Barnes and Noble 2000 Annual Report Download - page 37

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recover the carrying value of the underlying assets. Also,
included in this charge were other charges of $4.5 million
related to the write-off of certain investments which had
continuing adverse financial results.
Operating Profit
Operating profit decreased to $133.8 million in fiscal
2000 from $232.1 million in fiscal 1999. Operating
profit, before the effect of the $106.8 million impairment
charge, increased $8.5 million to $240.7 million during
fiscal 2000. Bookstore operating profit, before the effect
of the $106.8 million impairment charge, increased 8.3%
to $234.6 million. Bookstore operating margin, before
the effect of the impairment charge, decreased slightly
to 6.5% of sales during fiscal 2000 from 6.6% of sales
in fiscal 1999 as a result of the inclusion of Calendar
Club operating results.
Interest Expense, Net and
Amortization of Deferred Financing Fees
Interest expense, net of interest income, and amortization
of deferred financing fees, increased $29.7 million to
$53.5 million in fiscal 2000 from $23.8 million in fiscal
1999. This increase was primarily the result of the
increased borrowings under the Company’s revolving
credit facility used to support the Company’s
Acquisitions and the common stock repurchase program.
Equity in Net Loss of Barnes & Noble.com
As a result of the Barnes & Noble.com Inc. IPO on
May 25, 1999, the Company and Bertelsmann each
retained a 40 percent interest in Barnes & Noble.com.
Accordingly, the Company’s share in the net loss of
Barnes & Noble.com for fiscal 1999 was based on a
50 percent equity interest from the beginning of fiscal
1999 through May 25, 1999 and 40 percent through
the end of 1999. The Company’s equity in the net loss
of Barnes & Noble.com for fiscal 1999 was $42.0 million.
In November 2000, Barnes & Noble.com acquired
Fatbrain.com, Inc. (Fatbrain), the third largest online
bookseller. Barnes & Noble.com issued shares of its
common stock to Fatbrain shareholders. As a result of
this merger, the Company and Bertelsmann each
retained an approximate 36 percent interest in Barnes &
Noble.com. Accordingly, the Company’s share in the
net losses of Barnes & Noble.com for fiscal 2000 was
based on an approximate 40 percent equity interest from
the beginning of fiscal 2000 through November 2000
and approximately 36 percent thereafter. The Company’s
equity in the net loss of Barnes & Noble.com for fiscal
2000 was $103.9 million.
Gain on Formation of Barnes & Noble.com
Under the terms of the November 12, 1998 joint venture
agreement between the Company and Bertelsmann, the
Company received a $25.0 million payment from
Bertelsmann in fiscal 1999 in connection with the Barnes
& Noble.com Inc. IPO.
Other Income (Expense)
Other expense of ($9.3) million in fiscal 2000 was
primarily due to the equity losses of iUniverse.com.
Other income of $27.4 million in fiscal 1999 was primarily
attributable to a one-time gain of $11.0 million on the
partial sale of Chapters Inc. (Chapters), a one-time gain
of $22.4 million in connection with the sale of its
investment in NuvoMedia Inc. (NuvoMedia) to Gemstar
International Ltd., partially offset by a one-time charge
of ($5.0) million attributable to the termination of the
planned Ingram Book Group (Ingram) acquisition.
Provision for Income Taxes
Barnes & Noble’s effective tax rate in fiscal 2000
increased to (57.5) percent compared with 41.0 percent
during fiscal 1999. The fiscal 2000 increase was primarily
related to the goodwill write-down associated with the
impairment charge, which provided no tax benefit.
2000 Annual Report ■Barnes & Noble, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued