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<SEC-DOCUMENT>0000950144-03-006068.txt : 20030502
<SEC-HEADER>0000950144-03-006068.hdr.sgml : 20030502
<ACCEPTANCE-DATETIME>20030502172023
ACCESSION NUMBER: 0000950144-03-006068
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 20030201
FILED AS OF DATE: 20030502
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BOOKS A MILLION INC
CENTRAL INDEX KEY: 0000891919
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940]
IRS NUMBER: 630798460
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0131
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-20664
FILM NUMBER: 03680502
BUSINESS ADDRESS:
STREET 1: 402 INDUSTRIAL LN
CITY: BIRMINGHAM
STATE: AL
ZIP: 35211
BUSINESS PHONE: 2059423737
MAIL ADDRESS:
STREET 1: 402 INDUSTRIAL LANE
CITY: BIRMINGHAM
STATE: AL
ZIP: 35211
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>g82532e10vk.txt
<DESCRIPTION>BOOKS-A-MILLION, INC.
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
-------------- ----------------
Commission File No. 0-20664
BOOKS-A-MILLION, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 63-0798460
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
402 INDUSTRIAL LANE
BIRMINGHAM, ALABAMA 35211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 942-3737
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- --------
CONTINUED
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant (assuming for these purposes, but without conceding, that all
executive officers and directors are "affiliates" of the Registrant) as of April
8, 2003 (based on the closing sale price as reported on the NASDAQ National
Market on such date), was $24,984,522.
The number of shares outstanding of the Registrant's Common Stock as of
April 8, 2003 was 16,243,161.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
February 1, 2003 are incorporated by reference into Part II of this report.
Portions of the Proxy Statement for the Annual Meeting of Stockholders
to be held on June 5, 2003 are incorporated by reference into Part III of this
report.
EXPLANATORY NOTE
This Form 10-K for fiscal 2003 reflects the restatement of our
consolidated financial statements for the years ended February 2, 2002 and
February 3, 2001. See Note 10 to the consolidated financial statements included
in our Annual Report to Stockholders for the fiscal year ended February 1, 2003
for further discussion of the restatement.
<PAGE>
PART I
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This document contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to, the competitive environment in the book retail industry
in general and in the Company's specific market areas; inflation; economic
conditions in general and in the Company's specific market areas; the number of
store openings and closings; the profitability of certain product lines, capital
expenditures and future liquidity; liability and other claims asserted against
the Company; uncertainties related to the Internet and the Company's Internet
initiative ; and other factors referenced herein. In addition, such
forward-looking statements are necessarily dependent upon assumptions, estimates
and dates that may be incorrect or imprecise and involve known and unknown
risks, uncertainties and other factors. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized. Given these uncertainties, shareholders
and prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
ITEM 1. BUSINESS
GENERAL
Books-A-Million, Inc. (the "Company" or the "Registrant") is a leading
book retailer in the southeastern United States. The Company, which was founded
in 1917, has developed several store formats to address the various market areas
it serves. Superstores, the first of which was opened in 1987, average
approximately 20,000 square feet and operate under the name "Books-A-Million"
and "Books and Co." Traditional bookstores are smaller stores operated under the
names "Bookland" and "Books-A-Million". These stores average approximately 3,900
square feet and are located primarily in enclosed malls. The Company also
operates newsstands under the name "Joe Muggs Newsstands". Newsstands average
approximately 2,300 square feet and are located in mostly larger markets. All
store formats, excluding newsstands, offer an extensive selection of best
sellers and other hardcover and paperback books, magazines, and newspapers. In
addition to the retail store formats, the Company offers its products over the
Internet at Booksamillion.com and Joemuggs.com. The Company is also a wholesaler
of books to, among others, bookstores, wholesale clubs, supermarkets, department
stores and mass merchandisers. Additionally, the Company has a subsidiary which
provides website development and maintenance services.
The Company was originally incorporated under the laws of the State of
Alabama in 1964 and was reincorporated in Delaware in September 1992. The
principal executive offices of the Company are located at 402 Industrial Lane,
Birmingham, Alabama 35211, and its telephone number is (205) 942-3737. Unless
the context otherwise requires, references to the Company include its wholly
owned subsidiaries, American Wholesale Book Company, Inc. ("American Wholesale")
and American Internet Services, Inc. ("AIS").
BUSINESS SEGMENTS
The Company has two reportable segments: electronic commerce trade and
retail trade. The retail trade segment is a strategic business segment that is
engaged in the retial trade of mostly book merchandise and includes the
Company's distribution center operations, which predominantly supplies
merchandise to the Company's retail stores. The electronic commerce trade
segment is a strategic business segment that transacts business over the
Internet and is managed separately due to divergent technology and marketing
requirements.
