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Article by DailyStocks_admin    (03-04-13 06:51 AM)

Description

Filed with the SEC from Feb 21 to Feb 27:

Barnes & Noble (BKS)
Leonard Riggio, the company's chairman, disclosed that on Feb. 25 he notified the board of directors that he will propose to purchase the assets of the retail business of the company, including Barnes & Noble Booksellers and barnesandnoble.com, but excluding Nook Media. Riggio said the purchase price would be negotiated with the board as part of the company's continuing strategic review. Riggio added that he would provide the equity financing for the transaction and undertake to arrange any debt financing required.

BUSINESS OVERVIEW

General
Barnes & Noble, Inc. (Barnes & Noble or the Company), one of the nation’s largest booksellers, 1 is a leading content, commerce and technology company providing customers easy and convenient access to books, magazines, newspapers and other content across its multi-channel distribution platform. As of April 28, 2012, the Company operates 1,338 bookstores in 50 states, including 647 bookstores on college campuses, operates one of the Web’s largest eCommerce sites and develops digital content products and software. Given the dynamic nature of the book industry, the challenges faced by traditional booksellers, and the robust innovation pipeline fueling new opportunities in hardware, software and content creation and delivery, Barnes & Noble is utilizing the strength of its retail footprint to bolster its leadership and fuel sales growth across multiple channels.
Of the 1,338 bookstores, 691 operate primarily under the Barnes & Noble Booksellers trade name. Barnes & Noble College Booksellers, LLC (B&N College), a wholly-owned subsidiary of Barnes & Noble, operates 647 college bookstores at colleges and universities across the United States. Barnes & Noble Retail (B&N Retail) operates the 691 retail bookstores. Retail also includes the Company’s eCommerce site and Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), a leader in general trade book publishing. The NOOK segment represents the Company’s digital business, including the development and support of the Company’s NOOK product offerings. The digital business includes digital content such as eBooks, digital newsstand, apps and sales of NOOK ® devices and accessories to third-party distribution partners, B&N Retail and B&N College. The Company employed approximately 35,000 full and part-time employees as of April 28, 2012.

The Company’s principal business is the sale of trade books (generally hardcover and paperback consumer titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, eBooks and other digital content, NOOK ® (references to NOOK ® include the Company’s NOOK 1 st Edition™, NOOK Wi-Fi 1 st Edition™, NOOK Color™, NOOK Simple Touch™, NOOK Tablet™ and NOOK Simple Touch with GlowLight TM eBook Reader devices) 2 and related accessories, bargain books, magazines, gifts, café products and services, educational toys & games, music and movies direct to customers through its bookstores or on barnesandnoble.com. On September 30, 2009 Barnes & Noble completed the acquisition of Barnes & Noble College Booksellers, Inc. from Leonard Riggio and Louise Riggio pursuant to a Stock Purchase Agreement dated as of August 7, 2009 among the Company and the Sellers (the Acquisition). The Acquisition of B&N College has allowed the Company to expand into sales of textbooks and course-related materials, emblematic apparel and gifts, trade books, school and dorm supplies, and convenience and café items on college and university campuses. In fiscal year ended April 30, 2011 (fiscal 2011), B&N College began offering a textbook rental option to its customers, and expanded its electronic textbooks and other course materials through a proprietary digital platform (NOOK Study™).

The Company has a multi-channel marketing strategy that deploys various merchandising programs and promotional activities to drive traffic to both its stores and website. At the center of this program is the Company’s website, barnesandnoble.com.

On April 27, 2012, the Company entered into an investment agreement among the Company, Morrison Investment Holdings, Inc. (Morrison), and Microsoft Corporation (Microsoft) pursuant to which the Company will form a Delaware limited liability company (NewCo), and transfer to NewCo the Company’s digital device, digital content and college bookstore businesses and NewCo will sell to Morrison, and Morrison will purchase, 300 million convertible preferred membership interests in NewCo for an aggregate purchase price of $300.0 million. Concurrently with its entry into this agreement, the Company has also entered into a commercial agreement with Microsoft, pursuant to which, among other things, NewCo will develop and distribute a Windows 8 application for e-reading and digital content purchases, and an intellectual property license and settlement agreement with Microsoft and Microsoft Licensing GP.

