIFICATION OF THE CFO

Table of Contents

BARNES & NOBLE, INC. AND SUBSIDIARIES

August 2, 2003

Index to Form 10-Q

         
        Page No.
       
PART I -   FINANCIAL INFORMATION    
Item 1.   Financial Statements    
    Consolidated Statements of Operations — For the 13 weeks and 26 weeks ended August 2, 2003 and August 3, 2002   3
    Consolidated Balance Sheets – August 2, 2003, August 3, 2002 and February 1, 2003   4
    Consolidated Statement of Changes in Shareholders’ Equity – For the 26 weeks ended August 2, 2003   6
    Consolidated Statements of Cash Flows — For the 26 weeks ended August 2, 2003 and August 3, 2002   7
    Notes to Consolidated Financial Statements   8
    Report of Independent Certified Public Accountants   17
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   18
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   26
Item 4.   Controls and Procedures   27
PART II -   OTHER INFORMATION    
Item 1.   Legal Proceedings   28
Item 4.   Submission of Matters to a Vote of Security Holders   28
Item 6.   Exhibits and Reports on Form 8-K   29
    SIGNATURES   30
    Exhibit Index   E-1

 

Table of Contents

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   26 weeks ended
         
 
          August 2, 2003   August 3, 2002   August 2, 2003   August 3, 2002
         
 
 
 
Sales
   $ 1,283,243       1,159,214       2,468,848       2,292,340  
Cost of sales and occupancy
     946,270       853,054       1,831,230       1,703,044  
 
    
     
     
     
 
     
Gross profit
     336,973       306,160       637,618       589,296  
 
    
     
     
     
 
Selling and administrative expenses
     259,184       233,687       509,857       464,231  
Depreciation and amortization
     39,246       36,620       78,286       72,370  
Pre-opening expenses
     2,458       2,250       3,960       4,000  
Impairment charge
     —       —       —       25,328  
 
    
     
     
     
 
     
Operating profit
     36,085       33,603       45,515       23,367  
Interest (net of interest income of $419, $941, $1,006 and $1,959, respectively) and amortization of deferred financing fees
     (4,710 )     (4,960 )     (9,353 )     (10,366 )
Equity in net loss of Barnes & Noble.com
     (5,404 )     (7,469 )     (10,376 )     (14,904 )
Other expense, net
     —       (14,685 )     —       (16,498 )
 
    
     
     
     
 
 
Income (loss) before taxes and minority interest
     25,971       6,489       25,786       (18,401 )
Income taxes
     10,454       2,821       10,379       (7,406 )
 
    
     
     
     
 
 
Income (loss) before minority interest
     15,517       3,668       15,407       (10,995 )
Minority interest
     (1,854 )     (2,239 )     (3,770 )     (3,897 )
 
    
     
     
     
 
     
Net income (loss)
   $ 13,663       1,429       11,637       (14,892 )
 
    
     
     
     
 
Income (loss) per common share
                               
   
Basic
   $ 0.21       0.02       0.18       (0.22 )
   
Diluted
   $ 0.20       0.02       0.17       (0.22 )
Weighted average common shares outstanding
                               
   
Basic
     64,851,000       67,413,000       64,859,000       67,332,000  
   
Diluted
     66,703,000       69,739,000       66,260,000       67,332,000  

See accompanying notes to consolidated financial statements.

3

Table of Contents

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

                                 
            August 2, 2003   August 3, 2002   February 1, 2003
           
 
 
            (unaudited)        
       
ASSETS
                        
Current assets:
                        
 
Cash and cash equivalents
   $ 170,205       205,000       267,642  
 
Receivables, net
     71,611       55,210       66,948  
 
Barnes & Noble.com receivable
     32,411       45,112       55,174  
 
Merchandise inventories
     1,434,719       1,395,971       1,395,872  
 
Prepaid expenses and other current assets
     107,735       112,637       101,232  
 
    
     
     
 
     
Total current assets
     1,816,681       1,813,930       1,886,868  
 
    
     
     
 
Property and equipment:
                        
 
Land and land improvements
     3,247       3,247       3,247  
 
Buildings and leasehold improvements
     498,472       471,734       495,499  
 
Fixtures and equipment
     985,475       881,015       936,136  
 
    
     
     
 
 
     1,487,194       1,355,996       1,434,882  
   
Less accumulated depreciation and amortization
     875,052       754,720       812,579  
 
