ITEM 1. BUSINESS
General
Barnes & Noble, Inc. (Barnes & Noble or the Company), one of the nation’s largest booksellers,1 provides customers a unique experience across its omni-channel distribution platform. As of April 27, 2019, the Company operates 627 bookstores in 50 states, maintains an eCommerce site, develops digital reading products and operates NOOK, one of the largest digital bookstores. Barnes & Noble is utilizing the strength of its retail footprint in combination with its online and digital businesses to provide an omni-channel experience for its customers, fulfilling its commitment to offer customers any book, anytime, anywhere and in any format.
Barnes & Noble Retail (B&N Retail) operates 627 retail bookstores, primarily under the Barnes & Noble Booksellers® trade name, and includes the Company’s eCommerce site. B&N Retail also includes Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), a leader in general trade book publishing. The NOOK segment represents the Company’s digital business, offering digital books and magazines for sale and consumption online, NOOK®2 reading devices, co-branded NOOK® tablets and reading software for iOS, Android and Windows. As of April 27, 2019, the Company employed approximately 24,000 employees (7,000 full-time and 17,000 part-time employees).
The Company’s principal business is the sale of trade books (generally hardcover and paperback titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, eBooks and other digital content, NOOK® and related accessories, bargain books, textbooks, magazines, gifts, café products and services, educational toys & games, music and movies direct to customers through its bookstores or on www.barnesandnoble.com.
Barnes & Noble has been experiencing declining sales trends primarily due to lower store traffic. The Company has been able to offset some of the traffic decline through its efforts to increase conversion through higher customer engagement as well as increase average transaction values through better merchandise offerings. Additionally, the Company has been able to partially mitigate the impact of the sales decline on profit levels through cost reductions. Recently, the Company began to reinvest some of its cost savings into initiatives to grow its top line sales, including an advertising campaign and increased promotional offers, which contributed to a comparable store sales increase during the third quarter of the fiscal year ended April 27, 2019 (fiscal 2019). While the Company believes it has lost share on its sales performance, it sees opportunities in an industry that has become more stable.
To improve its performance, the Company’s strategic plan is focused on strengthening its core business by enhancing its customer value proposition; improving profitability through an aggressive expense management program, which will be redeployed to fund growth initiatives; and innovating for the future, which will position the Company for long-term growth.
To strengthen its core business, the Company is focused on enhancing its customer value proposition by improving its merchandise offerings, enriching the overall shopping experience, increasing the value of its Membership Program and expanding its omni-channel capabilities. The Company will continue to leverage the strength of its Barnes & Noble brand, knowledgeable booksellers, vast book selection, omni-channel offering and retail footprint to attract customers and grow sales.
Based upon sales reported in trade publications and public filings.
Any references to NOOK® include the Company’s NOOK® Tablets, Samsung Galaxy Tab® A NOOK®, Samsung Galaxy Tab® E NOOK®, NOOK® GlowLight® 3 and NOOK® GlowLight Plus® devices, each of which includes a registered trademark symbol (®) even if such a symbol is not included herein.
Merchandising initiatives are focused on increasing the impact of promotional activities, narrowing product assortments, improving SKU productivity, refining inventory management processes, testing changes to existing store layouts and remerchandising select business units. The Company believes there is opportunity to increase conversion through higher customer engagement and by improving navigation and discovery throughout the store. Additionally, the Company believes its reinvigorated marketing efforts, which include improved email campaigns and new advertising campaigns, can help improve store traffic trends.
In-store events also drive traffic, reinforcing Barnes & Noble as a destination where customers can meet, browse and discover. The Company has launched new events, such as the Barnes & Noble Book Club, which was designed to bring readers in communities across the country together to discuss some of the most compelling books being published. To generate interest in these and other events, the Company is also utilizing social media, where booksellers communicate events, promotions and new product offerings with customers at the local level in order to drive additional traffic.
The Company’s Membership Program provides the Company with valuable data and insights into its customer base, enabling the Company to better understand and market to its customers. Members are more productive than non-members, as they spend more and visit more often. The Company continues to test programs to grow sales to both members and non-members, increase membership, improve price perception and enhance its overall customer value proposition.
The Company is focused on simplification throughout its organization to create efficiencies and reinvest resources to support sales growth. The Company is also committed to right sizing its cost structure. At B&N Retail, the Company implemented a new labor model for its stores, increasing store productivity and streamlining store operations. At NOOK, the Company exited non-core businesses and outsourced certain functions. NOOK expects to continue to re-calibrate its cost structure commensurate with sales.
In addition to initiatives focused on growing sales through its existing store base, the Company is innovating for the future and is opening newly designed prototype stores, which it believes could foster sales growth in the future.
The Company was incorporated in Delaware in 1986.
Merger Agreement
On June 6, 2019, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Chapters Holdco Inc., a Delaware corporation (Parent), and Chapters Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Parent (Merger Sub). Subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the Merger), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub were formed by affiliates of Elliott Associates, L.P., a Delaware limited partnership, and Elliott International, L.P., a Cayman Islands limited partnership.
The Board of Directors of the Company approved the Merger Agreement and the transactions contemplated thereby following the recommendation of a special committee consisting solely of independent and disinterested directors, to which the Board of Directors of the Company had delegated authority to consider and negotiate the Merger Agreement and the transactions contemplated thereby (including the Voting Agreement (as described below) and the transactions contemplated thereby).
Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the Effective Time), each share of the Company’s common stock, par value $0.001 per share (the Company Common Stock) (other than (i) shares of Company Common Stock held by the Company or any of its subsidiaries, including as treasury stock, or by Parent or any of its subsidiaries, including Merger Sub, which will be cancelled and cease to exist, and (ii) shares of Company Common Stock for which stockholders have exercised statutory appraisal rights and which will be entitled to the appraised value thereof, if applicable, pursuant to Section 262 of the General Corporation Law of the State of Delaware (the DGCL)), will be converted into the right to receive cash in the amount of $6.50.
The transaction is expected to close in the third quarter of calendar year 2019, and is subject to certain mutual conditions, including (i) the adoption of the Merger Agreement by the holders of at least a majority of the aggregate voting power of the outstanding shares of Company Common Stock, voting together as a single class, (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (iii) the absence of any order or law that has the effect of enjoining or otherwise prohibiting the consummation of the Merger. The obligation of each party to consummate the Merger is also conditioned upon (i) the accuracy of the representations and warranties of the other party as of the date of the Merger Agreement and as of the closing (subject to customary materiality qualifiers) and (ii) the compliance by the other party in all material respects with its pre-closing obligations under the Merger Agreement. Parent’s and Merger Sub’s respective obligations to consummate the Merger are also conditioned upon the absence of a Company Material Adverse Effect (as defined in the Merger Agreement). Closing of the Merger is not subject to a financing condition.
In connection with the Merger Agreement, on June 6, 2019, Parent, Leonard Riggio, the Company’s Founder and Chairman, and certain stockholders affiliated with Mr. Riggio (the Significant Stockholders), and, solely for purposes of certain provisions, the Company entered into a Voting and Support Agreement (the Voting Agreement) pursuant to which the Significant Stockholders agreed, among other things and subject to certain conditions, to, at any meeting of stockholders of the Company called to vote upon the approval of the Merger, vote all shares of Company Common Stock beneficially owned by such Significant Stockholders in favor of the Merger, and to vote against certain other matters, so long as such obligations have not terminated in accordance with the terms set forth therein.
The Company and Parent have agreed to cooperate with each other in good faith to use their reasonable best efforts to negotiate an amendment to the Merger Agreement as promptly as practicable providing for the consummation of the transactions contemplated by the Merger Agreement through a tender offer and merger structure in accordance with Section 251(h) of the DGCL. The amendment to the Merger Agreement is conditioned upon the simultaneous amendment to the Voting Agreement providing that the shares of Company Common Stock held by the Significant Stockholders be tendered in the tender offer.
The foregoing description of the Merger Agreement and the Voting Agreement and each description of the Merger Agreement or Voting Agreement contained herein does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement or Voting Agreement, a copy of which is filed as Exhibit 2.1 or Exhibit 10.1, as applicable, to the Current Report on Form 8-K filed with the SEC on June 7, 2019.
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 and makes decisions on the allocation of resources. The Company’s two operating segments are B&N Retail and NOOK.
B&N Retail
This segment includes 627 bookstores as of April 27, 2019, primarily under the Barnes & Noble Booksellers trade name. These Barnes & Noble stores generally offer a comprehensive trade book title base, a café, departments dedicated to Kids and Young Adults, Toys & Games, DVDs, Music & Vinyl, Gift, Magazine and Bargain products, and a dedicated NOOK® area. The stores also offer a calendar of ongoing events, including author appearances and children’s activities. The B&N Retail segment also includes the Company’s eCommerce website, www.barnesandnoble.com, and its publishing operation, Sterling Publishing.