For additional information, see Note 8 "Business Segments" in the
Notes to Consolidated Financial Statements in the Annual Report to Stockholders
for the year ended February 1, 2003, incorporated herein by reference.
SUPERSTORES
The Company opened its first Books-A-Million superstore in 1987. The
Company developed its superstores to capitalize on the growing consumer demand
for the convenience, selection and value associated with the superstore
retailing format. Each superstore was designed to be a receptive and open
environment conducive to browsing and reading and includes ample space for
promotional events open to the public, including book autograph sessions and
children's storytelling. The Company operated 163 Superstores as of February 1,
2003.
Superstores emphasize selection, value and customer service.
Superstores offer an extensive selection of best sellers and other hardcover and
paperback books, bargain books, magazines, local newspapers and gifts.
Superstores also dedicate space to bargain books that are sold at a discount
from publishers' originally suggested retail prices. Each superstore has a
service center staffed with associates who are knowledgeable about the store's
merchandise and who are trained to answer customers' questions, assist customers
in locating books within the store and place special orders. The majority of the
superstores also include an espresso and coffee bar called Joe Muggs. The
Company's superstores are conveniently located on major, high-traffic roads and
in enclosed malls or strip shopping centers with adequate parking. Superstores
are generally open Mondays through Saturdays from 9:00 a.m. to 11:00 p.m. and
Sundays 9:00 am through 9:00 p.m.
<PAGE>
TRADITIONAL STORES
The Company's traditional stores are tailored to the size, demographics
and competitive conditions of the particular market area. Traditional stores
average approximately 3,900 square feet and carry a broad selection of best
sellers and other hardcover and paperback books, bargain books, magazines and
gifts. The Company had 37 traditional stores as of February 1, 2003.
JOE MUGGS NEWSSTANDS
The Company's newsstands are concentrated in business and entertainment
districts and are tailored to the demographics of the particular market area.
Newsstands average approximately 2,300 square feet and carry a broad selection
of newspapers and magazines, along with hardcover and paperback books. The
newsstands also offer an espresso and coffee bar. The Company operated 7
newsstands as of February 1, 2003.
ACQUISITION OF STORES
During fiscal 2002, the Company acquired lease rights and inventory of
18 stores from Crown Books Corporation for $6.5 million. The stores are located
in the Chicago, Illinois and Washington, D.C. metropolitan areas. The results of
operations for these stores were reflected in the consolidated financial
statements beginning in the first quarter of fiscal 2002.
MERCHANDISING
The Company employs several value-oriented merchandising strategies.
Books on the Company's best-seller list, which is developed exclusively by the
Company based on its sales and customer demand in its stores, are generally sold
in the Company's superstores below publishers' suggested retail prices. In
addition, superstore customers can join the Millionaire's Club and save 10% on
all purchases in Books-A-Million stores, including already discounted
best-sellers. The Company's point-of-sale computer system provides the data
necessary to enable the Company to anticipate consumer demand and customize
store inventory selection to reflect local customer interest and demand.
MARKETING
The Company promotes its bookstores principally through the use of
geographically concentrated newspaper advertising and direct mail circulars, as
well as point-of-sale materials posted and distributed in the stores. In certain
markets, television advertising is also used on a selective basis. The Company
also arranges for special appearances and book autograph sessions with
recognized authors to attract customers and to build and reinforce customer
awareness of its stores. A substantial portion of the Company's advertising
expenses are reimbursed from publishers through their cooperative advertising
programs.
STORE OPERATIONS AND SITE SELECTION
In choosing specific store sites within a market area, the Company
applies standardized site selection criteria that take into account numerous
factors, including the local demographics, desirability of available leasing
arrangements, proximity to existing Company operations and overall level of
retail activity. In general, stores are located on major high-traffic roads
convenient to customers and have adequate parking. The Company generally
negotiates short-term leases with renewal options. The Company periodically
reviews the profitability trends and prospects of each of its stores and
evaluates whether or not any underperforming stores should be closed, converted
to a different format or relocated to more desirable locations.
2
<PAGE>
INTERNET OPERATIONS
The Company, through its wholly owned subsidiary, AIS, sells a broad
range of products over the Internet under the name Booksamillion.com. Products
sold by Booksamillion.com are similar to those sold in the Company's
Books-A-Million superstores and include a wide selection of books, magazines and
gift items. Booksamillion.com also operates an online cafe on its web site under
the name Joemuggs.com. Joemuggs.com offers a wide selection of whole bean
coffee, confections and related gift items for purchase over the Internet.
The Company is assisted in its Internet development efforts through a wholly
owned subsidiary of AIS, NetCentral, Inc., which is based in Nashville,
Tennessee. In addition to providing web development and maintenance for all of
the Company's Internet sites and networking initiatives, NetCentral also serves
several outside customers by offering site development, web hosting and
technical services.