As part of the partnership with Microsoft described above, the Company, through NewCo, plans to launch the NOOK ® digital bookstore in 10 countries within 12 months, putting NOOK.com websites onto the screens of tens of millions of Windows users. Once the NOOK digital bookstore is launched, customers in these countries will have access to one of the world’s largest marketplaces of digital copyright content and reading technologies, enabling them to buy and consume books, magazines and other forms of content on the world’s best mobile platforms, including Windows TM , IOS TM , and Android TM . The Company is also exploring opportunities to give consumers outside of the U.S. access to its award-winning NOOK portfolio of reading products through potential distribution partnerships yet to be announced. While there can be no assurances, the Company intends to have one or more distribution agreements in place to sell NOOK ® devices in certain countries outside the U.S. prior to the 2012 holiday season.
On August 18, 2011, the Company entered into an investment agreement between the Company and Liberty GIC, Inc. (Liberty) pursuant to which the Company issued and sold to Liberty, and Liberty purchased, 204,000 shares of the Company’s Series J Preferred Stock, par value $0.001 per share (Preferred Stock), for an aggregate purchase price of $204.0 million in a private placement exempt from the registration requirements of the 1933 Act. The shares of Preferred Stock will be convertible, at the option of the holders, into shares of Common Stock representing 16.6% of the Common Stock outstanding as of August 29, 2011, (after giving pro forma effect to the issuance of the Preferred Stock), based on the initial conversion rate. The initial conversion rate reflects an initial conversion price of $17.00 and is subject to adjustment in certain circumstances. The initial dividend rate for the Preferred Stock is equal to 7.75% per annum of the initial liquidation preference of the Preferred Stock to be paid quarterly and subject to adjustment in certain circumstances.
The Company was incorporated in Delaware in 1986.

Segments
Prior to fiscal year-end, the Company reported an operating segment titled B&N.com which included both its digital business and eCommerce operations. Due to the increased focus on the digital business and the Company’s recently developed ability to review the digital business separate from its eCommerce business, the Company performed an evaluation on the effect of its impact on the identification of operating segments. The assessment considered the way the business is managed (focusing on the financial information distributed) and the manner in which the chief operating decision maker interacts with other members of management. As a result of this assessment, during the fourth quarter of fiscal 2012 the Company has determined that the segment previously referred to as B&N.com is no longer applicable and has created a new segment titled NOOK to report upon its digital business, moving the eCommerce business (i.e., sales of physical merchandise over the Internet) into the B&N Retail segment. Also as a result of this assessment, certain corporate office and other costs have been allocated to all three segments. The Company’s three operating segments are: B&N Retail, B&N College and NOOK.

B&N Retail
This segment includes 691 bookstores as of April 28, 2012, primarily under the Barnes & Noble Booksellers trade name. These stores generally offer a comprehensive title base, a NOOK ® department/Boutique/Count er, a café, a Children’s department, an Educational Toys & Games department, a Music/DVDs/BluRay department, a gift department, a magazine department, and bargain department and a calendar of ongoing events, including author appearances and children’s activities. The B&N Retail segment also includes the Company’s eCommerce website, barnesandnoble.com and the publishing operation, Sterling Publishing.
Barnes & Noble stores range in size from 3,000 to 60,000 square feet depending upon market size, with an overall average store size of 26,000 square feet. In fiscal 2012, the Company reduced the Barnes & Noble store base by 0.4 million square feet, bringing the total square footage to 18.0 million square feet, a 1.9% decrease from fiscal 2011. The Company did not open any new Barnes & Noble stores in fiscal 2012.

The Company believes that the key elements contributing to the success of B&N Retail are:
Proximity to Customers. The Company’s strategy has been to increase its share of the consumer book market, as well as to increase the size of the market through a market clustering strategy. As of April 28, 2012, Barnes & Noble had stores in 162 of the total 210 Designated Market Area markets. In 67 of the 162 markets, the Company has only one Barnes & Noble store. The Company believes its bookstores’ proximity to its customers strengthens its market position and increases the value of its brand. Most Barnes & Noble stores are located in high-traffic areas with convenient access to major commercial thoroughfares and ample parking. Most stores offer extended shopping hours seven days a week.
Extensive Title Selection. Each Barnes & Noble store features an authoritative selection of books, ranging from 22,000 to 165,000 titles. The comprehensive title selection is diverse and reflects local interests. Bestsellers typically represent between 2% and 5% of Barnes & Noble store sales. Complementing this extensive on-site selection, all Barnes & Noble stores provide customers with access to the millions of books available to online shoppers at barnesandnoble.com while offering an option to have the book sent to the store or shipped directly to the customer. The website additionally allows customers to purchase over two million eBooks, newspapers and magazines. The Company believes that its tremendous selection, including many otherwise hard-to-find titles, builds customer loyalty.