Barnes & Noble stores range in size from 2,800 to 60,000 square feet depending upon market size, with an overall average store size of approximately 26,000 square feet. In fiscal 2019, the Company reduced the Barnes & Noble store base by approximately 172,000 square feet, bringing the total square footage to 16.4 million square feet, a net reduction of 1.0% from fiscal 2018.
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 27, 2019, Barnes & Noble had stores in 161 of the total 210 Designated Market Area markets. In 68 of the 161 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 approximately 19,000 to 133,000 unique titles with an average overall title base of 66,000 per store. The comprehensive title selection is diverse and reflects local interests and regional titles and authors’ works. Bestsellers typically represent between approximately 5% and 6% 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 www.barnesandnoble.com by offering an option to have the book sent to the store or shipped directly to the customer. Additionally, the website allows customers to purchase over three million eBooks, digital magazines and newspapers. 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 sandwiches, soups and bakery items, among other things, 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 the B&N Educator Program, providing education tools for teachers, librarians and parents. These offerings and services have helped to make many of the stores neighborhood institutions.
Educational Toys & Games Department. The Educational Toys & Games Department at Barnes & Noble offers parents and gift-givers unique, best in class, learning products from around the world. In addition to an exceptional educational assortment, customers can rely on Barnes & Noble for many of the most requested top toys in any season. Whether customers are browsing Science & Tech, Arts & Crafts or Kids’ Games & Puzzles, there is consistently something new to discover. At Barnes & Noble, customers can shop in three distinct ways: by brand, by category and by age. And, by showcasing powerful brands, along with favorite characters, the Company has become a destination for kids and gift-givers across the country.
Games, Puzzles, Trend & Collectibles. Barnes & Noble continues to maintain focus on Games & Puzzles with a thoughtful and deliberate merchandising segmentation. Featuring an assortment of puzzles, family games, strategy games, party games, card games and mind, memory and logic games, Barnes & Noble offers table top gaming products allowing customers to immerse themselves in dynamic game-play. In the ever evolving world of pop culture, Barnes & Noble is proud to offer trend-based merchandise for an array of fans through an inspired collection of products from many of the hottest entertainment properties, featuring many of the latest trends from around the globe and the Company’s most revered book franchises.
NOOK® Demonstrations. The Company has utilized its traditional retail bookstores to promote NOOK® within the bookstores. Customers have the ability to see, feel, and experiment with NOOK®, speak to knowledgeable booksellers, and receive pre- and post-sales customer support within the Company’s bookstores. The Company offers NOOK® owners 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 within the
store. These acclaimed devices, which provide a fun, easy-to-use and immersive reading experience, include the NOOK® Tablets, Samsung Galaxy Tab® A NOOK®, Samsung Galaxy Tab® E NOOK®, NOOK® GlowLight® 3 and NOOK® GlowLight Plus® devices. The NOOK® devices have also opened up an additional market for NOOK®-related accessories such as stands, covers, lights, and other items.
Music and Movies & TV Departments. Many of the Barnes & Noble stores have Music and Movies & TV departments, which offer CDs, Vinyl LPs, DVDs and Blu-ray discs. These departments range in size up to approximately 7,800 square feet and typically stock approximately 7,000 titles. The Company’s DVD and Blu-ray selection focuses on current and classic movies, documentaries, fitness and instructional titles, British TV series and movies, and foreign films. The music selection is tailored to the tastes of the Company’s customers, centering on classical music, jazz, pop rock, and show tunes. The Company also offers a strong selection of Vinyl titles, available in all stores, along with turntables.
Discount Pricing. Barnes & Noble stores employ an aggressive nationwide discount pricing strategy and offer special promotions throughout the year. The Barnes & Noble Membership Program offers members greater discounts and other benefits for products and services as well as exclusive offers and promotions via email or direct mail. The Company’s website, www.barnesandnoble.com, also utilizes a competitive model that includes various promotional offerings designed for members and non-members alike and enables the Company to offer better value to its customers. The Barnes & Noble Kids’ Club Program offers free rewards and special offers to participants and invites children to celebrate their birthday within the retail bookstores.
Community Business Development. The Company’s retail bookstores host a variety of national and local events, which feature the many products and services it offers. Each store plans its own community-based calendar of events, including author appearances, children’s storytimes, poetry readings and book discussion groups. In addition, the Company hosts a number of national campaigns around various themes or audiences such as National Book Club, Summer Reading, My Favorite Teacher Essay Contest, Educator Appreciation Days and the annual Holiday Book Drive, which provides books to at risk children in the communities the stores serve. All of these campaigns increase traffic and sales, and further reinforce Barnes & Noble as a community center.
The Company also provides fund-raising opportunities through its Bookfair program for schools and local non-profit arts and literacy organizations, as well as a Holiday Gift Wrap program, which allows non-profit organizations to gain exposure and raise funds while wrapping gifts inside the stores. The Company believes its community business development programs encourage customer loyalty, drive sales and traffic into its stores and provide positive publicity and media coverage.
Merchandising and Marketing. The Company’s merchandising strategy for its Barnes & Noble stores is to be the authoritative community bookstore carrying an extensive selection of titles in all subjects, including an extensive selection of titles from small independent publishers and university presses. Each Barnes & Noble store features an extensive selection of books. Each store is tailored to reflect the lifestyles and interests of the area’s customers.
Product Master, the Company’s authoritative data repository system, provides each store with comprehensive title selections. By enhancing the Company’s existing merchandise replenishment systems, Product Master allows the Company to achieve higher in-stock positions and better productivity at the bookstore level through efficiencies in receiving, cashiering and returns processing. Complementing this extensive on-site selection, all Barnes & Noble stores provide customers with access to the millions of books available to online shoppers at www.barnesandnoble.com by offering an option to have the book sent to the store or shipped directly to the customer.
The Company has an omni-channel eCommerce marketing strategy that deploys various merchandising programs and promotional activities to drive traffic to both its stores and website. At the center of this eCommerce program is the Company’s website, www.barnesandnoble.com. The website serves as both the Company’s direct-to-home delivery service and as an important broadcast channel and advertising medium for the Barnes & Noble brand. For example, the online store locator at www.barnesandnoble.com receives millions of customer visits each year providing store hours, directions, information about author events and other in-store activities. Similarly, in Barnes & Noble stores, NOOK® customers can access free Wi-Fi connectivity and enjoy the Read In Store™ feature to browse many complete eBooks for free.
The Company has implemented a number of new website features to improve the overall user experience. The Buy Online, Pick up in Store (BOPIS) initiative allows customers to place an order online and pick it up within one hour at the selected store. This option is available in all Barnes & Noble stores around the country and provides customers with a convenient alternative to shop. BN.com is an important component of the Company’s omni-channel strategy, and it believes that, in the long-term, the platform will enable it to be more competitive in the marketplace.
Another example of an omni-channel initiative is the Barnes & Noble MasterCard®, a co-brand credit card issued by Barclaycard. Card members earn 5% back on purchases at any Barnes & Noble store or online at www.barnesandnoble.com. They also earn points for every dollar spent on purchases where MasterCard is accepted (excluding Barnes & Noble purchases); when they reach 2,500 points, they automatically earn a $25 Barnes & Noble gift card. Customers can apply in any B&N store or online at BN.com. Upon approval, they can use the new account to receive the 5% statement credit rebate on their B&N purchase, as well as a $25 Barnes & Noble gift card after first use of the account.
The Company believes that its website complements its bookstores in many ways. It not only serves as a marketing tool, it offers convenient shopping alternatives for its customers.
Brand Reputation. In 2018, the Reputation Institute named Barnes & Noble the most reputable retailer in America. The Company attained the #1 position based on its strongest emotional connection and on the key drivers of reputation, such as governance and citizenship. According to the Reputation Institute, the survey quantifies the emotional bond stakeholders have with leading companies and how these connections drive supportive behavior such as the willingness to purchase a company’s products, recommend the brand, invest or work for the company.
Store Locations and Properties. The Company’s experienced real estate personnel select sites for new Barnes & Noble stores after an extensive review of demographic data and other information relating to market potential, bookstore visibility and access, available parking, surrounding businesses, compatible nearby tenants, competition and the location of other Barnes & Noble stores. Most stores are located in high-visibility areas adjacent to main traffic corridors in strip shopping centers, freestanding buildings and regional shopping malls. The real estate personnel continue to focus on renegotiating leases as they expire.