PURCHASING
The Company's purchasing decisions are centralized and are made by the
Company's merchandising department. The Company's buyers negotiate terms,
discounts and cooperative advertising allowances for all the Company's
bookstores and decide which books to purchase, in what quantity and for which
stores. The buyers use current inventory and sales information provided by the
Company's in-store point-of-sale computer system to make reorder decisions.
The Company purchases merchandise from over 500 vendors. The Company
purchases the majority of its collectors' supplies from one supplier and
substantially all of its magazines from another supplier, each of which is a
related party. No one vendor accounted for more than 10.0% of the Company's
overall merchandise purchases in the fiscal year ended February 1, 2003. In
general, in excess of 80% of the Company's inventory may be returned by the
Company for credit, which substantially reduces the Company's risk of inventory
obsolescence.
DISTRIBUTION CAPABILITIES
American Wholesale receives a substantial portion of its inventory
shipments, including substantially all of its books, at its two facilities
located in Florence and Tuscumbia, Alabama. Orders from the Company's bookstores
are processed by computer and assembled for delivery to the stores on
pre-determined weekly schedules. Substantially all deliveries of inventory from
American Wholesale's facilities are made by their dedicated transportation
fleet. At the time deliveries are made to each of the Company's stores, returns
of slow moving or obsolete books are picked up and returned to the American
Wholesale returns processing center. American Wholesale then returns these books
to publishers for credit.
COMPETITION
The retail bookstore industry is highly competitive and includes
competitors that have substantially greater financial and other resources than
the Company. The Company competes directly with national bookstore chains,
independent bookstores, booksellers on the Internet, certain mass merchandisers
and greeting card stores. The Company is the third largest retail bookstore
chain in the nation. In recent years, competing bookstore chains have been
expanding their businesses and certain leading regional and national chains have
developed and opened superstores and Internet web sites. The Company also
experiences indirect competition from retail specialty stores that offer books
in a particular area of specialty. Management believes that the key competitive
factors in the retail book industry are convenience of location, selection,
customer service and price.
SEASONALITY
Similar to many retailers, the Company's business is seasonal, with its
highest retail sales, gross profit and net income historically occurring in its
fourth fiscal quarter. This seasonal pattern reflects the increased demand for
books and gifts experienced during the year-end holiday selling season. Working
capital requirements are generally at their highest during the third fiscal
quarter and the early part of the fourth fiscal quarter due to the seasonality
of the Company's business. The Company's results of operations depend
significantly upon net sales generated during the fourth fiscal
3
<PAGE>
quarter, and any significant adverse trend in the net sales of such period would
have a material adverse effect on the Company's results of operations for the
full year. In addition to seasonality, the Company's results of operations may
fluctuate from quarter to quarter as a result of the amount and timing of sales
and profits contributed by new stores as well as other factors. Accordingly, the
addition of a large number of new stores in a particular fiscal quarter could
adversely affect the Company's results of operations for that quarter.
TRADEMARKS
"Books-A-Million," "BAM!," "Bookland," "Books & Co.," "Millionaire's
Club," "Sweet Water Press," "Thanks-A-Million," "Big Fat Coloring Book," "Up All
Night Reader," "Read & Save Rebate", "Readables Accessories for Reader",
"Kids-A-Million," "Teachers First," "The Write-Price," "Bambeanos," "Book$mart",
"BAMM", "BAMM.com", "BOOKSAMILLION.com", "Chillatte", "Joe Muggs Newsstand" and
"NetCentral" are the primary registered trademarks of the Company. Management
does not believe that these trademarks are critical to the continuation of the
Company's operations.
EMPLOYEES
As of fiscal year end, the Company employed approximately 2,700
full-time associates and 2,400 part-time associates. The number of part-time
associates employed by the Company fluctuates based upon seasonal needs. None of
the Company's associates are covered by a collective bargaining agreement.
Management believes that the Company's relations with its associates are
excellent.
ITEM 2. PROPERTIES
The Company's bookstores are located either in enclosed malls or strip
shopping centers. All of the Company's stores are leased. Generally, these
leases have terms ranging from five to ten years and require the Company to pay
a fixed minimum rental fee and/or a rental fee based on a percentage of net
sales together with certain customary costs (such as property taxes, common area
maintenance and insurance).
The Company's principal executive offices are located in a 20,550
square foot leased building located in Birmingham, Alabama. The Company has an
additional 37,000 square foot leased building located in Irondale, Alabama. Both
leases involve related parties. The Birmingham, Alabama office space lease
extends to January 31, 2006, and the Irondale, Alabama office space is leased
month-to-month. In addition, the Company leases approximately 4,025 square feet
of office space in Nashville, Tennessee which extends to January 31, 2006.
