Barnes and Noble 2008 Annual Report Download - page 14

Rowling’s Harry Potter and the Deathly Hallows, off set by a
favorable variance of $10.3 million related to the annual
physical count of inventory.
Selling and Administrative Expenses
Selling and administrative expenses increased $47.8
million, or 4.1%, to $1,225.8 million in fi scal 2007 from
$1,178.0 million in fi scal 2006. As a percentage of sales,
selling and administrative expenses increased to 23.2%
in fi scal 2007 from 22.9% in fi scal 2006. This increase
was primarily due to legal costs off set by a gain in insur-
ance proceeds from the Hurricane Katrina settlement.
Depreciation and Amortization
Depreciation and amortization increased $2.0 million,
or 1.2%, to $168.6 million in fi scal 2007 from $166.6
million in fi scal 2006. The increase was primarily due
to the accelerated depreciation related to the closing of
the Company’s Internet distribution center and higher
depreciation in the Company’s new distribution center,
off set by lower depreciation in the Company’s home
offi ce due to certain assets that became fully depreciated.
Pre-Opening Expenses
Pre-opening expenses decreased $2.5 million, or 19.5%,
in fi scal 2007 to $10.4 million from $12.9 million in
fi scal 2006. The decrease in pre-opening expenses was
primarily the result of the timing of new store openings.
Operating Profi t
The Company’s consolidated operating profi t decreased
$46.0 million, or 18.5%, to $202.0 million in fi scal 2007
from $248.0 million in fi scal 2006. This decrease 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 $5.8 million, or
345.4%, to $7.5 million in fi scal 2007 from $1.7 million
in fi scal 2006. The increase was primarily due to higher
average cash investments and lower average borrowings.
Income Taxes
Barnes & Noble’s eff ective tax rate in fi scal 2007
decreased to 35.61% compared with 40.25% during
fi scal 2006. The provision for income taxes for fi scal
2007 included a tax benefi t of $10.3 million resulting
from previously unrecognized tax benefi ts for which the
statute of limitations expired in fi scal 2007.
Earnings from Discontinued Operations
During the fourth quarter of fi scal 2008, the Company
committed to a plan to dispose of its approximate 74%
interest in Calendar Club. Calendar Club qualifi ed
for held for sale accounting treatment in fi scal 2008
and was written down to its fair value. The results of
Calendar Club have been classifi ed as discontinued
operations in all periods presented.
Net Earnings
As a result of the factors discussed above, the Company
reported consolidated net earnings of $135.8 million (or
$2.03 per diluted share) during fi scal 2007 compared
with consolidated net earnings of $150.5 million (or
$2.17 per diluted share) during fi scal 2006.
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
$376.2 million, $429.0 million and $258.0 million
during fi scal 2008, 2007 and 2006, respectively. The
decrease in cash fl ows provided from operating activi-
ties in fi scal 2008 was primarily due to lower earnings as
a result of negative comparable store sales. The increase
in cash fl ows provided from operating activities in
fi scal 2007 was due to timing of payments on inventory
purchases, related principally to the impact of the 53rd
week in fi scal 2006.
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