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To: H James Morris who wrote (25960)	11/13/1998 9:57:00 PM
From: Glenn D. Rudolph	Respond to of 164684

Glen, William (who I respect) calls this the new information age. I call it the speculator or tulip era. James, I go with the speculator age. Tulip has been used too often:-) Glenn

To: H James Morris who wrote (25960)	11/13/1998 11:52:00 PM
From: Glenn D. Rudolph	Respond to of 164684

Gross profit consists of sales less the cost of sales, which consists of the cost of merchandise sold to customers, and outbound and inbound shipping costs. Gross profit increased in absolute dollars, reflecting the Company's increased sales volume. Gross margin increased as a result of improvements in product costs through improved supply chain management, including increased direct purchasing from publishers, as well as higher overall shipping margins, which together more than offset the impact of lower prices and lower music margins. The Company believes that offering its customers attractive prices is an essential component of its business strategy. Accordingly, the Company offers everyday discounts of up to 40% on hundreds of thousands of titles and certain "special value" editions discounted up to 85%. The Company may in the future expand or increase the discounts it offers to its customers and may otherwise alter its pricing structure and policies. The Company over time intends to expand its operations by promoting new or complementary products or sales formats and by expanding the breadth and depth of its product and service offerings. Gross margins attributable to new business areas may be lower than those associated with the Company's existing business activities. In particular, in June 1998 the Company launched its new music store and has announced plans to launch a video store. Music and video gross margins are lower than book gross margin. To the extent music or video becomes a larger portion of the Company's product mix, it is expected to have a proportionate impact on overall product gross margin.