The B&N Retail segment includes 627 bookstores as of April 27, 2019, primarily under the Barnes & Noble Booksellers trade name. The number of Barnes & Noble stores located in each state as of April 27, 2019 is listed below:
Sterling Publishing
Sterling Publishing is a leading publisher of non-fiction trade titles. Founded in 1949, Sterling publishes a wide range of non-fiction and illustrated books and kits across a variety of imprints, in categories such as health & wellness, music & popular culture, food & wine, crafts, puzzles & games and history & current affairs, as well as a large children’s line. Sterling, with a solid backlist and robust value publishing program, has a title base of approximately 13,000 print books and eBooks. In addition, Sterling also distributes approximately 1,500 titles on behalf of client publishers.
Operations
The Company has seasoned management teams for its retail stores, including those for real estate, merchandising and store operations. Field management includes regional vice presidents and district managers supervising multiple store locations.
During fiscal 2018, the Company implemented a new labor model for its stores, increasing store productivity and streamlining store operations.
The Barnes & Noble management team is led by experienced management in both traditional product lines and in digital eCommerce. The Barnes & Noble management team employs highly skilled professionals with both media expertise and supply chain management skills. This combination ensures a positive customer experience regardless of a customer’s preference for a physical product or a digital one.
Each Barnes & Noble store generally employs a store manager, one assistant store manager, two sales and inventory managers, a café manager and on average 31 booksellers (combination of full-time and part-time). Many Barnes & Noble stores also employ a full-time community business development manager. The large bookseller base provides the Company with experienced employees to fill new manager positions in the Company’s Barnes & Noble stores. The Company anticipates that a significant percentage of the personnel required to manage its stores will continue to come from within its existing operations.
Field management for all of the Company’s bookstores, including regional vice presidents, district managers and store managers, participate in an annual incentive program tied to store sales and profit goals (for regional vice presidents) as well as execution of certain retail initiatives. The Company believes that the compensation of its field management is competitive with that offered by other specialty retailers of comparable size.
Barnes & Noble has in-store training programs providing specific information needed for success at each level, beginning with the entry-level positions of bookseller. District managers participate in annual training and merchandising conferences. Store managers are generally responsible for training other booksellers and employees in accordance with detailed procedures and guidelines prescribed by the Company utilizing a blended learning approach, including on-the-job training, eLearning, facilitator-led training and training aids available at each bookstore.
Purchasing
Barnes & Noble’s buyers and vendor management team negotiate costs, marketing funds, promotional discounts, cooperative advertising and showroom allowances with publishers and other suppliers for www.barnesandnoble.com and all of the Company’s bookstores. The Company has buyers and allocation managers who specialize in customizing inventory for bookselling in stores and online. Store inventories are further customized by store managers, who may respond to local demand by purchasing a limited amount of fast-selling titles through a nationwide wholesaling network, including the Company’s distribution centers.
The Company’s B&N Retail segment purchases physical books on a regular basis from over 500 publishers and over 30 wholesalers or distributors. Purchases from the top five suppliers (including publishers, wholesalers and distributors) accounted for approximately 70% of the B&N Retail’s book purchases during fiscal 2019, and no single supplier accounted for more than 29% of B&N Retail’s book purchases during this period. Consistent with industry practice, a substantial majority of the physical book purchases are returnable for full credit, a practice which substantially reduces the Company’s risk of inventory obsolescence.
Distribution
The Company has invested significant capital in its systems and technology by building new platforms, implementing new software applications and building and maintaining efficient distribution centers. This investment has enabled the Company to source a majority of its inventory through its own distribution centers, resulting in direct buying from vendors rather than wholesalers. Using the Company’s own distribution centers rather than wholesalers lowers distribution costs per unit, increases inventory turns, and improves product margins. The Company’s distribution centers’ 3-prong strategy of (1) accelerating speed to market, (2) improving order quality (on-time, complete and damage free) and (3) reducing costs has improved just-in-time deliveries to stores as well as deliveries to the Company’s customers on orders placed via the Barnes & Noble website and through the Company’s in-store order network.
As of April 27, 2019, the Company has approximately 1,745,000 square feet of distribution center capacity. The Company has an approximately 1,145,000 square foot distribution center in Monroe Township, New Jersey, which ships merchandise to stores throughout the country and to online customers. The Company also has an approximately 600,000 square foot distribution center in Reno, Nevada, which is used to facilitate distribution to stores and online customers in the western United States.
Information Technologies
The Company has focused a majority of its information technology resources on strategically positioning and implementing systems to support store operations, online technology requirements, merchandising, distribution, marketing and finance.
BookMaster, the Company’s proprietary bookstore inventory management system, integrates point-of-sale features with a proprietary data warehouse-based replenishment system. BookMaster enhances communications and real-time access to the Company’s network of bookstores, distribution centers and wholesalers. The Company continues to implement systems to improve efficiencies in back office processing in the human resources, finance and merchandising areas.
The Company plans to continue to invest in technologies that will enable it to offer its customers the more convenient and user-friendly online shopping experience. B&N Retail has licensed existing commercial technology when available and has focused its internal development efforts on those proprietary systems necessary to provide the highest level of service to its customers. The overall mix of technologies and applications allows the Company to support a distributed, scalable and secure eCommerce environment.
The Company uses Intel®-based server technology in a fully redundant configuration to power its current website, which is hosted on two Company-owned data centers in leased facilities. Each of these data centers has sufficient capacity to independently support the volume of traffic directed toward the Company’s website during peak periods. Both hosting data centers are configured with redundant power, Internet telecommunications capacity and cooling to significantly reduce its exposure to downtime and service outages. Additionally, the Company believes its technology investments are scalable to meet the future growth demands of the business.
Competition
The book business is highly competitive in every channel in which the Company operates. The Company competes with mass merchandisers, such as Costco, Target and Wal-Mart. The Company faces competition from many online distributors, notably Amazon.com. The Company also competes with other large bookstores, including Books-A-Million, and smaller format bookstores, including new Amazon retail stores and independent store operators. In addition, the Company faces competition from digital distributors, such as Amazon.com and Apple, including through digital books or “eBooks” and eBook readers. The B&N Retail business’s stores also compete with specialty retail stores that offer books in particular subject areas, variety discounters, drug stores, warehouse clubs, mail-order clubs and other retailers offering books, music, toys, games, gifts and other products in its market segments.
The music and movie businesses are also highly competitive and the Company faces competition from mass merchants, discounters and electronic distribution. The store experience is geared towards the Company’s customer base, including a strong Blu-ray presence as well as a tailored, returnable product assortment.
Seasonality
The B&N Retail business, like that of many retailers, is seasonal, with the major portion of sales and operating income realized during its third fiscal quarter, which includes the holiday selling season.
Employees
The Company cultivates a culture of outgoing, helpful and knowledgeable employees. As of April 27, 2019, the B&N Retail segment had approximately 24,000 employees (7,000 full-time and 17,000 part-time employees). The B&N Retail segment’s employees are not represented by unions.
NOOK
This 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 and sales of NOOK® devices and accessories to B&N Retail. The underlying strategy of the NOOK business is to offer customers any digital book, newspaper or magazine, anytime, on any device. The Company remains committed to delivering to customers the best digital bookstore experience, providing easy access to Barnes & Noble’s expansive digital collection of over three million eBooks, digital magazines and newspapers, while rationalizing its existing cost structure. As part of this commitment, the Company partners with Samsung to develop co-branded NOOK® tablets that feature the award-winning Barnes & Noble digital reading experience, while continuing to develop and offer its own NOOK® Tablets and E-Ink NOOK® eReaders.
Barnes & Noble’s NOOK digital bookstore and Reading Apps™ provide customers the ability to purchase and read their digital content and access their Lifetime Library on a wide range of digital platforms, including Windows PCs and tablets, iPad™, iPhone®, Android™ smartphones and tablets, PC and Mac®. Barnes & Noble has implemented innovative features on its digital platform to ensure that customers can access their NOOK content from almost all of today’s most popular devices.
NOOK currently sells a number of different devices to satisfy customers’ digital needs, including NOOK® Tablets, Samsung Galaxy Tab® A NOOK®, Samsung Galaxy Tab® E NOOK®, NOOK® GlowLight® 3 and NOOK® GlowLight Plus® devices. The NOOK® and Samsung tablets provide customers access to the millions of books, newspapers and magazines in the NOOK Store and through Google Play, Android apps and games, songs, movies and TV shows, plus popular Google services like the Chrome™ browser, Gmail™, YouTube™, Google Search™ and Google Maps™. NOOK GlowLight® devices provide customers a simple, easy to use, intuitive eReader on an E-Ink display that replicates the experience of reading from physical paper and provides access to the Company’s digital content store. Free NOOK support in any of the B&N Retail bookstores provides customers the ability to interact with a knowledgeable bookseller to receive pre- and post-customer sales support. Barnes & Noble stores also provide free Wi-Fi connectivity for NOOK® devices and Read In Store™ access, which allows customers to read NOOK Books™ for free within the store. NOOK also allows for digital lending of a wide selection of books through its LendMe® technology.
