Barnes and Noble 1998 Annual Report Download - page 38

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Selling and Administrative Expenses
Selling and administrative expenses increased $36.8
million, or 6.8% to $577.2 million in fiscal 1998 from $540.4
million in fiscal 1997. Selling and administrative expenses
decreased slightly to 19.2% of sales during fiscal 1998 from
19.3% during fiscal 1997 primarily as a result of the start-up
expenses from barnesandnoble.com included in the fiscal 1997
results. Excluding barnesandnoble.com, retail selling and
administrative expenses would have been 18.9% of sales in fis-
cal 1997 and total retail selling and administrative expenses
would have increased 9.9% in fiscal 1998. The current year
increase in retail selling and administrative expenses reflects the
opening of an additional 50 Barnes & Noble stores, the full year
implementation of a new wage plan, and expenses associated
with new store system enhancements.
Depreciation and Amortization
Depreciation and amortization increased $11.3 million, or
14.8%, to $88.3 million in fiscal 1998 from $77.0 million in fiscal
1997. The increase was primarily the result of the new Barnes &
Noble stores opened during fiscal 1998 and fiscal 1997, as well
as new store system enhancements made during fiscal 1998.
Pre-Opening Expenses
Pre-opening expenses declined in fiscal 1998 to $8.8
million from $12.9 million in fiscal 1997 reflecting fewer new
stores compared with prior years.
Operating Profit
Operating profit increased to $188.6 million in fiscal 1998
from $147.3 million in fiscal 1997. Excluding the $15.4 million
operating loss for barnesandnoble.com included in fiscal 1997,
retail operating margin improved to 6.3% of sales during fiscal
1998 from 5.8% of sales in fiscal 1997.
Interest Expense, Net and Amortization
of Deferred Financing Fees
I n t e rest expense, net of interest income, and amortization of
d e f e r red financing fees decreased 35.2% or $13.3 million in fiscal
1998 to $24.4 million from $37.7 million in fiscal 1997. The
decline was the result of the re t i rement of $190 million in 11 -7/8%
senior subo rdinated notes on January 15, 1998 as well as the
m o re - f avorable rate env i ronment and lower spreads over the
London Interbank Offer Rate (LIBOR) in effect since the
N ove m ber 1997 re f i n a n c i n g .
Equity in Net Loss of barnesandnoble.com llc
As a result of the formation of the limited liability company
with Bertelsmann, the Company be gan accounting for its inter-
est in barnesandnoble.com under the equity method of account-
ing as of the be ginning of fiscal 1998. The Company’s equity in
the net loss of barnesandnoble.com for fiscal 1998 was $71.3 mil-
lion. This reflects a one-hundred percent equity interest for the
first three quarters ended October 31, 1998 (also the effective
date of the limited liability company agreement), and a fifty per-
cent equity interest be g inning on Nove m ber 1, 1998 through the
end of the fiscal ye a r. Had the Company reported the results of
b a rnesandnoble.com under the equity method of accounting
during fiscal 1997, its fiscal 1997 equity in the net loss of
b a rnesandnoble.com would have been $15.4 million.
Gain on Formation of barnesandnoble.com llc
As a result of the formation of the limited liability compa-
ny, resulting in the receipt of $75 million by the Company
from Bertelsmann, a gain was recorded in fiscal 1998 in the
amount of $63.8 million. The gain represents the excess of the
amount re c e i v ed over the portion of the net assets of
barnesandnoble.com sold by the Company to Bertelsmann.
Provision for Income Taxes
Barnes & Noble’s effective tax rate was 41.0% during both
fiscal 1998 and fiscal 1997.
Earnings
Fiscal 1998 earnings be f o re extraordinary charge incre a s e d
$ 27.7 million, or 42.8%, to $92.4 million (or $1. 29 per diluted
s h a re) from $64.7 million (or $0.93 per diluted share) during fis-
cal 1997. Before the effect of barnesandnoble.com, retail earn i n g s
be f o re extraordinary charge increased $23.0 million, or 31.3% to
$ 9 6.8 million (or $1. 35 per diluted share) from $73.8 million (or
$ 1. 06 per diluted share).