Barnes and Noble 2005 Annual Report Download - page 16

15 2005 Annual Report Barnes & Noble, Inc.
[MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS continued ]
inclusion of Barnes & Noble.com’s selling and
administrative expenses for the full period in fiscal 2004
compared with a partial period in fiscal 2003. As a
percentage of sales, selling and administrative expenses
increased to 21.6% in fiscal 2004 from 20.8% in fiscal
2003. This increase was partially due to the inclusion of
Barnes & Noble.com’s selling and administrative
expenses for the full period in fiscal 2004 compared
with a partial period in fiscal 2003.
Depreciation and Amortization
Depreciation and amortization increased $14.7 million,
or 8.8%, to $181.6 million in fiscal 2004 from $166.8
million in fiscal 2003. This increase was due to the
inclusion of Barnes & Noble.com’s depreciation and
amortization for the full period in fiscal 2004 compared
with a partial period in fiscal 2003, offset by a
reduction in depreciation and amortization in the
Barnes & Noble stores.
Pre-Opening Expenses
Pre-opening expenses increased $0.2 million, or 2.2%,
in fiscal 2004 to $8.9 million from $8.7 million in fiscal
2003. The slight increase in pre-opening expenses was
primarily the result of opening 32 new Barnes & Noble
stores during fiscal 2004, compared with 31 new Barnes
& Noble stores during fiscal 2003.
Operating Profit
The Company’s consolidated operating profit increased
$18.4 million, or 8.2%, to $244.2 million in fiscal 2004
from $225.8 million in fiscal 2003. Operating profit
increased $45.6 million, or 19.6%, in fiscal 2004
excluding the operating losses of Barnes & Noble.com
for the full period in fiscal 2004 compared with a
partial period in fiscal 2003.
Interest Expense, Net and Amortization of
Deferred Financing Fees
Interest expense, net of interest income, and
amortization of deferred financing fees, decreased $9.9
million, or 47.4%, to $11.0 million in fiscal 2004 from
$20.9 million in fiscal 2003. The decrease was primarily
the result of the redemption of the Company’s $300.0
million 5.25% convertible subordinated notes, which
resulted in a reduction of the Company’s average
borrowings and interest rate.
Debt Redemption Charge
In the second quarter of fiscal 2004, the Company
completed the redemption of its $300.0 million
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%
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% compared with 41.35% during
fiscal 2003. The increase in the effective tax rate was
primarily due to adjustments in fiscal 2004 related to
prior year taxes.
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 former 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
consideration 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