Operations
The digital products group has knowledgeable product development and operational management teams in the areas of reading software, digital content retailing and mobile device development. Digital product management oversees product concept, software development, engineering, and user experience. Operational management has historically overseen demand planning, strategic sourcing, manufacturing, return and refurbishment of hardware. The Company expects that digital product management’s role will continue to focus on eReading devices and reading platforms, while also managing third-party partner relationships, such as NOOK’s partnership with Samsung and Bahwan CyberTek (BCT), a global software products and services company, in which the Company outsourced certain NOOK functions, including cloud management and development support for NOOK® software.
Purchasing/Distribution
NOOK acquires the rights to distribute digital content from publishers and distributes the content on www.barnesandnoble.com, NOOK® devices and other eBookstore platforms. Certain digital content is distributed under an agency pricing model, in which the publishers set fixed prices for eBooks and NOOK receives a fixed commission on content sold through the eBookstore. The majority of the Company’s eBooks sold are under the agency model.
NOOK utilizes the Company’s purchasing power and its distribution centers to synergistically facilitate the purchasing and shipping of devices and accessories.
Competition
The eReader and tablet businesses are highly competitive. NOOK competes primarily on price, device functionality, consumer appeal and availability of digital content. The importance of price varies depending on the competitor, with some of NOOK’s competitors engaging in significant discounting and other promotional activities. NOOK competes with many online digital businesses, notably Amazon.com and Apple. Some of the Company’s competitors have substantially greater financial and other resources and may have different business strategies than NOOK does.
Seasonality
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.
Employees
As of April 27, 2019, NOOK had 38 employees (combination of full-time and part-time). NOOK employees are not represented by unions, and the Company believes that its relationship with its employees is generally excellent.
Trademarks and Service Marks
The trademarks and service marks owned by the Company and its subsidiaries include, but are not limited to, B&N®, Barnes & Noble®, Barnes & Noble.com®, barnesandnoble.com®, Barnes & Noble Booksellers®, Barnes & Noble Kitchen®, Barnes & Noble Press®, Barnsie®, Noble®, Book Graph®, Browsery®, Discover Great New Writers®, Espari®, Kids’ Book Hangout®, No Fear Shakespeare®, NOOK®, NOOK Color®, NOOK Tablet®, Reader’s Tablet®, NOOK Simple Touch®, GlowLight®, NOOK GlowLight®, The Simple Touch Reader®, NOOK Books®, NOOK Book Enhanced®, The NOOK Book Store®, NOOK Newsstand®, NOOK Newspaper®, Read In Store®, NOOK Friends®, LendMe®, NOOK Boutique®, ArticleView®, Daily Shelf®, Read To Me®, Punctuate!®, Wobblio®, Get Pop-Cultured®, B-Fest®, B&N Readouts®, B&N Recommends®, SparkNotes®, B. Dalton®, Borders®, Borders Books & Music®, and Waldenbooks®, some of which are registered or pending with the United States Patent and Trademark Office.
The Company regards its trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets, proprietary technology and similar intellectual property as important to its operations, and it relies on trademark, copyright and patent law, domain name regulations, trade secret protection and confidentiality or license agreements to protect its proprietary rights. The Company has registered, or
applied for the registration of, a number of domain names, trademarks, service marks, patents, and copyrights by U.S. and foreign governmental authorities. Additionally, the Company has filed U.S. and international patent applications covering certain of its proprietary technology. The Company renews its registrations, which vary in duration, as it deems appropriate from time to time.
The Company has licensed in the past, and expects that it may license in the future, certain of its proprietary rights to third parties. Some of the Company’s products are designed to include intellectual property licensed or otherwise obtained from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of the Company’s products and business methods, the Company believes, based upon past experience and industry practice, such licenses generally could be obtained on commercially reasonable terms; however, there is no guarantee such licenses could be obtained at all.
Available Information
The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, proxy statements and other information with the SEC. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file electronically with the SEC. The Internet address of the SEC’s website is https://www.sec.gov.
The Company makes available on its corporate website at www.barnesandnobleinc.com under “Investor Relations” - “SEC Filings,” free of charge, all its SEC filings as soon as reasonably practicable after the Company electronically files such material with or furnishes such materials to the SEC.
The Company has adopted Corporate Governance Guidelines, a Code of Business Conduct and Ethics and written charters for the Company’s Audit Committee, Compensation Committee and Corporate Governance & Nominating Committee. Each of the foregoing is available on the Company’s website at www.barnesandnobleinc.com under “Investor Relations” - “Corporate Governance” and in print to any stockholder who requests it, in writing to the Company’s Corporate Secretary, Barnes & Noble, Inc., 122 Fifth Avenue, New York, New York 10011. In accordance with SEC rules, the Company intends to disclose any amendment (other than any technical, administrative, or other non-substantive amendment) to either of the above codes, or any waiver of any provision thereof with respect to any of the executive officers, on the Company’s website within four business days following such amendment or waiver.
ITEM 1A.
ITEM 1A. Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones faced by the Company. Additional risks and uncertainties not presently known or that are currently deemed immaterial also may impair the Company’s business operations. Management’s strategies are subject to the risks described herein and elsewhere, and may be subject to other risks that have not yet been identified, and management cannot make assurances that its business strategies will be successful. If any of the following risks occur, the Company’s business, financial condition, operating results and cash flows could be materially adversely affected.
Unless otherwise specified or the context otherwise requires, references below to (1) “the Company” refer to Barnes & Noble, Inc. and its subsidiaries, (2) “Retail business” refer to the Company’s business included in the Retail segment, and (3) “Digital business” refer to the Company’s business included in the NOOK segment, including the sales of digital content, devices and accessories.
Risks related to the Merger.
The announcement and pendency of the Merger may have an adverse effect on the Company’s business, financial condition, operating results and cash flows.
Uncertainty about the effect of the Merger on our employees, suppliers, customers and other third parties may disrupt our sales, merchandising or other key business activities and may have a material adverse effect on our business, financial condition, operating results and cash flows. Current and prospective employees may experience uncertainty about their roles following the Merger and this may have an effect on our corporate culture. There can be no assurance we will be able to attract and retain key talent, including senior leaders, to the same extent that we have previously been able to attract and retain employees. Any loss or distraction of such employees could have a material adverse effect on our business, financial condition and operating results. In addition, we have diverted, and will continue to divert, significant management and other internal resources towards the completion of the Merger and planning for integration, which could materially adversely affect our business, financial condition, operating results and cash flows. Parties with which we have business relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.
The failure to complete the Merger in a timely manner or at all could negatively impact the market price of our common stock as well as adversely affect our business, financial condition, operating results and cash flows.
Completion of the Merger is subject to several conditions beyond the Company’s control that may prevent, delay or otherwise adversely affect its completion in a material way, including those described below. The Merger cannot be completed until the conditions to closing are satisfied or (if permissible under applicable law) waived. We cannot guarantee that the closing conditions set forth in the Merger Agreement will be satisfied or, even if satisfied, that no event of termination will take place. In the event that the Merger is not completed for any reason, the holders of Company Common Stock will not receive any payment for their shares of Company Common Stock in connection with the Merger. Instead, we will remain an independent public company and the holders of Company Common Stock will continue to own their shares of Company Common Stock.
The completion of the Merger will be conditioned on certain mutual conditions, including (i) the adoption of the Merger Agreement by the holders of at least a majority of the aggregate voting power of the outstanding shares of Company Common Stock, voting together as a single class; (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and (iii) the absence of any order or law that has the effect of enjoining or otherwise prohibiting the consummation of the Merger. The obligation of each party to consummate the Merger is also conditioned upon (i) the accuracy of the representations and warranties of the other party as of the date of the Merger Agreement and as of the closing (subject to customary materiality qualifiers) and (ii) the compliance by the other party in all material respects with its pre-closing obligations under the Merger Agreement. Parent’s and Merger Sub’s respective obligations to consummate the Merger are also conditioned upon the absence of a Company Material Adverse Effect (as defined in the Merger Agreement). As a result, we cannot assure you that the Merger will be completed, or that, if completed, it will be exactly on the terms set forth in the Merger Agreement or within the expected time frame.
If the Merger is not completed within the expected time frame or at all, we may be subject to a number of material risks. The price of Company Common Stock may decline to the extent that current market prices reflect a market assumption that the Merger will be completed. We could be required to pay Parent termination fees of up to $17.5 million if the Merger Agreement is terminated under specific circumstances described in the Merger Agreement. The failure to complete the Merger also may result in negative publicity and negatively affect our relationship with our stockholders, employees, collaborators, customers, regulators and other business partners. We may also be required to devote significant time and resources to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement.
The Merger Agreement contains provisions that could discourage or deter a potential competing acquirer that might be willing to pay more to effect an alternative transaction with us.