Store Design and Ambiance . Many of the Barnes & Noble stores create a comfortable atmosphere with ample public space, a café offering, among other things, sandwiches and bakery items, and public restrooms. The cafés, for which the Starbucks Corporation is the sole provider of coffee products, foster the image of the stores as a community meeting place. In addition, the Company continues to develop and introduce new product line extensions, such as proprietary gifts, and Barnes & Noble @ School, providing education tools for teachers, librarians and parents. These offerings and services have helped to make many of the stores neighborhood institutions.

NOOK ® Boutique/Counter. The Company is utilizing its traditional retail bookstores to promote NOOK ® via NOOK counters, NOOK Boutiques™ and NOOK Digital Shop™ within the bookstores. These dedicated areas provide customers the ability to see, feel and experiment with NOOK ® , speak to knowledgeable booksellers and receive pre- and post-sales customer support. The Company offers NOOK ® owners Always Free NOOK Support in all of its retail bookstores, as well as free Wi-Fi connectivity to enjoy the Read In Store™ feature to read NOOK Books™ for free, and the More In Store™ program, which offers free, exclusive content and special promotions. The devices, which provide a fun, easy-to-use and immersive reading experience, include NOOK Simple Touch™, NOOK Tablet™, NOOK Color™ and most recently, NOOK Simple Touch with GlowLight™. These devices have received numerous accolades in product reviews from, among others, msnbc.com, PCWorld, ZDNet, Time ® Magazine, PCMAG.com, CNET and The Wall Street Journal and the NOOK Color™ was the winner of the coveted “People’s Choice Award” in the Last Gadget Standing competition at the 2011 International Consumer Electronics Show in Las Vegas. The NOOK ® devices have also opened up an additional market for NOOK ® related accessories such as stands, covers, lights and other items. The Company is collaborating with top designers such as Jonathan Adler, Kate Spade, Jack Spade and Legendary Palm Beach Design House Lilly Pulitzer ® to further personalize customers reading experience.
Educational Toys & Games Department. Barnes & Noble stores have expanded the educational toys & games and adult games & puzzles departments both in stores and online. The Company has also created the “ultimate playroom” for children with the rollout of 2,500 square foot boutiques in select stores. The department has implemented a program that enhances ease and appropriateness of product choice for consumers by designating products to specific age groupings based on development milestones. This strategy is complemented by the launch of B&N Kids’ Expert Circle on Barnes & Noble.com. The program is meant to serve as a trusted resource for parents and educators by partnering with experts in the fields of literacy, arts and educations, child development and pediatric medicine, who will share advice and parenting tips and offer book and toy suggestions on B&N Kids.


CEO BACKGROUND

Introduction

The Board currently consists of ten directors. Eight of the directors are divided into three classes, currently consisting of three members whose terms expire upon the election and qualification of their successors at the Meeting, three members whose terms expire at the 2013 annual meeting of stockholders and two members whose terms expire at the 2014 annual meeting of stockholders. Two directors are elected solely by the holders of Series J Preferred Stock of the Company (currently, Liberty GIC, Inc. (“Liberty”)), voting as a separate class. At such time as Liberty and its affiliates hold at least 76,500 but less than 127,500 shares of Series J Preferred Stock, the holders of the Series J Preferred Stock, voting as a separate class, shall be entitled to elect only one director. At such time as Liberty and its affiliates hold less than 76,500 shares of Series J Preferred Stock, then the holders of the Series J Preferred Stock, voting as a separate class, shall cease to have the right to elect directors. Currently, Liberty owns 204,000 shares of the Series J Preferred Stock. In accordance with the Company’s Bylaws, the Board reduced its size from ten to nine directors with no vacancies effective immediately before the Meeting, with such reduction being in the class of directors with terms expiring upon the election and qualification of their successors at the Meeting. The Board unanimously recommends using the enclosed proxy card to vote FOR each of the Board’s two nominees for director .

Information Concerning the Directors and the Board’s Nominees
Background information with respect to the Board and the Board’s nominees for election as directors appears below. See “Security Ownership of Certain Beneficial Owners and Management” for information regarding such persons’ holdings of equity securities of the Company.