American Wholesale owns its wholesale distribution center that is
located in an approximately 290,000 square foot facility located in Florence,
Alabama. During fiscal 1995 and 1996, the Company financed the acquisition and
construction of the wholesale distribution facility through loans obtained from
the proceeds of an industrial revenue bond, which are secured by a mortgage
interest in this facility. The Company also leases, from a related party, a
second warehouse facility, which is located in an approximately 210,000 square
foot facility in Tuscumbia, Alabama. In addition, the Company leases all of the
tractors that pull the company owned trailers, which comprise its transportation
fleet.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings incidental to its
business. In the opinion of management, after consultation with legal counsel,
the ultimate liability, if any, with respect to those proceedings is not
presently expected to materially affect the financial position or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the heading "Market and Dividend Information" on
page 28 (inside back cover) of the Annual Report to Stockholders for the year
ended February 1, 2003 is incorporated herein by reference.
4
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information under the heading "Selected Consolidated Financial
Data" for the years ended January 30, 1999, through February 1, 2003 on page 4
of the Annual Report to Stockholders for the year ended February 1, 2003, is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information under the heading "Management's Discussion & Analysis
of Financial Condition & Results of Operations" on pages 6 through 10 of the
Annual Report to Stockholders for the year ended February 1, 2003 is
incorporated herein by reference.
ITEM 7.A. MARKET RISK
The Company is subject to interest rate fluctuations involving its
credit facilities. The average amount of debt outstanding under the Company's
credit facilities was $65.9 million during fiscal 2003. However, the Company
utilizes both fixed and variable debt to manage this exposure. On February 9,
1998, the Company entered into an interest rate swap agreement, with a five-year
term, which carries a notional principal amount of $30.0 million. The swap
effectively fixes the interest rate on $30.0 million of variable rate debt at
7.41%. The swap agreement expired on February 11, 2003. The Company entered into
two separate $10 million swaps on July 24, 2002. Both expire August 2005 and
effectively fix the interest rate on $20 million of variable debt at 5.13%.
Also, on May 14, 1996, the Company entered into an interest rate swap agreement,
with a ten-year term, which carries a notional principal amount of $7.5 million.
The swap effectively fixes the interest rate on $7.5 million of variable rate
debt at 7.98%. The swap agreement expires on June 7, 2006. The counter parties
to the interest rate swaps are parties to the Company's revolving credit
facilities. The Company believes the credit and liquidity risk of the counter
parties failing to meet their obligations is remote as the Company settles its
interest position with the banks on a quarterly basis. All of the Company's
financial instruments that are sensitive to market risk are entered into for
purposes other than trading.
To illustrate the sensitivity of the results of operations to changes
in interest rates on its debt, the Company estimates that a 66% increase in
LIBOR rates would increase interest expense by approximately $326,000 for the
year ending January 31, 2004. Likewise, a 66% decrease in LIBOR rates would
decrease interest expense by $326,000 for the year ending January 31, 2004.
This hypothetical change in LIBOR rates was calculated based on the fluctuation
in LIBOR in 2002, which was the maximum LIBOR fluctuation in the last ten
years. The estimates also assume a level of debt consistent with the year-ended
February 1, 2003 level and do not consider the effect of the potential
termination of the interest rate swaps associated with the debt will have on
interest expense.
The information in note 3 "Debt and Lines of Credit" in the Notes to
Consolidated Financial Statements on page 20 of the Annual Report to
Stockholders for the year ended February 1, 2003 is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant and its
subsidiaries included in the Annual Report to Stockholders for the year ended
February 1, 2003 are incorporated herein by reference:
Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002
(as restated).
Consolidated Statements of Operations for the Fiscal Years Ended
February 1, 2003, February 2, 2002 (as restated), and February 3,
2001 (as restated).
Consolidated Statements of changes in Stockholders' Equity for the
Fiscal Years Ended February 1, 2003, February 2, 2002 (as restated),
and February 3, 2001 (as restated).
Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 1, 2003, February 2, 2002 (as restated), and February 3,
2001 (as restated).
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
The information under the heading "Summary of Quarterly Results
(Unaudited)" on page 26 of the Annual Report to Stockholders for the
Fiscal Years Ended February 1, 2003 and February 2, 2002 (as
restated) is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Arthur Andersen, LLP was the Company's independent accountants
for fiscal 2002 and had been its independent accountants since its
initial public offering in 1992. The Company dismissed Arthur Andersen,
LLP as its independent accountants on April 26, 2002. The decision to
dismiss Arthur Andersen as the Company's independent accountants was
recommended and approved by the Audit Committee of the Board of
Directors. Arthur Andersen's report on the Company's financial
statements for the past two years did not contain an adverse opinion or
a disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope or accounting principles. In addition, during
the two most recent fiscal years and since the end of fiscal year 2002,
there were no disagreements with Arthur Andersen, LLP on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to
the satisfaction of Arthur Andersen would have caused Arthur Andersen
to make reference to the subject matter of the disagreement in
connection with its report.