Under the Merger Agreement, we are generally not permitted to solicit or discuss takeover proposals with third parties, subject to certain exceptions. The Merger Agreement provides that, during the period from the date of the Merger Agreement until the Effective Time, the Company is subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, provide non-public information to third parties and engage in negotiations with third parties regarding alternative acquisition proposals, subject to customary exceptions.
We will incur substantial transaction fees and costs in connection with the Merger Agreement.
We have incurred and expect to continue to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the Merger Agreement. A material portion of these expenses are payable by us whether or not the Merger is completed. There are a number of factors beyond the Company’s control that could affect the total amount or the timing of these costs and expenses.
Intense competition, including from the Internet and other retail sources, may adversely affect the Company’s businesses.
The book business is highly competitive in every channel in which the Company operates. The Company competes with mass merchandisers, such as Costco, Target and Wal-Mart. The Company faces competition from many online distributors, notably Amazon.com. The Company also competes with other large bookstores, including Books-A-Million, and smaller format bookstores, including new Amazon retail stores and independent store operators. In addition, the Company faces competition from digital distributors, such as Amazon.com and Apple, including through digital books or “eBooks” and eBook readers. The Retail business’s stores also compete with specialty retail stores that offer books in particular subject areas, variety discounters, drug stores, warehouse clubs, mail-order clubs and other retailers offering books, music, toys, games, gifts and other products in its market segments.
Some of the Company’s competitors may have greater financial and other resources and different business strategies than the Company does. New and enhanced technologies, including new digital technologies and new web services technologies, may increase the Company’s competition. Competition may also intensify as the Company’s competitors enter into business combinations or alliances or established companies in other market segments expand into its market segments. Increased competition may reduce the Company’s sales and profits.
The Retail business’s stores compete primarily on the quality of the shopping and store experience and the price and availability of products. The importance of price varies depending on the competitor, with some of the Retail business’s competitors engaging in significant discounting and other promotional activities.
Because of shifting consumer preferences and demographic shifts, coupled with the maturity of the market for traditional retail stores, the Company’s sales or net income may decline unless it successfully implements its business strategies.
The Company’s primary business is its operation of the Retail business’s stores across the United States, and it derived a substantial majority of its sales and profits from the Retail business’s stores in its most recent fiscal year. Continued increases in consumer spending via the Internet, and the disintermediation of information, may significantly affect its ability to generate sales in the Retail business’s stores and the Company’s other channels of sale. The Retail business’s stores have experienced declining sales trends primarily due to lower traffic. Failure of the Company to implement successful strategies to account for such changing consumer preferences may result in the decline in the Company’s sales and/or net income.
The Company’s businesses are dependent on the overall economic environment and consumer spending patterns.
A deterioration of the current economic environment could have a material adverse effect on the Company’s financial condition and operating results, as well as the Company’s ability to fund its growth or its strategic business initiatives.
The Retail and Digital businesses’ sales are primarily dependent upon discretionary consumer spending, which is affected by the overall economic environment, consumer confidence and other factors beyond the Company’s control. In addition, the Retail and Digital businesses’ sales are dependent in part on the strength of new release products, which are controlled by publishers and other suppliers.
The Company faces the risk of disruption of supplier relationships and/or supply chain and/or inventory surplus.
The products that the Company sells originate from a wide variety of domestic and international vendors. During fiscal 2019, the Retail business’s five largest suppliers accounted for approximately 70% of the dollar value of merchandise purchased. While the Company believes that its relationships with its suppliers are strong, suppliers may modify the terms of these relationships due to general economic conditions or otherwise. The Company does not have long-term arrangements with most of its suppliers to guarantee availability of merchandise, content, components or services, particular payment terms or the extension of credit limits. If the Company’s current suppliers were to stop selling merchandise, content, components or services to it on acceptable terms, including as a result of one or more supplier bankruptcies due to poor economic conditions or otherwise as a result of decisions to exit or decrease its wholesale and/or distribution businesses, the Company may be unable to procure the same merchandise, content, components or services from other suppliers in a timely and efficient manner and on acceptable terms, or at all.
The Retail business is dependent on the continued supply of trade books. A significant disruption in the publishing industry generally could adversely impact the Company’s business. A significant unfavorable change in the Company’s relationships with key suppliers could materially adversely affect its sales and profits. In addition, any significant change in the payment terms that the Company has with its key suppliers, including payment terms, return policies, the discount or margin on products or changes to the distribution model could adversely affect its financial condition and liquidity. In addition, changes to the Company’s merchandise assortment, such as a higher volume of non-returnable non-book categories, may place a strain on its supply chain practices, which are primarily built for book offerings.
The Company has arrangements with third-party manufacturers with respect to digital devices. These manufacturers procure and assemble unfinished parts and components from third-party suppliers based on forecasts provided by the Company. Given production lead times, commitments may be made far in advance of finished product delivery. In addition, certain of our merchandise, including electronic readers and certain book, gift and other non-book product, are sourced, directly or indirectly, from outside the United States, including, without limitation, from suppliers in China. General trade tensions between the U.S. and China began escalating in 2018, with multiple rounds of U.S. tariffs on Chinese goods taking effect. Furthermore, China or other countries may institute retaliatory trade measures in response to existing or future tariffs imposed by the U.S. that could have a negative impact on the Company’s business. If any of these events continue as described, the Company may need to seek alternative suppliers or vendors, raise prices, or make changes to its operations, any of which could have a material adverse effect on the Company’s sales and profitability, results of operations and financial condition. Political or financial instability, merchandise quality issues, product safety concerns, trade restrictions, work stoppages, tariffs, foreign currency exchange rates, transportation capacity and costs, inflation, civil unrest, natural disasters, outbreaks of pandemics and other factors relating to foreign trade are beyond our control and could disrupt our supply of foreign-sourced merchandise and/or adversely affect our results of operations.
If the Company is unable to manage its inventory effectively, the Company’s merchandise margins could be adversely affected.
The Company’s profitability depends upon its ability to manage appropriate inventory levels and respond quickly to shifts in consumer demand patterns. The Company must properly execute its inventory management strategies by appropriately allocating merchandise among its stores and online, timely and efficiently distributing inventory to stores, maintaining an appropriate mix and level of inventory in stores and online, adjusting its merchandise mix, appropriately changing the allocation of floor space of stores among product categories to respond to customer demand and effectively managing pricing and
markdowns. If the Company overestimates customer demand for its non-returnable merchandise, it will likely need to record inventory markdowns and sell the excess inventory at clearance prices which would negatively impact its merchandise margins and operating results. If the Company underestimates customer demand for its merchandise, the Company may experience inventory shortages which may result in missed sales opportunities and have a negative impact on customer loyalty. Higher than expected levels of lost or stolen inventory (called shrinkage) could result in write-offs and lost sales, which could adversely impact the Company’s profitability.
If the Retail business is unable to renew or enter into new leases on favorable terms, or at all, or fails to maintain the upkeep of its stores, its sales and earnings may decline.
Substantially all of the Retail business’s stores are located in leased premises. The Retail business’s profitability depends in part on its ability to continue to optimize its store lease portfolio as to the number of retail stores, store locations and lease terms and conditions. Its ability to do so depends on, among other things, general economic and business conditions and general real estate development conditions, which are beyond its control. The Retail business has 341 leases up for renewal by April 30, 2022. If the cost of leasing existing retail stores increases, the Retail business may not be able to maintain its existing store locations as leases expire. In addition, the Retail business may not be able to enter into new leases on acceptable terms, or at all, or it may not be able to locate suitable alternative sites or additional sites for new retail stores in a timely manner. The Retail business’s sales and earnings may decline if it fails to maintain existing store locations, enter into new leases, renew leases or relocate to alternative sites, in each case on attractive terms. The Company is opening newly designed prototype stores, which may negatively impact its earnings and cash flows if the performance of such stores falls short of forecasted expectations. In addition, the Retail business’ sales and earnings may decline if the Company fails to maintain the upkeep of its stores, such that the Company’s stores fail to attract customers to browse and buy the Company’s products.
In addition to the bookstores, the Company leases two distribution centers for its B&N Retail operations: one in Monroe Township, New Jersey and the other in Reno, Nevada. The Retail business’s profitability depends in part on its ability to continue to optimize its distribution centers. Its ability to do so depends on, among other things, general economic and business conditions and general real estate development conditions, which are beyond its control. The Reno distribution center lease is up for renewal in 2020 and the Monroe distribution center lease is up for renewal in 2025. If the cost of leasing these distribution centers increases, the Retail business may not be able to maintain its existing distribution centers as leases expire. In addition, the Retail business may not be able to enter into new leases on acceptable terms, or at all, or it may not be able to locate suitable alternative sites or in a timely manner. The Retail business’s earnings may decline if it fails to maintain existing distribution centers, enter into new leases, renew leases or relocate to alternative sites, in each case on attractive terms.
