Barnes and Noble 2003 Annual Report Download - page 51

marketing services, which includes the issuance of gift
cards. Under this agreement, the Company paid Barnes
& Noble.com $18,153 and $5,273 during fiscal 2003
and 2002, respectively, 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
$2,662, $1,746 and $1,030 for shipping and handling
during fiscal 2003, 2002 and 2001, 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 $1,505, $1,547 and $359 during fiscal
2003, 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 $237, $219
and $188 for fiscal 2003, 2002 and 2001, respectively.
B&N College purchased inventory, at cost plus an
incremental fee, of $43,403, $44,944 and $41,452 from
the Company during fiscal 2003, 2002 and 2001,
respectively. The Company charged B&N College $2,198,
$2,064 and $1,517 for fiscal years 2003, 2002 and 2001,
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 $2,373, $1,872 and $2,228
during fiscal 2003, 2002 and 2001, 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. 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 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 which resulted in the
Company retaining an approximate 63 percent interest
in GameStop. The Company’s total investment in
GameStop amounted to approximately $400,000, of
which $250,000 was repaid out of GameStop’s IPO
proceeds and $150,000 was converted into a capital
contribution.
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 $974 and $1,103 during
fiscal 2003 and 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. The Company
charged GameStop for these services $2,363 and
$1,726 during fiscal 2003 and 2002, respectively.
In fiscal 2003, GameStop purchased an airplane from
B&N College. The purchase price was $9,500 and was
negotiated through an independent third party
following an independent appraisal.
The Company is provided with national freight
distribution, including trucking services by the Argix
Direct Inc. (Argix) (formerly the LTA Group, Inc.), a
company in which a brother of Leonard and Stephen
Riggio owns a 20 percent interest. The Company paid
Argix $19,430, $18,509 and $17,746 for such services
during fiscal years 2003, 2002 and 2001, respectively.
The Company believes the cost of freight delivered
to the stores is comparable to the prices charged by
publishers and other third-party freight distributors.
Argix subleased warehouse space from the Company in
Jamesburg, New Jersey. Argix paid the Company
$1,822, $1,831 and $1,880 for such subleased space
during fiscal 2003, 2002 and 2001, respectively.
[NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS continued ]
50 2003 Annual ReportBarnes & Noble, Inc.