Barnes and Noble 1998 Annual Report Download - page 40

Liquidity and Capital Resources
Working capital re q u i rements 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
m e rchandise purchases and the replenishment of merc h a n d i s e
i nventories 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
provide the Company with liquidity and capital resources for
store expansion, seasonal working capital requirements and
capital investments.
Cash Flow Cash flows provided from operating activities
we r e $181.1 million, $169.2 million and $119.5 million during
fiscal 1998, 1997 and 1996, re s p e c t i ve l y . Fiscal 1997 cash flow s
f rom operating activities without barnesandnoble.com we re
$ 181.9 million. The slight decrease in retail operating cash flow s
in fiscal 1998 was due to a strategic increase in the distribution
center standing inve n t o r y, the implementation of a new wage
plan in fiscal 1998 and increased operating expenses associated
with implementing the Company’s new store system enhance-
ments. In fiscal 1997, the improvement in cash flows was
primarily due to the improvement in net earn i n g s .
Earnings before interest, taxes, depreciation and amortiza-
tion (EBITDA) increased $52.7 million or 23.5% to $276.9
million in fiscal 1998 from $224.2 million in fiscal 1997. W ithout
barnesandnoble.com fiscal 1997 EBITDA was $236.9 million
resulting in a retail increase in EBITDA in fiscal 1998 of 16.9%.
In addition, total debt to retail EBITDA decreased from 1.20
times in fiscal 1997 to .90 times in fiscal 1998. This significant
improvement in EBITDA is the result of the continued matu-
ration of the Barnes & Noble stores. The weighted-average age
per square foot of the Company’s 520 Barnes & Noble stores
was 3.3 years as of January 30, 1999 and is expected to increase
to approximately 3.9 years by January 29, 2000. As the rela-
tively 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 as well as capital expenditures
and other initiatives. Ad d i t i o n a l l y, due to the formation of the
joint ve n t u re with Bertelsmann as discussed be l ow, retail cash
f l ows are now fully available to support the Company’s wo r k-
ing capital re q u i re m e n t s .
Capital Stru c t u re Continued strong cash flows from
operations and a continued emphasis on working capital man-
agement, once again strengthened the Company’s balance sheet
in fiscal 1998. Including the effect of the Bertelsmann contribu-
tion to barnesandnoble.com (as discussed more fully be l ow ) ,
s h a r eholders’ equity increased 27.7% to $678.8 million as of
January 30, 1999, from $531.8 million as of January 31, 1998 ,
and increased 20.8% as of January 30, 1999 be f o re the
Bertelsmann contribution. Re t u rn on average equity incre a s e d
to 15.3% in fiscal 1998 from 13.1% during fiscal 1997.
The Company has an $850 million senior credit facility
(the Facility), obtained in November 1997, with a syndicate led
by The Chase Manhattan Bank. The Facility is structured as a
five-year revolving credit. The Facility permits borrowings at
various interest rate options based on the prime rate or LIBOR
depending upon certain financial tests. In addition, the agree-
ment requires the Company to pay a commitment fee up to
0.25% of the unused portion depending upon certain financial
tests. The Facility contains covenants, limitations and events of
default typical of credit facilities of this size and nature.
The amount outstanding under the Facility has
been classified as long-term debt in the accompanying
consolidated balance sheets due to both its terms and the
Company’s intent and ability to maintain principal amounts
outstanding through November 2002.
B o r rowings under the Company’s senior credit facilities
averaged $380.3 million, $184 . 5 million and $186.6
million and peaked at $535.0 million, $304.9 million and
$ 292.8 million during fiscal 1998, 1997 and 1996, re s p e c t i ve l y.
The increase in average and peak bo r rowings in fiscal 1998 is
primarily the result of utilizing the Facility to re t i re $190
million in 11 -7/8% senior subo rdinated notes on January 15 ,
1998 as well as the Company’s funding of the operations of
b a rnesandnoble.com. As a result of this re t i rement and the
m o re favorable rates contained in the current facility as com-
p a red with the facility existing until Nove m ber 1997, intere s t
expense decreased 35% from $37.7 million to $24.4 million.
The ratio of debt to equity improved significantly to 0.37 : 1. 00
as of January 30, 1999 from 0.54 : 1. 00 as of January 31, 1998.
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