Name
Age Director
Since Position
Leonard Riggio

71 1986 Founder and Chairman of the Board
George Campbell Jr.

66 2008 Director
Mark D. Carleton

51 2011 Director
William Dillard, II

67 1993 Director
David G. Golden

54 2010 Director
Patricia L. Higgins

62 2006 Lead Independent Director
William J. Lynch, Jr.

42 2011 Director
Gregory B. Maffei

52 2011 Director
Irene R. Miller

60 1995 Director
David A. Wilson

71 2010 Director
At the Meeting, two directors will be elected. William Dillard, II and Patricia L. Higgins are the Board’s nominees for election as directors at the Meeting, each to hold office for a term of three years until the annual meeting of stockholders to be held in 2015 and until his or her successor is elected and qualified. Each of the nominees has consented to be named in this Proxy Statement and to serve on the Board, if elected. However, if any nominee is unable to serve or for good cause will not serve, proxies may be voted for a substitute designated by the Board.

The terms of William Dillard, II, Patricia L. Higgins and Irene R. Miller expire upon the election and qualification of their successors at the Meeting. The terms of Leonard Riggio, David G. Golden and David A. Wilson expire in 2013, and the terms of George Campbell Jr. and William J. Lynch, Jr. expire in 2014.

Nominees for Election as Director
The following individuals are nominees for director at the Meeting. The Board unanimously recommends a vote FOR each of the below nominees for director using the enclosed proxy card.

William Dillard, II has been a director of the Company since November 1993. Mr. Dillard serves as Chair of the Corporate Governance and Nominating Committee and as a member of the Compensation Committee. Mr. Dillard has been the Chief Executive Officer of Dillard’s, Inc. (“Dillard’s”) since May 1998 and he has been a director of Dillard’s since 1968. He was appointed Chairman of Dillard’s in May 2002. Mr. Dillard is also a director of Acxiom Corporation.

Qualifications, Experience, Attributes and Skills . Mr. Dillard has a total of more than 40 years of executive and board-level experience, focused in the retail industry. He is also a director of Acxiom and a former manager and senior executive, as well as current Chief Executive Officer, of Dillard’s, a national department store and retailer of luxury goods. This experience in the retail industry, as well as Mr. Dillard’s experience on the board of Acxiom, a company that provides marketing services focused on the use of technology, allows Mr. Dillard to bring to the Board substantial knowledge of the retail sector and a meaningful insight into the challenges facing the Company, including as it implements its digital plans.
Patricia L. Higgins has been a director of the Company since June 2006. Ms. Higgins serves on the Audit Committee and the Corporate Governance and Nominating Committee. Ms. Higgins was President, Chief Executive Officer and a director of Switch and Data Facilities Company, Inc., a leading provider of network interconnection and collocation services, from September 2000 to February 2004. Prior to that, she served as Chairman and Chief Executive Officer of The Research Board from May 1999 to August 2000 and Vice President and Chief Information Officer of Alcoa Inc. from January 1997 to April 1999. Ms. Higgins is also a director of Travelers, Dycom Industries and Internap. During the previous five years, Ms. Higgins also served as a director of Delta Air Lines, Visteon and SpectraSite Communications. Ms. Higgins was a director of Barnes & Noble.com from 1999 to 2004.
Qualifications, Experience, Attributes and Skills . Ms. Higgins has over 30 years of technology experience, holding senior executive positions in telecommunications, computing and information technology. Ms. Higgins has had extensive board experience as a director of nine public companies, including as a member of six audit committees, chairing two; a member of six compensation committees, chairing one; a member of four governance/nominating committees, chairing one; and chairing one finance committee. This wide-ranging experience allows Ms. Higgins to bring to the Board a significant depth of understanding into the operation and management of public companies, including those in the technology sector.

MANAGEMENT DISCUSSION FROM LATEST 10K

The information included in the Annual Report under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Liquidity and Capital Resources
The primary sources of Barnes & Noble, Inc.’s (Barnes & Noble or the Company) cash are net cash flows from operating activities, funds available under its senior credit facility, cash received and committed in the formation of NOOK Media, LLC (NOOK Media) and short-term vendor financing.
The Company’s cash and cash equivalents were $471.0 million as of October 27, 2012, compared with $23.6 million as of October 29, 2011. This increase is due to the formation of NOOK Media as discussed below.