The Company engaged Deloitte & Touche LLP as its independent
auditors for fiscal 2003 in May 2002.
5
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The sections under the heading "Proposal I-Election of Directors"
entitled "Nominee for Election - Term Expiring 2006", "Incumbent Directors -
Term Expiring 2004" and "Incumbent Directors - Term Expiring 2005" on pages 3
and 4 of the Proxy Statement for the Annual Meeting of Stockholders to be held
June 5, 2003, are incorporated herein by reference for information on the
directors of the Registrant.
EXECUTIVE OFFICERS
All executive officers of the Company are elected annually by and serve
at the discretion of the Board of Directors. The executive officers of the
Company are listed below:
<TABLE>
<CAPTION>
- ----------------------- -------- --------------------------------------------------------
NAME AGE POSITION WITH THE COMPANY
- ----------------------- -------- --------------------------------------------------------
<S> <C> <C>
Clyde B. Anderson 42 Chairman of the Board and Chief Executive Officer
Sandra B. Cochran 44 President and Secretary
Terrance G. Finley 49 Executive Vice President of Books-A-Million, Inc. and
President of American Internet Services, Inc.
Richard S. Wallington 44 Chief Financial Officer
</TABLE>
Clyde B. Anderson has served as a director of the Company since August
1987. Mr. Anderson has served as the Chairman of the Board of the Company since
January 2000 and the Chief Executive Officer of the Company since July 1992. Mr.
Anderson served as the President of the Company from November 1987 to August
1999. From November 1987 to March 1994, Mr. Anderson also served as the
Company's Chief Operating Officer. Mr. Anderson serves on the Board of Directors
and the Compensation Committee of Hibbett Sporting Goods, Inc., a sporting goods
retailer. Mr. Anderson is the son of Charles C. Anderson and the brother of
Terry C. Anderson, both members of the Company's Board of Directors.
Sandra B. Cochran has served as President of the Company since August
1999 and Secretary since June 1998. Ms. Cochran served as the Executive Vice
President from February 1996 to August 1999 and as Chief Financial Officer from
September 1993 to August 1999. Ms. Cochran previously served as Vice President
and Assistant Secretary of the Company from August 1992 to September 1993. Prior
to joining the Company, Ms. Cochran served as a Vice President (as well as in
other capacities) of SunTrust Securities, Inc., a subsidiary of SunTrust Banks,
Inc. for more than five years.
Terrance G. Finley has served as Executive Vice President of the
Company since October 2001 and as the President of American Internet Services,
Inc. since December 1998. Mr. Finley served as Senior Vice President -
Merchandising from January 1998 to December 1998. Mr. Finley served as Vice
President - Merchandising from April 1994 to January 1998 and was named an
executive officer of the Company in March 1995. Mr. Finley served as the General
Manager of Book$mart from February 1992 to April 1994. Prior to joining the
Company, Mr. Finley served as the Vice President - Sales for Smithmark
Publishers.
Richard S. Wallington has served as the Chief Financial Officer of the
Company since August 1999. Mr. Wallington served as Vice President and
Controller from September 1993 to August 1999. Prior to joining the Company, Mr.
Wallington served as the Director of Financial Reporting for Woodward & Lothrop,
a retail department store company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors, executive officers and persons who own
beneficially more than 10% of the Company's Common Stock to file reports of
ownership and changes in ownership of such stock with the Securities and
Exchange Commission (the "SEC") and the NASDAQ Stock Market, Inc. Directors,
executive officers and greater than 10% stockholders are required by SEC
6
<PAGE>
regulations to furnish the Company with copies of all such forms they file. To
the Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, its directors, executive officers and greater than 10% stockholders
complied with all applicable Section 16(a) filing requirements during fiscal
2003.
ITEM 11. EXECUTIVE COMPENSATION
The sections under the heading "Executive Compensation," other than
those entitled "Report on Executive Compensation", "Compensation Committee
Interlocks and Insider Participation", "Certain Relationships and Related
Transactions" and "Performance Graph", on pages 12 through 20 of the Proxy
Statement for the Annual Meeting of Stockholders to be held June 5, 2003 are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section under the heading "Proposal I-Election of Directors"
entitled "Beneficial Ownership of Common Stock" on pages 5 and 6 of the Proxy
Statement for the Annual Meeting of Stockholders to be held June 5, 2003 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections under the heading "Executive Compensation" entitled
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" on pages 14 and 15 of the Proxy
Statement for the Annual Meeting of Stockholders to be held June 5, 2003 are
incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and the
Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.