    
     
     
 
     
Net property and equipment
     612,142       601,276       622,303  
 
    
     
     
 
Goodwill
     397,097       341,081       390,396  
Intangible assets, net
     47,276       —       48,176  
Investment in Barnes & Noble.com
     14,378       33,313       23,280  
Other noncurrent assets
     23,766       25,504       24,404  
 
    
     
     
 
 
Total assets
   $ 2,911,340       2,815,104       2,995,427  
 
    
     
     
 

(continued)

4

Table of Contents

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

                               
          August 2, 2003   August 3, 2002   February 1, 2003
         
 
 
          (unaudited)        
   
LIABILITIES AND SHAREHOLDERS’ EQUITY
                        
Current liabilities:
                        
 
Accounts payable
   $ 704,774       726,020       710,907  
 
Accrued liabilities
     408,564       344,504       520,541  
 
    
     
     
 
     
Total current liabilities
     1,113,338       1,070,524       1,231,448  
 
    
     
     
 
Long-term debt
     319,000       355,000       300,000  
Deferred income taxes
     119,853       115,207       119,823  
Other long-term liabilities
     115,838       106,880       115,415  
Minority interest
     197,396       184,719       200,951  
Shareholders’ equity:
                        
 
Common stock; $.001 par value; 300,000,000 shares authorized; 73,873,637, 72,856,628 and 73,110,740 shares issued, respectively
     74       73       73  
 
Additional paid-in capital
     840,754       823,896       828,522  
 
Accumulated other comprehensive loss
     (11,095 )     (628 )     (11,064 )
 
Retained earnings
     403,287       276,810       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
     1,045,915       982,774       1,027,790  
 
    
     
     
 
Commitments and contingencies
     —       —       —  
 
    
     
     
 
 
Total liabilities and shareholders’ equity
   $ 2,911,340       2,815,104       2,995,427  
 
    
     
     
 

See accompanying notes to consolidated financial statements.

5

Table of Contents

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 income:
                                                
 
Net income
     —       —       —       11,637       —          
 
Other comprehensive loss:
                                                
   
Foreign currency translation
     —       —       (75 )     —       —        
   
Unrealized income on available-for-sale securities (net of deferred tax of $27)
     —       —       41       —       —          
   
Unrealized gain on derivative instrument (net of deferred tax of $2)
     —       —       3       —       —          
Total comprehensive income
                                             11,606  
Exercise of 762,897 common stock options (including tax benefit of $3,691)
     1       10,348       —       —       —       10,349  
Exercise of common stock options of subsidiary (including tax benefit of $1,016)
     —       1,884       —       —       —       1,884  
Treasury stock acquired, 305,000 shares
     —       —       —       —       (5,714 )     (5,714 )
 
    
     
     
     
     
     
 
Balance at August 2, 2003
   $ 74     $ 840,754     $ (11,095 )   $ 403,287     $ (187,105 )   $ 1,045,915  
 
    
     
     
     
     
     
 

See accompanying notes to consolidated financial statements.

6

Table of Contents

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

                       
          26 weeks ended
         
          August 2, 2003   August 3, 2002
         
 
Cash flows from operating activities:
                
 
Net income (loss)
   $ 11,637     $ (14,892 )
 
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
                
   
Depreciation and amortization (including amortization of deferred financing fees)
     79,750       74,044  
   
Loss on disposal of property and equipment
     2,898       5,001  
   
Increase in other long-term liabilities for scheduled rent increases in long-term leases
     618       1,514  
   
Equity in net loss of Barnes & Noble.com
     10,376       14,904  
   
Minority interest
     3,770       3,897  
   
Other expense, net
     —       16,498  
   
Deferred taxes
     —       4,723  
   
Impairment charge
     —       25,328  
   
Changes in operating assets and liabilities, net
     (139,892 )     (201,732 )
 
    
     
 
   
Net cash flows from operating activities
     (30,843 )     (70,715 )
 
    
     
 
Cash flows from investing activities:
                
 
Purchases of property and equipment
     (70,997 )     (82,878 )
 
Acquisition of consolidated subsidiary by GameStop
     (3,144 )     —  
 
Purchase of investments
     (1,474 )     (2,351 )
 
Net increase in other noncurrent assets
     (782 )     (5,173 )