Barnes and Noble 1997 Annual Report Download - page 21

Cost of Sales and Occupancy
The Company’s cost of sales and occupancy includes costs
such as rental expense, common area maintenance, merchant
association dues, lease-required advertising and adjustments
for LIFO.
Cost of sales and occupancy increased 23.6% during fiscal
1996 to $1.785 billion from $1.445 billion during fiscal 1995, but
decreased as a percentage of revenues to 72.9% during fiscal
1996 from 73.1% during fiscal 1995 due to improvements in
merchandise mix, as well as increases in merchandise margins due
to more direct purchasing. Excluding the impact of LIFO, cost of
sales and occupancy as a percentage of revenues declined to
72.9% in fiscal 1996 from 73.4% in fiscal 1995.
Selling and Administrative Expenses
Selling and administrative expenses increased $82.0 million,
or 21.4% to $465.7 million during fiscal 1996 from $383.7 million
during fiscal 1995. The Company’s operating leverage continued
to improve as selling and administrative expenses decreased as a
percentage of revenues to 19.0% during fiscal 1996 from 19.4%
during fiscal 1995.
Depreciation and Amortization
Depreciation and amortization increased $11.9 million, or
24.9%, to $59.8 million during fiscal 1996 from $47.9 million
during fiscal 1995. The increase was primarily a result of the
addition of 91 Barnes & Noble stores during fiscal 1996.
Pre-Opening Expenses
Pre-opening expenses increased $5.4 million, or 44.5%, to
$17.6 million during fiscal 1996 from $12.2 million during fiscal
1995. As the Company amortizes pre-opening expenses over the
respective store’s first 12 months of operation, the increase reflects
the opening of 109 new Barnes & Noble stores during the second
half of fiscal 1995 and the first half of fiscal 1996 compared with 68
stores in the corresponding period of the previous year.
Operating Profit (Loss)
Operating profit, before the effects of the $123.8 million
restructuring charge in fiscal 1995, increased $31.1 million, or
35.0% to $119.7 million during fiscal 1996 from $88.6 million
during fiscal 1995. As a percentage of revenues, operating profit
increased to 4.9% during fiscal 1996 from 4.5% during fiscal
1995 (before the effects of the restructuring charge), reflecting
improved operating leverage.
Interest Expense, Net and Amortization of Deferred
Financing Fees
Interest expense, net of interest income, and amortization of
deferred financing fees increased $10.2 million, or 36.0%, to $38.3
million during fiscal 1996 from $28.1 million during fiscal 1995.
The increase resulted from a rise in borrowings under the
Company’s credit facility to finance working capital and capital
expenditures. The impact of the increased borrowings was par-
tially offset by a reduction in the Company’s weighted-average
interest rate on its short-term borrowings.
Provision (Benefit) for Income Taxes
The Company’s income tax provision during fiscal 1996 was
$30.2 million compared with $26.1 million in fiscal 1995 (before
the effects of the $123.8 million restructuring charge). Barnes &
Noble’s effective tax rate was 37.1% during fiscal 1996 and 43.2%
during fiscal 1995 (before the effects of the restructuring charge).
Such rates exceeded the federal statutory rate primarily due to the
combined effects of goodwill amortization and state and local
taxes. The fiscal 1996 provision also reflects a non-recurring
$3.0 million rehabilitation tax credit.
Net Earnings (Loss)
As a result of the factors discussed above, the Company’s net
earnings in fiscal 1996 increased to $51.2 million from $34.3
million in fiscal 1995 (before the effects of the $123.8 million
restructuring charge). Fiscal 1996 earnings increased due to the
continuing improvement in Barnes & Noble operating profits
combined with accelerating revenues over which to spread
overhead costs.
Net earnings per diluted share were $0.75 during fiscal 1996
compared with $0.53 during fiscal 1995 (before the effects of the
restructuring charge). Net earnings increased 49.3% while earn-
ings per diluted share increased 41.5% due to an increase in the
diluted weighted-average shares outstanding to 67.9 million
shares during fiscal 1996 from 64.3 million shares during fiscal
1995, reflecting the full-year impact of 5.0 million common shares
issued in October of 1995.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations continued