7
<PAGE>
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following Consolidated Financial Statements of Books-A-Million,
Inc. and its subsidiaries, included in the Registrant's Annual Report
to Stockholders for the fiscal year ended February 1, 2003 are
incorporated by reference in Part II, Item 8:
Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002
(as restated).
Consolidated Statements of Operations for the Fiscal Years Ended
February 1, 2003, February 2, 2002 (as restated), and February 3,
2001 (as restated).
Consolidated Statements of Changes in Stockholders' Equity for the
Fiscal Years Ended February 1, 2003, February 2, 2002 (as restated),
and February 3, 2001 (as restated).
Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 1, 2003, February 2, 2002 (as restated), and February 3,
2001 (as restated).
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. Financial Statement Schedule:
Independent Auditors' Report on Financial Statement Schedule.
The following consolidated financial statement schedule of
Books-A-Million, Inc. is attached hereto:
Schedule 2 Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable, and therefore
have been omitted.
8
<PAGE>
3. Exhibits
<TABLE>
<CAPTION>
Exhibit Number
--------------
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1, File No.
33-52256, originally filed September 21, 1992).
3.2 -- Bylaws of the Registrant (incorporated by reference
to Exhibit 3.2 to Registration Statement on Form S-1,
File No. 33-52256, originally filed September 21,
1992).
4.1 -- See Exhibits 3.1 and 3.2 hereto incorporated herein
by reference to the Exhibits of the same number to
Registration Statement on Form S-1, File No.
33-52256, originally filed September 21, 1992.
10.1 -- Lease Agreement between First National Bank of
Florence, Alabama, as Trustee, and Bookland Stores,
Inc. (which is a predecessor of the Registrant), an
Alabama corporation, dated January 30, 1991
(incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-1, File No.
33-52256, originally filed September 21, 1992).
10.2 -- Amended and Restated Stock Option Plan (incorporated
by reference to Exhibit 10.2 to Annual Report on Form
10-K for the fiscal year ended January 30, 1999, File
No. 0-20664, filed on April 30, 1999).
10.3 -- Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.7 to Registration Statement
on Form S-1, File No. 33-52256, originally filed
September 21, 1992). 10.4 -- Amendment to Employee
Stock Purchase Plan (incorporated by reference to
Exhibit 10.6 to Annual Report on Form 10-K for the
fiscal year ended January 29, 1994, File No. 0-20664,
filed on April 29, 1994).
10.5 -- 1999 Amended and Restated Employee Stock Purchase
Plan (incorporated by reference to Exhibit 10.5 to
Annual Report on Form 10-K for the fiscal year ended
January 29, 2000, File No. 0-20664, filed on April
28, 2000).
10.6 -- 401(k) Plan (together with related documents)
(incorporated by reference to Exhibit 10.9 to
Registration Statement on Form S-1, File No.
33-52256, originally filed September 21, 1992).
10.7 -- Shareholders Agreement dated as of September 1, 1992
(incorporated by reference to Exhibit 10.9 to Annual
Report on Form 10-K for the fiscal year ended January
31, 1993, File No. 0-20664, filed May 3, 1993).
10.8 -- Executive Incentive Plan (incorporated by reference
to Exhibit 10.8 to Annual Report on Form 10-K for the
fiscal year ended January 28, 1995, File No. 0-20664,
filed April 28, 1995).
10.19 -- Stock Option Plans for Booksamillion.com, American
Internet Service, Inc., Netcentral, Inc. and
Faithpoint, Inc. (incorporated by reference to
Exhibit 10.19 to Annual Report on Form 10-K for the
fiscal year ended February 3, 2001, File No. 0-20664,
filed on May 4, 2001).
10.20 -- Credit agreement dated as of July 1, 2002, between
the Company and Bank of America, N.A., Suntrust Bank,
N.A., Wells Fargo Bank, N.A., Southtrust Bank, N.A.
and Amsouth Bank, N.S. (incorporated by reference to
Exhibit 10.20 to Form 10-Q for the quarter ended
August 3, 2002).
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C>
13 -- Portions of the Annual Report to Stockholders for the
year ended February 1, 2003 that are expressly
incorporated by reference into Part II of this
Report.
21 -- Subsidiaries of the Registrant (incorporated by
reference to Exhibit 21 to Annual Report on Form 10-K
for the fiscal year ended February 3, 2001, File No.
0-20664, filed May 4, 2001).
