Barnes and Noble 2002 Annual Report Download - page 21

The Company leases retail space in a building in which
Barnes & Noble College Bookstores, Inc. (B&N College),
a company owned by Leonard Riggio, subleases space
for its executive offices from the Company. Occupancy
costs allocated by the Company to B&N College for
this space totaled $0.8 million, $0.7 million and $0.7
million for fiscal years 2002, 2001 and 2000,
respectively. The amount paid by B&N College to the
Company approximates the cost per square foot paid
by the Company to its unaffiliated third-party landlord.
The Company subleased warehouse space from Barnes
& Noble.com in Reno, Nevada. The Company paid
Barnes & Noble.com $0.3 million, $1.8 million and
$1.4 million for such subleased space during fiscal
2002, 2001 and 2000, respectively. Additionally, in
January 2001, the Company purchased $6.2 million of
warehouse equipment (valued at original cost) from
Barnes & Noble.com’s Reno warehouse. In January
2002, Barnes & Noble.com determined it could not
effectively utilize the full capacity of the Reno, Nevada
distribution center. As a result, Barnes & Noble.com’s
Board of Directors approved the transfer of the Reno
warehouse lease and the sale of inventory located in
Reno to the Company. The Company purchased the
inventory from Barnes & Noble.com at cost for $9.9
million. In addition, the Company spent $1.8 million
to refurbish the facility. The Company’s Board of
Directors also approved the Company’s assumption
of the lease, which expires in 2010, and the hiring of
all of the employees at the Reno facility. The Reno
lease assignment and the transfer of the Reno facility
to the Company was completed in April 2002. The
Company intends to use the Reno facility to facilitate
distribution to its current and future West Coast stores.
In connection with the transition, Barnes & Noble.com
agreed to pay one-half of the rent for the Reno facility
through December 31, 2002. Barnes & Noble.com
paid $0.9 million in relation to these expenses for
fiscal year 2002.
The Company subleases to Barnes & Noble.com
approximately one-third of a 300,000-square-foot
warehouse facility located in New Jersey. The Company
has received from Barnes & Noble.com $0.5 million
annually for such subleased space during each of the fiscal
years 2002, 2001 and 2000. The amount paid by Barnes
& Noble.com to the Company approximates the cost per
square foot paid by the Company as a tenant pursuant to
the lease of the space from an unaffiliated third party.
The Company has entered into an agreement (the
Supply Agreement) with Barnes & Noble.com whereby
the Company charges Barnes & Noble.com the costs
associated with such purchases plus incremental
overhead incurred by the Company in connection with
providing such inventory. The Supply Agreement is
subject to certain termination provisions. Barnes &
Noble.com purchased $108.3 million, $119.3 million
and $110.5 million of merchandise from the Company
during fiscal 2002, 2001 and 2000, respectively, and
Barnes & Noble.com expects to source purchases
through the Company in the future.
The Company has entered into agreements whereby
Barnes & Noble.com receives various services from the
Company, including, among others, services for payroll
processing, benefits administration, insurance (property,
casualty, medical, dental, life, etc.), tax, traffic, fulfillment
and telecommunications. In accordance with the terms
of such agreements, the Company has received, and
expects to continue to receive, fees in an amount equal
to the direct costs plus incremental expenses associated
with providing such services. The Company received
$3.5 million, $5.5 million and $1.7 million for such
services during fiscal 2002, 2001 and 2000, respectively.
The aggregate receivable (which is historically settled
within 60 days) from Barnes & Noble.com in
connection with the agreements described above was
$55.2 million and $47.2 million as of February 1, 2003
and February 2, 2002, respectively.
The Company and Barnes & Noble.com commenced a
marketing program in November 2000, whereby a
customer purchases a “Readers’ Advantage™ card” for
an annual membership fee of $25.00 which is non-
refundable after the first 30 days of the membership
term. With this card, customers can receive discounts of
10 percent on all Company purchases and 5 percent on
all Barnes & Noble.com purchases. The Company and
Barnes & Noble.com have agreed to share the expenses,
net of revenue from the sale of the cards, related to this
program in proportion to the discounts customers
receive on purchases with each company.
In 2002, the Company through its wholly owned
subsidiary, Marketing Services (Minnesota) Corp.,
entered into an agreement with Barnes & Noble.com
for marketing services, which includes the issuance of
gift cards. Under this agreement, the Company paid
[MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS continued ]
20 2002 Annual ReportBarnes & Noble, Inc.