Merchandise inventories decreased $40.5 million, or 2.2%, to $1.796 billion as of October 27, 2012, compared with $1.837 billion as of October 29, 2011. This decrease was primarily due to timing of product receipts. Receivables, net decreased $16.1 million or 6.7% to $224.5 million as of October 27, 2012, compared to $240.6 million as of October 29, 2011. This decrease is due to mix of channel partners and increased collection efforts. Prepaid expenses and other current assets increased $43.0 million or 23.8% to $223.3 million as of October 27, 2012, compared to $180.4 million as of October 29, 2011. This increase was primarily due to higher textbook rental inventory on the growth in this business and higher short-term deferred taxes. Accounts Payable decreased $13.6 million or 0.9% to $1.448 billion as of October 27, 2012, compared to $1.462 billion as of October 29, 2011. Accounts payable was 81% and 80% of merchandise inventory as of October 27, 2012 and October 29, 2011, respectively. Accrued liabilities increased $34.1 million or 7.8% to $471.0 million as of October 27, 2012, compared to $436.9 million as of October 29, 2011. This increase was primarily due to several factors, including deferred income (textbook rentals and member program), compensation and general timing of expenses. Gift card liabilities increased $9.9 million or 3.5% to $297.2 million as of October 27, 2012, compared to $287.3 million as of October 29, 2011 due to additional business.

The Company’s investing activities consist principally of capital expenditures for new store construction, the maintenance of existing stores, digital initiatives and enhancements to systems and the website. Capital expenditures totaled $67.0 million and $75.5 million during the 26 weeks ended October 27, 2012 and October 29, 2011, respectively.
On April 27, 2012, the Company entered into an amendment (the 2012 Amended Credit Facility) to its existing agreement with Bank of America, N.A. entered into on April 29, 2011, as administrative agent, collateral agent and swing line lender, and other lenders in order to permit the transactions contemplated by the investment agreement among the Company, Morrison Investment Holdings, Inc. (Morrison), and Microsoft Corporation (Microsoft) and to make certain other changes to the Company’s 2011 Amended Credit Agreement in connection therewith.

On April 29, 2011, the Company entered into an amended and restated credit agreement (the 2011 Amended Credit Agreement) with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders, which amended and restated the credit agreement (the 2009 Credit Agreement) entered into on September 30, 2009 with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders. Under the 2011 Amended Credit Agreement, Lenders are providing up to $1.0 billion in aggregate commitments under a five-year asset-backed revolving credit facility (the 2011 Amended Credit Facility), which is secured by eligible inventory with the ability to include eligible real estate and accounts receivable and related assets. Borrowings under the 2011 Amended Credit Agreement are limited to a specified percentage of eligible inventories with the ability to include eligible real estate, accounts receivable and accrued interest, at the election of the Company, at Base Rate or LIBO Rate, plus, in each case, an Applicable Margin (each term as defined in the 2011 Amended Credit Agreement). In addition, the Company has the option to request an increase in commitments under the 2011 Amended Credit Agreement by up to $300.0 million, subject to certain restrictions.

The 2011 Amended Credit Agreement requires Availability (as defined in the 2011 Amended Credit Agreement) to be greater than the greater of (i) 10% of the Loan Cap (as defined in the 2011 Amended Credit Agreement) and (ii) $50 million. In addition, the 2011 Amended Credit Agreement contains covenants that limit, among other things, the Company’s ability to incur indebtedness, create liens, make investments, make restricted payments, merge or acquire assets, and contains default provisions that are typical for this type of financing, among other things. Proceeds from the 2011 Amended Credit Agreement are used for general corporate purposes, including seasonal working capital needs.
On October 27, 2012, the Company had borrowings of $338.4 million against its $1.0 billion credit facility compared to $274.9 million in the prior year period. The Company had $34.6 million of outstanding letters of credit under the 2012 Amended Credit Facility as of October 27, 2012 compared with $31.0 million as of October 29, 2011.