23 -- Consent of Independent Public Accountants to the
incorporation of their report on the Company's
consolidated financial statements for the fiscal year
ended February 1, 2003, into the Registration
Statements on Form S-8. (File Nos. 33-72812 and
33-86980).
</TABLE>
Reports on Form 8-K
None.
(c) See Item 15(a)(3), the Exhibit Index and the Exhibits attached hereto.
(d) See Item 15(a)(2).
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BOOKS-A-MILLION, INC.
by: /s/ Clyde B. Anderson
-----------------------------------
Clyde B. Anderson
Chairman of the Board and Chief
Executive Officer
Date: May 2, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
PRINCIPAL EXECUTIVE OFFICER:
/s/ Clyde B. Anderson
- ------------------------------------------------------------
Clyde B. Anderson
Chairman of the Board and Chief Executive Officer
Date: May 2, 2003
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Richard S. Wallington
- --------------------------------------------
Richard S. Wallington
Chief Financial Officer
Date: May 2, 2003
DIRECTORS:
/s/ Clyde B. Anderson
- --------------------------------------------
Clyde B. Anderson
Date: May 2, 2003
/s/ Charles C. Anderson
- --------------------------------------------
Charles C. Anderson
Date: May 2, 2003
<PAGE>
DIRECTORS:
/s/ Ronald G. Bruno
- -------------------------------------------
Ronald G. Bruno
Date: May 2, 2003
/s/ J. Barry Mason
- -------------------------------------------
J. Barry Mason
Date: May 2, 2003
/s/ Terry C. Anderson
- --------------------------------------------
Terry C. Anderson
Date: May 2, 2003
/s/ William H. Rogers, Jr.
- --------------------------------------------
William H. Rogers, Jr.
Date: May 2, 2003
<PAGE>
CERTIFICATIONS
I, Clyde B. Anderson, certify that:
1. I have reviewed this annual report on Form 10-K of Books-A-Million,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 2, 2003
/s/ Clyde B. Anderson
-----------------------
Clyde B. Anderson
Chief Executive Officer
<PAGE>
I, Richard S. Wallington, certify that:
1. I have reviewed this annual report on Form 10-K of Books-A-Million,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 2, 2003
/s/ Richard S. Wallington
---------------------------
Richard S. Wallington
Chief Financial Officer
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Board of Directors of Books-A-Million, Inc.:
We have audited the consolidated financial statements of Books-A-Million, Inc.
and subsidiaries as of February 1, 2003 and February 2, 2002 and for each of the
three fiscal years in the period ended February 1, 2003, and have issued our
report thereon dated April 30, 2003 (which report expresses an unqualified
opinion and includes explanatory paragraphs relating to the restatement
described in Note 10 and the adoption of a new accounting principle as described
in Note 1 to the consolidated financial statements); such financial statements
and report are included in your fiscal 2003 Annual Report to Stockholders and
are incorporated herein by reference. Our audits also included the financial
statement schedule of Books-A-Million, Inc. listed in Item 15. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Birmingham, Alabama
April 30, 2003
S-1
<PAGE>
SCHEDULE 2.
BOOKS-A-MILLION, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 3, 2001, FEBRUARY 2, 2002, AND FEBRUARY 1, 2003
<TABLE>
<CAPTION>
CHARGED/
BALANCE AT (CREDITED) (DEDUCTIONS)/
BEGINNING TO COSTS RECOVERIES BALANCE AT
OF YEAR AND EXPENSES NET END OF YEAR
---------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED FEBRUARY 3, 2001:
Allowance for doubtful accounts $1,488,897 $218,044 $(920,060) $786,881
FOR THE YEAR ENDED FEBRUARY 2, 2002:
Allowance for doubtful accounts $ 786,881 $567,913 $(569,902) $784,892
FOR THE YEAR ENDED FEBRUARY 1, 2003:
Allowance for doubtful accounts $ 784,892 $276,459 $(349,396) $711,955
</TABLE>
S-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>3
<FILENAME>g82532exv13.txt
<DESCRIPTION>EX-13 PORTIONS OF THE ANNUAL REPORT
<TEXT>
<PAGE>
EXHIBIT 13
BOOKS-A-MILLION
2003 ANNUAL REPORT
FIVE-YEAR HIGHLIGHTS
<TABLE>
<CAPTION>
For the Fiscal Year Ended
2/1/03(1) 2/2/02(2) 2/3/01(2) 1/29/00(3) 1/30/99(3)
(In thousands, except per share amounts) 52 weeks 52 weeks 53 weeks 52 weeks 52 weeks
- ---------------------------------------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $442,660 $442,755 $418,442 $403,877 $347,672
Income before cumulative effect
of a change in accounting principle(1) 2,602 3,919 2,980 5,851 4,410
Net income 1,401 3,919 2,980 5,851 4,410
Earnings per share -- diluted, before
cumulative effect of a change in
accounting principle(1) 0.16 0.23 0.17 0.32 0.25
Earnings per share -- diluted 0.08 0.23 0.17 0.32 0.25
Weighted average shares -- diluted 16,566 16,945 17,991 18,250 17,554
Capital investment 17,042 11,709 12,417 13,462 15,682
BALANCE SHEET DATA
Property and equipment, net $ 57,146 $ 56,716 $ 60,659 $ 64,232 $ 67,377
Total assets 307,718 294,858 292,199 287,327 272,037
Long-term debt 44,942 38,846 41,526 35,936 36,944
Stockholders' equity 122,868 121,338 122,259 120,520 114,229
OTHER DATA
Working capital $112,596 $105,483 $103,153 $ 92,987 $ 83,229
Debt to total capital ratio 0.27 0.24 0.25 0.23 0.24
OPERATIONAL DATA
Total number of stores 207 204 185 180 173
Number of superstores 163 157 145 135 124
Number of traditional stores 37 40 37 43 47
Number of Joe Muggs newsstands 7 7 3 2 2
</TABLE>
(1) Effective February 3, 2002, the Company adopted the provisions
of Emerging Issues Task Force ("EITF") No. 02-16, Accounting
by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor, as discussed in Note 1 of the
Consolidated Financial Statements.
