Barnes and Noble 2002 Annual Report Download - page 22

Barnes & Noble.com $5.3 million during fiscal 2002,
which represents reimbursement for gift cards purchased
in a Barnes & Noble store and redeemed on the Barnes
& Noble.com Web site.
Barnes & Noble.com, through its fulfillment centers,
ships various customer orders for the Company to its
retail stores as well as to the Company’s customers’
homes. Barnes & Noble.com charges the Company the
costs associated with such shipments plus any
incremental overhead incurred by Barnes & Noble.com
to process these orders. The Company paid Barnes &
Noble.com $1.7 million, $1.0 million and $0.2 million
for shipping and handling during fiscal years 2002,
2001 and 2000, respectively. In addition, during fiscal
2001, the Company and Barnes & Noble.com reached
an agreement whereby the Company pays a commission
on all items ordered by customers at the Company’s
stores and shipped directly to customers’ homes by
Barnes & Noble.com. Commissions paid for these sales
were $1.5 million and $0.4 million during fiscal years
2002 and 2001, respectively.
The Company paid B&N College certain operating
costs B&N College incurred on the Company’s behalf.
These charges are included in the accompanying
consolidated statements of operations and approximated
$0.2 million, $0.2 million and $0.3 million for fiscal
2002, 2001 and 2000, respectively. B&N College
purchased inventory, at cost plus an incremental fee,
of $44.9 million, $41.5 million and $17.2 million
from the Company during fiscal 2002, 2001 and 2000,
respectively. The Company charged B&N College $2.1
million, $1.5 million and $1.3 million for fiscal years
2002, 2001 and 2000, respectively, for capital
expenditures, business insurance and other operating
costs incurred on its behalf.
The Company uses a jet aircraft owned by B&N College
and pays for the costs and expenses of operating the
aircraft based upon the Company’s usage. Such costs
which include fuel, insurance, personnel and other
costs, approximated $1.9 million, $2.2 million and $2.4
million during fiscal 2002, 2001 and 2000, respectively,
and are included in the accompanying consolidated
statements of operations.
In fiscal 1999, the Company acquired Babbage’s Etc.,
one of the nation’s largest video-game and entertainment-
software specialty retailers, a company majority owned
by Leonard Riggio, for $208.7 million. An independent
Special Committee of the Board of Directors negotiated
and approved the acquisition on behalf of the Company.
The Company made an additional payment of $9.7
million in fiscal 2002 due to certain financial performance
targets having been met during fiscal 2001. In fiscal
2000, the Company acquired Funco, Inc. Through a
corporate restructuring, Babbage’s Etc. became a wholly
owned subsidiary of Funco, Inc. and the name of Funco,
Inc. was changed to GameStop, Inc. In fiscal 2002,
the Company completed an initial public offering of
its GameStop subsidiary. The Company retained an
approximate 63 percent interest in GameStop.
GameStop operates departments within some of the
Company’s bookstores. GameStop pays a license fee
to the Company in an amount equal to 7 percent of
the gross sales of such departments. The Company
charged GameStop a license fee of $1.1 million in
fiscal 2002.
GameStop participates in the Company’s worker’s
compensation, property and general liability insurance
programs. The costs incurred by the Company under
these programs are allocated to GameStop based upon
GameStop’s total payroll expense, property and
equipment, and insurance claim history. During fiscal
2002, these charges amounted to $1.7 million.
In fiscal 2001, Barnes & Noble.com and GameStop
entered into an agreement whereby Barnes &
Noble.com’s Web site refers customers to the GameStop
Web site for purchases of video-game hardware,
software and accessories and PC-entertainment software.
GameStop pays Barnes & Noble.com a referral fee
based on its net sales revenue from certain eligible
purchases made by customers as a result of the
redirection from the Barnes & Noble.com Web site.
Either party may terminate the agreement on 60 days’
notice. Commissions were $0.0 million and $0.1 million
for fiscal years 2002 and 2001, respectively.
The Company is provided with national freight
distribution, including trucking, services by the LTA
Group, Inc. (LTA), a company in which a brother of
Leonard Riggio owns a 20 percent interest. The Company
paid LTA $18.5 million, $17.7 million and $16.7
million for such services during fiscal years 2002, 2001
and 2000, respectively. The Company believes the cost
of freight delivered to the stores compares favorably to
21 2002 Annual Report Barnes & Noble, Inc.
[MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS continued ]