Barnes and Noble 1997 Annual Report Download - page 22

SEASONALITY
The Company’s business, like that of many retailers, is sea-
sonal, with the major portion of sales and operating profit realized
during the quarter which includes the Christmas selling season.
The growth in Barnes & Noble stores continues to reduce such
seasonal fluctuation. During fiscal 1997, the Company reported
operating profit in all four quarters for the first time since the
Company began its “super” store expansion.
LIQUIDITY AND CAPITAL RESOURCES
Working capital requirements are generally at their highest
during the Company’s fiscal quarter ending on or about January 31
due to the higher payments to vendors for holiday season
merchandise purchases and the replenishment of merchandise
inventories following this period of increased sales. In addition,
the Company’s sales and merchandise inventory levels will
fluctuate from quarter-to-quarter as a result of the number and
timing of new store openings, as well as the amount and timing of
sales contributed by new stores.
Cash flows from operating activities, funds available under
its revolving credit facility and vendor financing continue to pro-
vide the Company with liquidity and capital resources for store
expansion, seasonal working capital requirements and capital
investments.
Cash Flow. Cash flows provided from (used by) operating
activities were $169.2 million, $119.5 million and ($56.8) million
during fiscal 1997, 1996, and 1995, respectively. The increased cash
flow in fiscal 1997 was primarily due to the improvement in net
earnings. In fiscal 1996, improvement in cash flows from operations
was the result of increased net earnings and more efficient working
capital management; revenues increased 23.8% while inventory
levels declined 1.1% through faster inventory turns.
The weighted-average age per square foot of the Company’s
483 Barnes & Noble stores was 2.8 years as of January 31, 1998
and is expected to increase to approximately 3.3 years by
January 30, 1999. As the relatively young Barnes & Noble stores
mature, and as the number of new stores opened during the fiscal
year decreases as a percentage of the existing store base, the
increasing operating profits of Barnes & Noble stores are expected
to generate a greater portion of cash flows required for working
capital, including new store inventories and capital expenditures.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) increased $44.7 million or 24.9% to $224.2 million in
fiscal 1997 from $179.5 million in fiscal 1996. This improvement was
achieved despite the start-up losses of BarnesandNoble.com.
Capital Structure. Strong cash flows from operations,
coupled with improved working capital management, strength-
ened the Company’s balance sheet during fiscal 1997. The
Company’s shareholders’ equity increased 16.6% to $531.8 million
(net of the $11.5 million extraordinary charge) as of January 31,
1998, from $456.0 million as of February 1, 1997, and return on
beginning equity increased to 14.2% in fiscal 1997 (excluding the
extraordinary charge) from 12.8% during fiscal 1996. The
Company’s market capitalization more than doubled during
fiscal 1997, reflecting the market’s recognition of the Company’s
strong performance.
On November 18, 1997, the Company obtained an $850
million senior credit facility (the New Facility) with a syndicate
led by The Chase Manhattan Bank. The New Facility, structured
as a five-year revolving credit, refinanced an existing $450 million
revolving credit and $100 million term loan facility (the Old
Facility). Net proceeds are available for general corporate
purposes and were used to redeem all of the Company’s out-
standing $190 million, 117⁄8% senior subordinated notes on
January 15, 1998.
The New Facility permits borrowings at various interest rate
options based on the prime rate or London Interbank Offer Rate
(LIBOR) depending upon certain financial tests and significantly
reduces the interest rate margins over LIBOR contained in the
Old Facility. In addition, the agreement requires the Company to
pay a commitment fee up to 0.25% of the unused portion depend-
ing upon certain financial tests. The New Facility contains
covenants, limitations and events of default typical of credit facili-
ties of this size and nature.
The amount outstanding under the Company’s New Facility
has been classified as long-term debt in the accompanying consol-
idated balance sheets due to both the terms of the New Facility
and the Company’s intent and ability to maintain principal
amounts outstanding through November 2002.
Borrowings under the Company’s senior credit facilities
averaged $184.5 million, $186.6 million and $62.0 million and
peaked at $304.9 million, $292.8 million and $152.2 million during
fiscal 1997, 1996 and 1995, respectively.
Capital Investment. Capital expenditures totaled $121.9
million, $171.9 million and $154.9 million during fiscal 1997, 1996
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Management’s Discussion and Analysis of Financial Condition and Results of Operations continued