Harm to the Company’s reputation could adversely impact its ability to attract and retain customers and employees.
Negative publicity or perceptions involving the Company or its brands, products, vendors, spokespersons, or marketing and other partners may negatively impact its reputation and adversely impact its ability to attract and retain customers and employees. Failure to detect, prevent, or mitigate issues that might give rise to reputational risk or failure to adequately address negative publicity or perceptions could adversely impact its reputation, business, results of operations, and financial condition. Issues that might pose a reputational risk include an inability to achieve its omni-channel goals, including providing an eCommerce and delivery experience that meets the expectations of consumers; failure of our cyber-security measures to protect against data breaches; product liability and product recalls; changes in executive management; the Company’s social media activity; failure to comply with applicable laws and regulations; public stances on controversial social or political issues; and any of the other risks enumerated in these risk factors. Furthermore, the prevalence of social media may accelerate and increase the potential scope of any negative publicity the Company might receive and could increase the negative impact of these issues on its reputation, business, results of operations, and financial condition.
The Company is dependent upon access to capital, including bank credit facilities and short-term vendor financing, for its liquidity needs.
The Company must have sufficient sources of liquidity to fund its working capital requirements and indebtedness. The Company believes that the combination of its cash and cash equivalents on hand, cash flow received from operations, funds available under the Company’s credit facility and short-term vendor financing will be sufficient to meet the Company’s normal working capital and debt service requirements for at least the next twelve months. If these sources of liquidity do not satisfy the Company’s requirements, the Company may need to seek additional financing. The future availability of financing will depend on a variety of factors, such as economic and market conditions, the availability of credit and the Company’s credit rating, as well as the Company’s reputation with potential lenders. These factors could materially adversely affect the Company’s ability to fund its working capital requirements, costs of borrowing, and the Company’s financial position and results of operations would be adversely impacted.
The Company’s expansion into new products, services and technologies subjects it to additional business, legal, financial and competitive risks.
The Company may require additional capital in the future to sustain or grow the Company’s business. The Company’s gross profits and margins in its newer activities may be lower than in its traditional activities, and it may not be successful enough in these newer activities to recoup its investments in them. In addition, the Company may have limited or no experience in newer products and services, and its customers may not adopt to any such new product or service offerings. Some of these offerings may present new and difficult challenges. The Company may be subject to claims or recalls if customers of technology offerings experience service disruptions or failures or other quality issues. If any of these were to occur, it could damage the Company’s reputation, limit its growth and negatively affect its operating results.
The complexity of the Company’s businesses could place a significant strain on its management, operations, performance and resources.
The complexity of the Company’s businesses could place a significant strain on its management, operations, technical performance, financial resources, and internal financial control and reporting functions. The Company operates two different businesses: the Retail business and the Digital business. There can be no assurance that the Company will be able to manage the complexity of its businesses effectively. The Company’s current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage its future operations, especially as it employs personnel in multiple geographic locations. The Company may not be able to hire, train, retain, motivate and manage the required personnel, which may limit its growth. If any of these were to occur, it could damage the Company’s reputation, limit growth, negatively affect operating results and harm its business. Additionally, the Company’s inability to maintain recent cost rationalizations in its Digital and Retail businesses, or to further streamline costs in its businesses, may adversely impact the Company’s results of operations. Conversely, if the Company was to reduce costs too deeply or too quickly, unintended consequences may adversely impact its operations, resources and financial performance.
The Company’s relationship with strategic partners could have adverse impacts on the Company and its business.
The Company relies on third parties to provide certain services for its business. The Company’s business may be adversely impacted if such third parties fail to meet their obligations or to provide high levels of service to the Company’s customers. Further, the Company could be subject to claims as a result of the activities, products or services provided by these third-party service providers even though the Company was not directly involved in the circumstances leading to those claims. These claims could include, among other things, claims by the Company’s customers and claims relating to data security. Even if these claims do not result in liability to the Company, defending and investigating these claims could be expensive and time-consuming, divert personnel and other resources from the Company’s business and result in adverse publicity that could harm the Company’s business.
The Company’s results of operations may fluctuate from quarter to quarter, which could affect the Company’s business, financial condition and results of operations.
The Company’s results of operations may fluctuate from quarter to quarter depending upon several factors, some of which are beyond its control. These factors include the timing of new product releases, announcements relating to strategic decisions such as the Merger, supply chain execution, the level of success of the Company’s product releases, the timing of store openings and closings, weather, shifts in the timing of certain promotions and the effect of impairments on the Company’s assets. These and other factors could affect the Company’s business, financial condition and results of operations, and this makes the prediction of the Company’s financial results on a quarterly basis difficult. The Company’s quarterly financial results have been and may in the future be below the expectations of public market analysts and investors.
The Company’s sales are generally highest in the third fiscal quarter and lowest in the second and fourth fiscal quarters. Operating results in the Company’s businesses depend significantly upon the holiday selling season in the third fiscal quarter.
Less than satisfactory net sales during the Company’s peak fiscal quarter could have a material adverse effect on its financial condition or operating results for the year, and the Company’s results of operations from those quarters may not be sufficient to cover any losses, which may be incurred in the other fiscal quarters of the year.
The Company faces data security risks with respect to personal information.
The Company’s business involves the receipt, storage, processing and transmission of personal information about customers and employees. Personal information about customers is obtained in connection with the Company’s membership programs, eCommerce operations, digital media businesses, as well as through retail transactions in stores operated by the Company. The Company’s online operations and the Digital business depend upon the secure transmission of confidential information over public networks, including information permitting cashless payments. We may share such information with vendors and third parties that assist with certain aspects of our business.
The Company’s handling and use of personal information is regulated at the international, federal and state levels. Privacy and information security laws, regulations, and standards, such as the Payment Card Industry Data Security Standard and the California Consumer Privacy Act, change from time to time, and compliance with them may result in cost increases due to necessary systems changes and the development of new processes and may be difficult to achieve. If the Company fails to comply with these laws, regulations and standards, it could be subjected to legal risk. Also, hardware, software or applications developed or procured internally or from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. In addition, even if the Company fully complies with all laws, regulations, and standards and even though the Company has taken significant steps to protect personal information, the Company could experience a data security breach, and its reputation could be damaged, possibly resulting in lost future sales or decreased usage of credit and debit card products. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventative measures. A
party that is able to circumvent the Company’s security measures could misappropriate the Company’s or its users’ proprietary information and cause interruption in its operations. Any compromise of the Company’s data security could result in a violation of applicable privacy and other laws or standards, significant legal and financial exposure beyond the scope or limits of insurance coverage, increased operating costs associated with remediation, negative publicity, equipment acquisitions or disposal and added personnel, and a loss of confidence in its security measures, which could harm the business or investor confidence. Data security breaches may also result from non-technical means, for example, actions by an employee.
The Company may not be able to adequately protect its intellectual property rights or may be accused of infringing upon intellectual property rights of third parties.
The Company regards its trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology and similar intellectual property as important to its success, and it relies on trademark, copyright and patent law, domain name regulations, trade secret protection and confidentiality or license agreements to protect its proprietary rights. Laws and regulations may not adequately protect its trademarks and similar proprietary rights. The Company may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or diminish the value of its trademarks and other proprietary rights.
The Company may not be able to discover or determine the extent of any unauthorized use of its proprietary rights. The protection of the Company’s intellectual property may require the expenditure of significant financial and managerial resources. Moreover, the steps it takes to protect its intellectual property may not adequately protect its rights or prevent third parties from infringing or misappropriating its proprietary rights. The Company also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or other intellectual property rights.
Other parties also may claim that the Company infringes their proprietary rights. Because of the changes in Internet commerce, the electronic reader and digital content business, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible that certain components of our products and business methods may unknowingly infringe existing patents or intellectual property rights of others. Because the Company’s products include complex technology, much of which is acquired from suppliers through the purchase of components or licensing of software, the Company and its suppliers and customers are and have been involved in or have been impacted by assertions, including both requests for licenses and litigation, regarding patent and other intellectual property rights. The Company has been and is currently subject to, and expects to continue to be subject to, claims and legal proceedings regarding alleged infringement by it of the intellectual property rights of third parties. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, injunctions against the Company prohibiting the Company from marketing or selling certain products or the payment of damages. The Company may need to obtain licenses from third parties who allege that it has infringed their rights, but such licenses may not be available on terms acceptable to the Company, or at all. In addition, the Company may not be able to obtain or utilize on terms that are favorable to it, or at all, licenses or other rights with respect to intellectual property it does not own in providing services to other businesses and individuals under commercial agreements. These risks have been amplified by the increase in third parties whose primary business appears to be to assert such claims. If any infringement or other intellectual property claim made against the Company by any third-party is successful, if the Company is required to indemnify a customer with respect to a claim against the customer, or if the Company is unable to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, the Company’s business, operating results, and financial condition could be materially and adversely affected.