On April 27, 2012, the Company entered into an investment agreement among the Company, Morrison and Microsoft pursuant to which the Company would form a Delaware limited liability company (NOOK Media), and transfer to NOOK Media the Company’s digital device, digital content and college bookstore businesses and NOOK Media would sell to Morrison, and Morrison would purchase, 300 million convertible preferred membership interests in NOOK Media for an aggregate purchase price of $300.0 million. Concurrently with its entry into this agreement, the Company has also entered into a commercial agreement with Microsoft, pursuant to which, among other things, NOOK Media would develop and distribute a Windows 8 application for e-reading and digital content purchases, and an intellectual property license and settlement agreement with Microsoft and Microsoft Licensing GP.
On October 4, 2012, NOOK Media was formed and it has received the $300.0 million Microsoft investment. Under the terms of this transaction, NOOK Media was debt-free at inception, except for trade accounts payable and other working capital requirements. At closing, B&N Retail assumed the outstanding bank borrowings of the Company. Under the limited liability company agreement of NOOK Media, no distributions may be made by NOOK Media without Morrison’s approval.
In November 2012, the Company received $21.3 million from Microsoft related to the first installment on the guaranteed advance payments to NOOK Media and the payment related to assisting NOOK Media in acquiring local digital reading content and technology development.

On August 18, 2011, the Company entered into an investment agreement between the Company and Liberty GIC, Inc. (Liberty) pursuant to which the Company issued and sold to Liberty, and Liberty purchased, 204,000 shares of the Company’s Series J Preferred Stock, par value $0.001 per share (Preferred Stock), for an aggregate purchase price of $204.0 million in a private placement exempt from the registration requirements of the 1933 Act. The shares of Preferred Stock will be convertible, at the option of the holders, into shares of Common Stock representing 16.6% of the Common Stock outstanding as of August 29, 2011, (after giving pro forma effect to the issuance of the Preferred Stock), based on the initial conversion rate. The initial conversion rate reflects an initial conversion price of $17.00 and is subject to adjustment in certain circumstances. The initial dividend rate for the Preferred Stock is equal to 7.75% per annum of the initial liquidation preference of the Preferred Stock to be paid quarterly and subject to adjustment in certain circumstances. The entry into the investment agreement and the issuance and sale of the Preferred Stock was approved by the Company’s Board of Directors following a recommendation made by a Special Committee of the Board of Directors. The terms, rights, obligations and preferences of the Preferred Stock are set forth in a Certificate of Designations of the Company, which was filed with the Secretary of State of the State of Delaware on August 18, 2011.

Based upon the Company’s current operating levels, management believes cash and cash equivalents on hand, net cash flows from operating activities, cash received and committed in the formation of NOOK Media, short-term vendor financing and the capacity under the Amended Credit Facility will be sufficient to meet the Company’s normal working capital and debt service requirements for at least the next twelve months. The Company regularly evaluates its capital structure and conditions in the financing markets to ensure it maintains adequate flexibility to successfully execute its business plan.

Segments
The Company identifies its operating segments based on the way the business is managed (focusing on the financial information distributed) and the manner in which the chief operating decision maker interacts with other members of management. The Company has three operating segments: B&N Retail, B&N College and NOOK.
Seasonality

The B&N Retail business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during its third fiscal quarter, which includes the holiday selling season.

The B&N College business is highly seasonal, with the major portion of sales and operating profit realized during the second and third fiscal quarters, when college students generally purchase textbooks for the upcoming semesters. Textbook rentals, which primarily occur at the beginning of the semester, are being recognized over the rental period.
The NOOK business, like that of many technology companies, is impacted by the launch of new products and the promotional efforts to support those new products, as well as the traditional retail holiday selling seasonality.

Business Overview
The Company’s financial performance has been significantly impacted in recent years by a number of factors, including the economic downturn, increased online competition and the expanding digital market. However, recently the Company has benefited from reduced physical bookstore competition in the marketplace, as well as the successful execution of new merchandising strategies.

The Company derives the majority of its sales and net income from its B&N Retail and B&N College stores.
B&N Retail comparable store sales trends have improved as one of B&N Retail’s largest competitors in the sale of physical books, Borders Group, Inc. (Borders), completed liquidating all of its stores under Chapter 11 of the Bankruptcy Code in early fiscal 2012. While the Company expects declining physical book trends to continue industry-wide as consumer spending shifts further online and toward digital products, it expects to be the beneficiary of further market consolidation as other non-book retailers reduce their presence in the book category. Additionally, the Company continues to experience positive trends in its Juvenile, Gift and Toys & Games businesses as a result of the successful execution of new merchandising strategies. Other categories such as Café also improved as a result of increased store traffic.

