Barnes and Noble 2007 Annual Report Download - page 15

Pre-Opening Expenses
Pre-opening expenses increased $2.0 million, or 17.9%,
in fi scal 2006 to $12.9 million from $10.9 million in
fi scal 2005. The increase in pre-opening expenses was
primarily the result of higher costs associated with the
locations of the stores opened in the fi rst quarter of
2006 as well as an increase in new Barnes & Noble stores
opened during fi scal 2006 compared to the new Barnes
& Noble stores opened during fi scal 2005.
Operating Profi t
The Company’s consolidated operating profi t increased
$1.6 million, or 0.6%, to $253.4 million in fi scal 2006
from $251.8 million in fi scal 2005. This increase was
primarily due to the matters discussed above.
Interest Income (Expense), Net and Amortization of
Deferred Financing Fees
Interest income (expense) net and amortization of
deferred fi nancing fees, increased $3.0 million, or
208.6%, to $1.5 million in fi scal 2006 from ($1.4)
million in fi scal 2005. The increase was due to reduced
average borrowings.
Income Taxes
Barnes & Noble’s eff ective tax rate in fi scal 2006
decreased to 40.25% compared with 40.75% during
fi scal 2005. The decrease in the eff ective tax rate was
primarily due to a decrease in the Company’s overall
eff ective state tax rate.
Minority Interest
Minority interest was $1.8 million in fi scal 2006 com-
pared with $1.7 million in fi scal 2005, and relates to the
approximate 26% outside interest in Calendar Club.
Earnings
As a result of the factors discussed above, the Company
reported consolidated net earnings of $150.5 million
(or $2.17 per share) during fi scal 2006 compared with
consolidated net earnings of $146.7 million (or $2.03
per share) during fi scal 2005.
SEASONALITY
The Company’s business, like that of many retailers, is
seasonal, with the major portion of sales and operating
profi t realized during the fourth quarter which includes
the holiday selling season.
LIQUIDITY AND CAPITAL RESOURCES
Working capital requirements are generally at their
highest in the Company’s fi scal quarter ending on or
about January 31 due to the higher payments to vendors
for holiday season merchandise purchases. In addition,
the Company’s sales and merchandise inventory levels
will fl uctuate from quarter to quarter as a result of the
number and timing of new store openings.
Cash and cash equivalents on hand, cash fl ows from
operating activities, funds available under its senior
credit facility and short-term vendor fi nancing con-
tinue to provide the Company with liquidity and capital
resources for store expansion, seasonal working capital
requirements and capital investments.
Cash Flow
Cash fl ows provided from operating activities were
$434.6 million, $271.3 million and $499.7 million during
fi scal 2007, 2006 and 2005, respectively. Both the decline
in fi scal 2006 and the increase in fi scal 2007 were due
to timing of payments on inventory purchases, related
principally to the impact of the 53rd week in fi scal 2006.
Capital Structure
Strong cash fl ows from operations and a continued
emphasis on working capital management strengthened
the Company’s balance sheet in fi scal 2007.
On August 2, 2006, the Company entered into
Amendment No. 1 (Amended New Facility) to the
Company’s Credit Agreement, dated as of June 17, 2005
(the New Facility). The Amended New Facility amended
the New Facility to extend the maturity date to July 31,
2011 from June 16, 2010. The Amended New Facility also
amended the New Facility: (1) to reduce the applicable
margin that is applied to (x) Eurodollar-based loans
above the publicly stated Eurodollar rate and (y) standby
letters of credit to a spread ranging from 0.500% to
1.000% from the range of 0.750% to 1.375%; (2) to
reduce the fee paid on commercial letters of credit
to a range of 0.2500% to 0.5000% from the range of
0.3750% to 0.6875%; and (3) to reduce the commit-
ment fee to a range of 0.100% to 0.200% from a range
of 0.150% to 0.300%. In each case, the applicable rate
is based on the Company’s consolidated fi xed charge
coverage ratio. Proceeds from the Amended New Facility
will be used for general corporate purposes, including
seasonal working capital needs.
2007 Annual Report 13