The Company’s digital content offerings, including NOOK®, depend in part on effective digital rights management technology to control access to digital content. If the digital rights management technology that it uses is compromised or otherwise malfunctions, the Company could be subject to claims, and content providers may be unwilling to include their content in its service.
The concentration of the Company’s capital stock ownership with certain executive officers, directors and their affiliates limits its stockholders’ ability to influence corporate matters and may involve other risks.
Mr. Riggio is currently the beneficial owner of an aggregate of approximately 19.2% of the Company’s outstanding capital stock as of April 27, 2019.
This concentrated control may limit the ability of the Company’s other stockholders to influence corporate matters and, as a result, the Company may take certain actions, with which its other stockholders do not agree. In addition, there may be risks related to the relationships Leonard Riggio and other members of the Riggio family have with the various entities with which the Company has related party transactions.
Pursuant to the Voting Agreement, the Significant Stockholders agreed, among other things and subject to certain conditions, to, at any meeting of stockholders of the Company called to vote upon the approval of the Merger, vote all shares of Company Common Stock beneficially owned by such significant stockholders in favor of the Merger, and to vote against certain other matters, so long as such obligations have not terminated in accordance with the terms set forth therein. The Voting Agreement may be amended in connection with an amendment to the Merger Agreement, as discussed above in Item I “Business-Merger Agreement,” to provide that the shares of Company Common Stock held by the Significant Stockholders be tendered in any tender offer contemplated by such amendment to the Merger Agreement.
Changes in sales and other tax collection regulations or inability of the Company to utilize tax credits or assets, could harm the Company’s businesses or financial performance.
The Retail business and the Digital business collected sales tax on the majority of the products and services that they sold in their respective prior fiscal years that were subject to sales tax, and they generally have continued the same policies for sales tax within the current fiscal year. While management believes that the financial statements included elsewhere herein reflect management’s best current estimate of any potential additional sales tax liability based on current discussions with taxing authorities, there can be no assurance that the outcome of any discussions with any taxing authority will not result in the payment of sales taxes for prior periods or otherwise, or that the amount of any such payments will not be materially in excess of any liability currently recorded. In the future, the Company’s businesses may be subject to claims for not collecting sales tax on the products and services it currently sells for which sales tax is not collected. There is a risk that existing tax credits and tax assets may not be utilized or may expire.
The Spin-Off of Barnes & Noble Education could result in significant tax liability to the Company and its stockholders.
The Spin-Off was conditioned on the Company’s receipt of written opinions from Cravath, Swaine & Moore LLP and KPMG LLP to the effect that the Spin-Off would qualify for non-recognition of gain and loss to the Company and its stockholders, which were received. These opinions do not address any U.S. state or local or foreign tax consequences of the Spin-Off. These opinions assume that the Spin-Off will be completed according to the terms of the Separation Agreement and rely on the facts as stated in the Separation Agreement, the Tax Matters Agreement, the other ancillary agreements, the prospectus for the Spin-Off and a number of other documents. In addition, these opinions are based on certain representations as to factual matters from, and certain covenants by, the Company and Barnes & Noble Education. The opinions cannot be relied on if any of the assumptions, representations or covenants are incorrect, incomplete or inaccurate or are violated in any material respect. The opinions are not binding on the Internal Revenue Service (IRS) or the courts, and we cannot assure you that the IRS or a court will not take a contrary position. If the Spin-Off were determined not to qualify for non-recognition of gain and loss, U.S. holders could be subject to tax. In this case, each U.S. holder who receives the Barnes & Noble Education common stock in the Spin-Off would generally be treated as receiving a distribution in an amount equal to the fair market value of Barnes & Noble Education common stock received, which would generally result in (i) a taxable dividend to the U.S. holder to the extent of that U.S. holder’s pro rata share of the Company’s current and accumulated earnings and profits; (ii) a reduction in the U.S. holder’s basis (but not below zero) in the Company’s common stock to the extent the amount received exceeds the stockholder’s share of the Company’s earnings and profits; and (iii) a taxable gain from the exchange of the Company’s common stock to the extent the amount received exceeds the sum of the U.S. holder’s share of the Company’s earnings and profits and the U.S. holder’s basis in its common stock.
If the Spin-Off were determined not to qualify for non-recognition of gain and loss, then the Company would recognize gain in an amount up to the fair market value of the Barnes & Noble Education stock held by the Company immediately before the Spin-Off.
The Company’s Shareholder Rights Plan and other anti-takeover defenses could deter acquisition proposals and make it difficult for a third-party to acquire control of the Company. This could have a negative effect on the price of the Company’s common stock.
The Company adopted a short-term Shareholder Rights Plan (Rights Agreement) on October 3, 2018, as amended by Amendment No. 1 thereto, dated as of June 6, 2019, expiring on the earliest of (i) the Close of Business (as defined in the Rights Agreement) on October 2, 2019, (ii) the time at which all Rights (as defined in the Rights Agreement) are redeemed, and (iii) immediately prior to the Effective Time of the Merger, and also has other anti-takeover defenses in its certificate of incorporation and by-laws. Additionally, pursuant to the stockholder proposal that was approved at the Company’s 2017 annual meeting of stockholders, the declassification of the Company’s Board of Directors is being phased in, such that the Class II directors stood for election for a one-year term at the 2018 annual meeting of stockholders, and the Class II directors and the Class III directors will stand for election for a one-year term at the 2019 annual meeting of stockholders, and all directors will stand for election for one-year terms at the 2020 annual meeting of stockholders and at each annual meeting of stockholders thereafter. Until declassification is complete, the Company’s classified Board of Directors could serve as an anti-takeover defense. Each of the Company’s defenses could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. These deterrents could adversely affect the price of Company common stock and make it difficult to remove or replace members of the Board of Directors or management of the Company.
The Company’s businesses could be impacted by changes in international, federal, state or local laws, rules or regulations.
The Company is subject to general business regulations and laws relating to all aspects of its business, including regulations and laws relating to the Internet, online commerce, digital content and products as well as its other lines of business. Changes in international, federal, state or local laws, rules or regulations, including, but not limited to, laws, rules or regulations related to employment, wages, data privacy, information security, intellectual property, taxes, products, product safety, health and safety, imports and exports, anti-corruption, and anti-competition could diminish the demand for the Company’s products and services, increase the Company’s costs of doing business, decrease the Company’s margins or otherwise materially adversely impact the Company’s business. Existing and future laws and regulations and their application and/or enforcement may impede the growth of the Internet, digital content distribution or other online services and impact digital content pricing, including requiring modifications or elimination of related pricing models, including the agency pricing model.
The Company faces additional operating risks through the operation of the Digital business and as an Internet retailer.
The Company faces risks related to the operation of the Digital business. The Digital business’s content sales decreased during fiscal 2019 and may continue to decline in the future, which could affect the Company’s results of operations and liquidity. Also, the sales of digital devices and accessories declined during fiscal 2019, and there is no guarantee that the possible introduction of future NOOK® digital devices will increase future sales of digital devices or content or the earnings of the Digital business. NOOK® competes primarily with other tablets and eBook readers on functionality, consumer appeal, availability of digital content and price. The Digital business faces certain risks associated with its business, including protection of digital rights and uncertainties relating to the regulation of digital content.
Business risks related to the Company’s online business include risks associated with the need to keep pace with rapid technological change, risks associated with the adoption of new products or platforms.
Internet security risks, risks of system failure or inadequacy, supply chain risks, government regulation and legal uncertainties with respect to the Internet, risks related to data privacy and collection of sales or other taxes by one or more states or foreign jurisdictions. If any of these risks materializes, it could have an adverse effect on the Company’s business.
The Company depends on component and product manufacturing provided by third parties, many of whom are located outside of the U.S.
NOOK® and other Company products are manufactured by third-party manufacturers, many of which are located outside the United States. While the Company’s arrangements with these manufacturers may lower costs, they also reduce its direct control over production. It is uncertain what effect such diminished control will have on the quality or quantity of products or services, or the Company’s flexibility to respond to changing conditions. Although arrangements with such manufacturers may contain provisions for warranty expense reimbursement, if reimbursement from such manufacturers is unenforceable or insufficient, the Company may remain responsible to the consumer for warranty service in the event of product defects. Any unanticipated product defect or warranty liability, whether pursuant to arrangements with contract manufacturers or otherwise, could materially adversely affect the Company’s reputation, financial condition and operating results.