The Company has leveraged its unique assets, iconic brands and reach to become a leader in the distribution of digital content. In 2009, the Company entered the eBook market and the popularity of its eBook site continues to grow. Since then, the Company launched its NOOK ® brand of eReading products, which provide a fun, easy-to-use and immersive digital reading experience. With NOOK ® , customers gain access to the expansive NOOK Store™ of more than three million digital books, plus periodicals, comics, apps, movies and TV shows, and the ability to enjoy content across a wide array of popular devices through free NOOK Reading Apps™ and NOOK Video apps.
Over the past several years, the Company has introduced leading devices in the tablet and eReader categories. In April 2012, the Company introduced NOOK Simple Touch™ with GlowLight TM , the world’s first E Ink device with patent-pending lighting technology that lets you read in the dark. In September 2012, the Company introduced NOOK ® HD, the lightest and highest-resolution 7-Inch HD tablet, and NOOK ® HD+, the world’s lightest full HD tablet.

In addition to NOOK ® devices, the Company makes it easy for customers to enjoy any book, anytime, anywhere with its free line of NOOK ® software specific application, which has won the Webby People’s Voice Award. Customers can use Barnes & Noble’s eReading software to access and read books from their personal Barnes & Noble digital library on devices including Windows 8 PCs and tablets, iPad™, iPhone ® , Android™ smartphones and tablets, PC and Mac ® . The Lifetime Library™ helps ensure that Barnes & Noble customers will always be able to access their digital libraries on NOOK ® products and software-enabled devices and BN.com. The Company also offers NOOK Newsstand™, which provides an extensive selection of digital newspapers and magazines, available in both subscription and single copy format, NOOK Kids™, a collection of digital picture and chapter books for children, NOOK Study™, an innovative study platform and software solution for higher education, and NOOK Video™, which offers an extensive and diverse digital collection of standard and high-definition movies and TV shows available for streaming and download.

In the Fall of 2012, the Company began selling NOOK ® devices internationally, through its website and partnerships with leading retailers, as well as digital content in the U.K. The Company plans to continue to expand into additional international markets and believes that its newly formed partnership with Microsoft will help foster that expansion.
As digital and electronic sales become a larger part of its business, the Company believes its footprint of more than 1,300 stores will continue to be a major competitive asset. The Company will continue to integrate its traditional retail, trade book and college bookstores businesses with its electronic and Internet offerings, using retail stores in attractive geographic markets to promote and sell digital devices and content. Customers can see, feel and experiment with the NOOK ® in the Company’s stores.

Although the stores will be just a part of the offering, they will remain a key driver of sales and cash flow as the Company expands its multi-channel relationships with its customers. While the Company plans to open a few retail stores in new geographic markets, the Company expects to reduce the total number of retail stores.

B&N College provides direct access to a large and well-educated demographic group, enabling the Company to build relationships with students throughout their college years and beyond. The Company also expects to be the beneficiary of market consolidation as more and more schools outsource their bookstore management. The Company is in a unique market position to benefit from this trend given its full suite of services: bookstore management, textbook rental and digital delivery.

Although the Company believes cash on hand, cash flows from operating activities, funds available from its senior credit facility, cash received and committed in the formation of NOOK Media and short-term vendor financing provide the Company with adequate liquidity and capital resources for seasonal working capital requirements, the Company may raise additional capital to support the growth of its digital businesses.

