Barnes and Noble 2004 Annual Report Download - page 17

15 2004 Annual Report Barnes & Noble, Inc.
[MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS continued ]
outstanding 5.25% convertible subordinated notes due
2009. Holders of the notes converted a total of $17.7
million principal amount of the notes into 545,821
shares of common stock of the Company, plus cash in
lieu of fractional shares, at a price of $32.512 per share.
The Company redeemed the balance of $282.3 million
principal amount of the notes at an aggregate
redemption price, together with accrued interest and
redemption premium, of $295.0 million. The write-off
of the unamortized portion of the deferred financing
fees from the issuance of the notes and the redemption
premium resulted in a charge of $14.6 million.
Equity in Net Loss of Barnes & Noble.com
The Company accounted for its approximate 38
percent economic interest in Barnes & Noble.com
under the equity method through September 15, 2003.
Equity losses in Barnes & Noble.com were $14.3
million in fiscal 2003.
Income Taxes
Barnes & Noble’s effective tax rate in fiscal 2004
increased to 43.00 percent compared with 41.35
percent during fiscal 2003.
Minority Interest
Minority interest was $1.2 million in fiscal 2004
compared with $0.5 million in fiscal 2003, and relates
to the approximate 26% outside interest in Calendar
Club L.L.C. (Calendar Club).
Income From Discontinued Operations
On October 1, 2004, the Board of Directors of the
Company approved an overall plan for the complete
disposition of all of its Class B common stock in
GameStop, the Company’s Video Game operating
segment. This disposition was completed in two steps.
The first step was the sale of 6,107,338 shares of
GameStop Class B common stock held by the Company
to GameStop (Stock Sale) for an aggregate con-
sideration of $111.5 million, consisting of $37.5
million in cash and a promissory note in the principal
amount of $74.0 million, bearing interest at a rate of
5.5% per annum, payable when principal installments
are due. The Stock Sale was completed on October 1,
2004. The second step in the disposition was the spin-
off by the Company of its remaining 29,901,662 shares
of GameStop’s Class B common stock (Spin-Off). The
Spin-Off was completed on November 12, 2004 with
the distribution of 0.424876232 of a share of
GameStop Class B common stock as a tax-free
distribution on each outstanding share of the Company’s
common stock to the Company’s stockholders of record
as of the close of business on November 2, 2004. As a
result of the Stock Sale and the Spin-Off, GameStop is
no longer a subsidiary of the Company and,
accordingly, the Company will present all historical
results of operations of GameStop as discontinued
operations.
Earnings
As a result of the factors discussed above, the Company
reported consolidated net earnings of $143.4 million
(or $1.93 per share) during fiscal 2004 compared with
net earnings of $151.8 million (or $2.07 per share)
during fiscal 2003. Components of diluted earnings per
share are as follows:
Fiscal Year 2004 2003(a)
Barnes & Noble Bookstores $ 2.07 1.75
Barnes & Noble.com(b) (0.28) (0.18)
Total book operating segment 1.79 1.57
Debt redemption charge, net of tax (0.11) --
EPS from continuing operations 1.68 1.57
Discontinued operations 0.25 0.50
Consolidated EPS $ 1.93 2.07
(a) Restated to reflect certain adjustments relating to lease
accounting as discussed in Note 1 to the Notes to
Consolidated Financial Statements.
(b) The Company accounted for its approximate 38 percent
equity interest in Barnes & Noble.com under the equity
method through September 15, 2003 (the date the
Company acquired Bertelsmann’s interest in Barnes &
Noble.com) and consolidated the results of Barnes &
Noble.com thereafter.