The Company, including the Digital business, may be unable to obtain a sufficient supply of components and parts that are free of minerals mined from the Democratic Republic of Congo and adjoining countries (DRC), which could result in a shortage of such components and parts or reputational damages if the Company is unable to certify that its products are free of such minerals. The Company filed its Conflict Minerals Report for the calendar year 2018 with the SEC on May 31, 2019.
The Company’s businesses rely on certain key personnel.
Management believes that the Company’s continued success will depend to a significant extent upon the efforts and abilities of certain key personnel of the Company. The loss of the services of any of these key personnel could have a material adverse effect on the Company. The Company does not maintain “key man” life insurance on any of its officers or other employees. On October 3, 2018, the Company announced a review of strategic alternatives. While the Company has implemented measures to retain key employees, such as retention and change in control plans, the uncertainty such a review presents may increase the risk of turnover of key personnel throughout the organization.
The Company relies on third-party digital content and applications, which may not be available to the Company on commercially reasonable terms or at all.
The Company contracts with certain third parties to offer their digital content, including on NOOK® and through its eBookstore. Its licensing arrangements with these third parties do not guarantee the continuation or renewal of these arrangements on reasonable terms, if at all. Some third-party content providers currently or in the future may offer competing products and services, and could take action to make it more difficult or impossible for the Company to license their content in the future. Other content owners, providers or distributors may seek to limit the Company’s access to, or increase the total cost of, such content. If the Company is unable to offer a wide variety of content at reasonable prices with acceptable usage rules, its financial condition and operating results may be materially adversely affected.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
All but one of the active Barnes & Noble stores are leased. The leases typically provide for an initial term of 10 or 15 years with one or more renewal options. Most stores are currently in renewal periods. The terms of the Barnes & Noble store leases for its 627 leased stores as of April 27, 2019 expire as follows:
(a) Five Barnes & Noble stores are under month-to-month leases. One Barnes & Noble store is a closed store under an existing lease.
In addition to the bookstores, the Company leases two distribution centers for its B&N Retail operations: one in Monroe Township, New Jersey under a lease expiring in 2025 and the other in Reno, Nevada under a lease expiring in 2020. The Company’s B&N Retail distribution centers total 1,745,000 square feet.
The Company’s principal administrative facilities are situated in New York, New York, and are covered by two leases: 184,000 square feet lease and 9,500 square feet lease, both expiring in 2023.
The Company leases two additional locations in New York, New York for office space: approximately 40,000 square feet lease for eCommerce and NOOK administrative offices and approximately 40,000 square feet lease for Sterling Publishing administrative offices, both expiring in 2020.
The Company also leases approximately 79,000 square feet of office space in Westbury, New York under a lease expiring in 2022, approximately 30,000 square feet of office space in Lyndhurst, New Jersey under a lease expiring in 2021 and approximately 56,000 square feet of office space in Santa Clara, California under a lease expiring in 2019, which office space in Santa Clara, California is sublet.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The information included in the Company’s Annual Report to Shareholders for the fiscal year ended April 27, 2019 included as Exhibit 13.1 to this Annual Report on Form 10-K (the Annual Report) under the section entitled “Notes to Consolidated Financial Statements, Note 14. Legal Proceedings” is incorporated herein by reference.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
The Company Common Stock is traded on the New York Stock Exchange (NYSE) under the symbol “BKS”.
Approximate Number of Holders of Common Equity
The following table provides information with respect to purchases by the Company of shares of Company Common Stock during the fourth quarter of fiscal 2019:
(a) The shares on this table above represent shares relinquished by employees in exchange for the Company’s agreement to pay federal and state withholding obligations resulting from the vesting of the Company’s restricted stock units, which are not drawn against the Company’s stock repurchase program. All of the restricted stock units vested during these periods were originally granted pursuant to the Company’s 2009 Amended and Restated Incentive Plan. This Incentive Plan provides for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock units.
On March 15, 2017, the Company’s Board of Directors authorized a stock repurchase program of up to $50.0 million of its common shares. Stock repurchases under this program may be made through open market and privately negotiated transactions from time to time and in such amounts as management deems appropriate. The stock repurchase program has no expiration date and may be suspended or discontinued at any time. The Company’s repurchase plan is intended to comply with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The Company did not repurchase shares under this plan in fiscal 2019 and fiscal 2018. The Company has remaining capacity of $50.0 million under the repurchase program as of April 27, 2019.
As of April 27, 2019, the Company has repurchased 39,745,497 shares at a cost of approximately $1.09 billion since the inception of the Company’s current and prior stock repurchase programs. The repurchased shares are held in treasury.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information included in the Annual Report under the section entitled “Selected Consolidated Financial Data” is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company limits its interest rate risks by investing certain of its excess cash balances in short-term, highly-liquid instruments with an original maturity of one year or less. The Company does not expect any material losses from its invested cash balances and the Company believes that its interest rate exposure is modest. As of April 27, 2019, the Company’s cash and cash equivalents totaled approximately $9.4 million. A 50 basis point increase in annual interest rates would have increased the Company’s interest income by $0.0 million in fiscal 2019. Conversely, a 50 basis point decrease in annual interest rates would have reduced interest income by $0.0 million in fiscal 2019.
Additionally, the Company may from time to time borrow money under its credit facility at various interest rate options based on the Base Rate or LIBO Rate (each term as defined in the amended and restated credit agreement described in the Annual Report under the section titled “Notes to Consolidated Financial Statements”) depending upon certain financial tests. Accordingly, the Company may be exposed to interest rate risk on borrowings under its credit facility. The Company had borrowings under its credit facility of $203.8 million at April 27, 2019 and $158.7 million at April 28, 2018. A 50 basis point increase in annual interest rates would have increased the Company’s interest expense by $1.1 million in fiscal 2019. Conversely, a 50 basis point decrease in annual interest rates would have reduced interest expense by $1.1 million in fiscal 2019.
The Company does not have any material foreign currency exposure as nearly all of its business is transacted in United States currency.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information included in the Annual Report under the sections entitled: “Consolidated Statements of Operations,” “Consolidated Statements of Comprehensive Income (Loss),” “Consolidated Balance Sheets,” “Consolidated Statements of Changes in Shareholders’ Equity,” “Consolidated Statements of Cash Flows” and “Notes to Consolidated Financial Statements” are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The management of the Company established and maintains disclosure controls and procedures that are designed to ensure that material information relating to the Company and its subsidiaries required to be disclosed in the reports that are filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the members of the Office of the Chief Executive Officer of the Company and Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosures. As of the end of the period covered by this report, the Company’s management conducted an evaluation (as required under Rules 13a-15(b) and 15d-15(b) under the Exchange Act), under the supervision and with the participation of the principal executive officers and principal financial officer, of the Company’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.
Based on management’s evaluation, the principal executive officers and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officers, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Under the supervision and with the participation of management, including the members of the Office of the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based upon the Company’s evaluation under this framework, management concluded that the Company’s internal control over financial reporting was effective as of April 27, 2019.
The effectiveness of internal control over financial reporting was audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report included elsewhere herein.
(c) Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the most recent quarter ended April 27, 2019 that have materially affected, or are reasonably likely to affect, internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information with respect to directors, executive officers, the code of ethics and corporate governance of the Company is incorporated herein by reference to the Company’s definitive Proxy Statement relating to the Company’s 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the Company’s fiscal year ended April 27, 2019 (the Proxy Statement).
The information with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the Proxy Statement.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to executive compensation is incorporated herein by reference to the Proxy Statement.
The information with respect to compensation of directors is incorporated herein by reference to the Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table sets forth equity compensation plan information as of April 27, 2019:
The information with respect to security ownership of certain beneficial owners and management is incorporated herein by reference to the Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information with respect to certain relationships and related transactions and director independence is incorporated herein by reference to the Proxy Statement.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information with respect to principal accountant fees and services is incorporated herein by reference to the Proxy Statement.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Consolidated Financial Statements:
(i) “The Report of Independent Registered Public Accountants” included in the Annual Report is incorporated herein by reference.
(ii) The information included in the Annual Report under the sections entitled “Consolidated Statements of Operations,” “Consolidated Statements of Comprehensive Income (Loss),” “Consolidated Balance Sheets,” “Consolidated Statements of Changes in Shareholders’ Equity,” “Consolidated Statements of Cash Flows” and “Notes to Consolidated Financial Statements” are incorporated herein by reference.
2. Schedule:
Valuation and Qualifying Accounts.
For the 52 week period ended April 27, 2019, the 52 week period ended April 28, 2018 and the 52 week period ended April 29, 2017 (in thousands):
(b) The following are filed as Exhibits to this form:
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BARNES & NOBLE, INC.
(Registrant)
By:
/s/ Allen W. Lindstrom
Allen W. Lindstrom
Chief Financial Officer and a Member of the Office of the Chief Executive Officer (principal financial officer)
June 19, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.