BAMM: Holiday Sales Outstanding Wal-Mart Contract: BAMM began fulfilling book orders for Wal-Mart's newly relaunched Web site on January 1. The company has invested heavily in expanding and automating its distribution capacity to support this business. All the distribution costs are included in COGS. Since the launch of Wal-Mart's Web site was delayed, there were lower sales from the business to leverage the increased distribution costs. However, as we believe higher overall same store sales will offset this effect, we are maintaining our gross margin projection of 29.3% of sales. Wal-Mart has announced its intention to set up its Web operations as a separate public company. We believe BAMM will continue to perform fulfillment for the new entity. In fact, the establishment of the Internet operations as a separate company increases the likelihood that distribution will continue to be outsourced. The threat that Wal-Mart would some day internalize Internet distribution is substantially reduced. Additionally, we believe that substantial switching costs would accompany shifting distribution from BAMM to another provider due to the difficulty of systems integration. A further factor in BAMM's favor is its long established expertise in low cost book distribution. We believe that this advantage would be difficult for a competitor to o vercome.