Disclosure Regarding Forward-Looking Statements
This quarterly report on Form 10-Q may contain certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act)) and information relating to the Company that are based on the beliefs of the management of the Company as well as assumptions made by and information currently available to the management of the Company. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will” and similar expressions, as they relate to the Company or the management of the Company, identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events, the outcome of which is subject to certain risks, including, among others, the general economic environment and consumer spending patterns, decreased consumer demand for the Company’s products, low growth or declining sales and net income due to various factors, risk that international expansion will not be successfully achieved or may be achieved later than expected, possible disruptions in the Company’s computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible risks that inventory in channels of distribution may be larger than able to be sold, possible risk that returns from consumers or channels of distribution may be greater than estimated, the risk that the expected sales lift from Borders’ store closures is not achieved in whole or part, the risk that digital sales growth is less than expectations and the risk that it does not exceed the rate of investment spend, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of the Company’s online, digital and other initiatives, the performance and successful integration of acquired businesses, the success of the Company’s strategic investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, product and component shortages, the potential adverse impact on the business resulting from the review of a potential separation of the NOOK digital business, spin-off, split-off or other disposition by the Company of its interest in NOOK Media, the risk that the transactions to form NOOK Media do not achieve the expected benefits for the parties including the risk that NOOK Media’s applications are not commercially successful or that the expected distribution of those applications is not achieved, the risk that the separation of the digital and college businesses or any subsequent spin-off, split-off or other disposition by the Company of its interest in NOOK Media results in adverse impacts on the Company or NOOK Media (including as a result of termination of agreements and other adverse impacts), the potential impact on the Company’s retail business of the separation, the potential tax consequences for the Company and its shareholders of a subsequent spin-off, split-off or other disposition by the Company of its interest in NOOK Media, the risk that the international expansion contemplated by the relationship is not successful, the risk that NOOK Media is not able to perform its obligations under the commercial agreement, including with respect to the development of applications and international expansion, and the consequences thereof, the risk that Barnes & Noble may not recoup its investments in NOOK as part of any separation, the risks, difficulties, and uncertainties that may result from the separation of businesses that were previously co-mingled including necessary ongoing relationships, and potential for adverse customer impacts and other factors which may be outside of Barnes & Noble’s control, including those factors discussed in detail in Item 1A, “Risk Factors,” in Barnes & Noble’s Annual Report on Form 10-K and Form 10-K/A, and in Barnes & Noble’s other filings made hereafter from time to time with the Securities and Exchange Commission. The forward looking statements relating to international expansion are also subject to the following risks, among others that may affect the introduction, success and timing of the NOOK ® eReader and content in countries outside the United States: the Company may not be successful in reaching agreements with international companies, the terms of agreements that the Company reaches may not be advantageous to the Company, the Company’s NOOK ® device may require technological changes to comply with applicable laws, and marketplace acceptance and other companies have already entered the marketplace with products that have achieved some customer acceptance. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Form 10-Q.


CONF CALL

Andy Milevoj - Vice President of Investor Relations
Good morning, and thank you for joining us on Barnes & Noble's 2013 Third Quarter Earnings Call. Joining us today are our CEO, William Lynch; Mitch Klipper, CEO of Retail; Michael Huseby, CFO; and Allen Lindstrom, Corporate Controller, as well as other members of our senior management team.

Before we begin, I would like to remind you that this call is covered by the Safe Harbor disclaimer contained in our press release and public documents and is the property of Barnes & Noble. It is not for rebroadcast or use by any other party without the prior written consent of Barnes & Noble.

During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call.

At this time, I'll turn the call over to William Lynch, CEO of Barnes & Noble.

William J. Lynch - Chief Executive Officer, President and Director
Thanks, Andy. As we announced several weeks ago, Q3 revenue and earnings shortfall across the company was almost entirely a function of our missing sales targets for our 2 new NOOK tablet devices. Despite generating very strong reviews and the highest preorder volume we received on any NOOK launch to date, sales of those products didn't materialize at the rate we expected through holiday, as heavy competition in the tablet market negatively impacted our sell-through.

In many ways, we helped create the portable tablet category by launching the first-ever 7-inch Media tablet with NOOK Color almost 3 years ago. Since that time, several large technology brands have entered the tablet market, making it more difficult to break through with our award-winning products. We've analyzed what happened during the holiday and have started to quickly make adjustments to our digital strategy, which I will touch on in my remarks in just a moment.

Turning to Retail, core sales in our stores actually exceeded our expectation in Q3 and helped contribute to a 7% year-on-year growth in EBITDA for our Retail segment in the quarter. Based on all the publisher data we have, it appears that the eBook market growth has slowed and digital cannibalization of physical book sales has slowed as well.

After the hyper-growth in eBooks over the last few years, consumers have settled into their book formats of choice. And while eBooks will continue to drive growth in the book category in the future, physical book sales will have a longer tail than previously anticipated. As the country's only remaining national bookseller, our Retail stores will benefit from this flattening of the slope of the physical book decline.

Mike will get into the specifics of the company's Q3 financial performance in a moment, but I do want to address a few big strategic developments the company has announced recently. Specifically, that we are evaluating a sale of Retail and we are making adjustments to our NOOK Media strategy and cutting costs. First, let me say we have 2 valuable businesses in Barnes & Noble Retail and NOOK Media. We can't comment further on Len Riggio's plan to make a proposal to purchase the Retail business other than to confirm ongoing discussions between Len and the Strategic Committee of the board.

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