Baker & Taylor hopes to raise approximately $75 million through an initial public offering, the company revealed in a registration statement filed late last month with the Securities & Exchange Commission. The prospectus did not disclose how many shares B&T will offer or their price. The wholesaler is controlled by the Carlyle Group which owns about 84% of B&T's shares, but it is not clear what Carlyle™s percentage will be after the offering.

B&T estimates it will have net proceeds of $70 million from the IPO, which it will use to fund the expansion of its distribution facilities, to increase the availability under its receivables financing facility and for general corporate purposes.

The company expects to incur $38.5 million in capital costs and $12 million in non-recurring expenses in connection with the integration of its distribution system and expansion of its warehouse capacity. Under the new system, B&T will close eight of its smaller distribution centers and move the inventory to four expanded book, video and music facilities. B&T expects the expansion, which will increase its warehouse space by 60% to 1.2 million square feet, to be completed by November 1999 and for the smaller centers to be closed by June 2000.

To account for the restructuring, B&T took a $7.4 million charge in the fourth quarter of fiscal 1999, which includes severance for 350 warehouse and administrative employees whose jobs are being eliminated. The company currently has 2400 full-time employees and 100 part-time workers.

B&T believes the integration of its distribution system will enable it to grow by increasing its business with Internet retailers and superstores. The company noted that in fiscal 1999 it sold $166 million worth of books, videos and music products to Internet retailers, an increase of 331% over the previous year. The increase in its business with superstores is reflected in the fact that sales to retail accounts rose by 20%, to $643.9 for the fiscal year ended June 30, 1999, while sales to institutional customers rose 8% to $377.5 million.

In addition to internal growth, B&T expects to expand through niche acquisitions, such has its recent purchase of Yankee Book Peddler (News, June 28) for which it paid $14.8 million plus the assumption of $2 million in debt. On a pro forma basis, Yankee had sales in fiscal 1999 of $91 million and net income of $721,000.

One area where B&T will not be looking to expand significantly is the international market. International sales accounted for 5% of total revenues last year, but the company said delivering products outside of the U.S. can be "costly and difficult."

B&T's financial performance over the past three years has shown steady improvement, with total sales increasing 19.3% to $1.02 billion. Because a number of extraordinary items affected net income in the last two fiscal years, the best gauge for examining B&T's profitability is operating income, which rose 34.2% between fiscal 1997 and 1999. In addition to the $7.4-million charge associated with its restructuring, B&T recorded a gain of $34 million on its sale of Amazon.com stock in fiscal 1999. Fiscal 1998 saw B&T enjoy $23.8 million in previously unrecognized tax benefits, as well as an extraordinary gain of $28.7 million from the early retirement of debt.

One impediment to B&T's future growth is the decision by Blockbuster to acquire its music and videos directly from publishers; in fiscal 1999 B&T's sales to Blockbuster were $97.9 million. Another potential cloud on B&T's horizon are the lawsuits filed against the wholesaler under the False Claims Act. Although B&T settled federal charges in June (News, July 12), no ruling has been made with respect to similar charges filed by 19 states, including a suit filed by Ohio in May.

New Corporate Structure

As Baker & Taylor prepares for business as a public company, the wholesaler has announced a major restructuring that will fuse the books and entertainment units into one company. As a result of the reorganization, B&T will now be organized along customer lines and will be known as Baker & Taylor Institutional and Baker & Taylor Retailer. Each of the new operating units will be responsible for representing all of B&T's products and services to their respective markets.

Under the realignment, Jim Ulsamer, previously president of B&T Books, has been named president of the Retailer group. In addition to handling sales and marketing for all retail and international accounts, B&T Retailer will include the company's drop-ship and fulfillment activities for Internet retailers. Gary Rautenstrauch has been named president of B&T Institutional, which will consist of all library sales and marketing operations for all product lines plus Replica Books, Yankee Book Peddler Library Services, Customized Library Services and Professional Media Service Corp.

A third major appointment is that of Arnie Wight, who has been named executive v-p, distribution. Wight will be responsible for all distribution and purchasing activities and will continue to head the company's facility expansion effort. Wight, Ulsamer and Rautenstrauch will all be located at B&T's corporate headquarters in Charlotte, N.C., and will report to B&T CEO Craig Richards.

According to the company's prospectus, Richards earned $812,545 in salary and bonus last year. The second highest paid executive was Edward Gross, chief administrative officer and CFO, who earned $329,837.