(2) The Company has restated its financial statements as discussed
in Note 10 of the Consolidated Financial Statements.
(3) The Company has restated its financial statements for the
fiscal years ended January 29, 2000 and January 30, 1999,
which are unaudited, for the reasons indicated in (2).
1
<PAGE>
LETTER TO STOCKHOLDERS:
Fiscal Year 2003 presented our company with many challenges and we, like most
other retailers, fought hard to adapt to a rapidly changing world and an
unpredictable retail environment. Overall, we were disappointed in our earnings
results. We had clearly expected and hoped to do better. A weakened economy, the
underperformance of key titles from big name authors and consumer caution during
the critical holiday season combined to make an already competitive landscape
even more challenging.
Our response as an organization was to do all we could to control expenses, to
focus on top line sales in categories with strong growth potential and to
leverage our investments in systems improvements to better manage inventories.
We made substantial progress in all these areas and we remain focused on these
business fundamentals as we begin a new year.
In spite of the difficult environment, we have significant progress to report
which we feel positions us to achieve our goals in the coming fiscal year. We
continued an aggressive store remodel program that saw us convert 57 stores to
our new layout and store design criteria. These remodeled stores performed well
for us and outpaced the chain's performance as a whole. The layout changes are
dramatic and respond to a careful analysis of our markets and our customers'
needs. We have adjusted the space devoted to under-performing areas such as
music, greeting cards and bargain books, providing more space for growth areas
such as our collectibles and gift businesses and the strong book categories such
as cooking, home design and diet and health.
Several positive sales trends emerged which we also find encouraging. With the
troubled world environment, we saw categories such as world events, cooking,
domestic travel, entertainment, religion and healthy living gain ground. Our
collector card business was extremely strong, led by the enormous success of
Yu-Gi-Oh trading cards. At year's end, we had over 15,000 Yu-Gi-Oh league
participants in our stores every Saturday. Our Joe Muggs cafes also continue to
be a bright spot, and we had success with new product introductions such as our
Frappe blended drinks and a new espresso brownie.
Our technology group focused on a number of systems enhancements that improved
customer service, delivered cost savings and promise to add even more value in
the years ahead. We completed the installation of our new cash register system,
vastly improving speed and service at the checkout. Other back-end enhancements
are saving us money in such areas as payroll processing, credit card processing
and network efficiency.
2
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
In the end, we remain focused on sales and profits. Our merchandising team is
searching for fresh ideas, new products, and innovative promotions for books. We
are reinvigorating our proprietary publishing efforts and our import program to
bring good value and unique books and gifts to our customers. June 21st 2003
brings the new Harry Potter title to our stores. We will be pulling out all the
stops to make the most of the year's biggest book.
We hope to see you in a store very soon, perhaps June 21st, and we thank you for
your continued interest and support.
Sincerely,
/s/ Clyde B. Anderson
Clyde B. Anderson
Chairman and Chief Executive Officer
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Fiscal Year Ended
(In thousands, except per share amounts) 2/1/03(1) 2/2/02(2)
- ----------------------------------------------------------------------------
<S> <C> <C>
Net sales $442,660 $442,755
Operating profit 8,368 10,750
Income before cumulative effect of change in
accounting principle 2,602 3,919
Net income 1,401 3,919
Income per share -- diluted, before cumulative
effect of change in accounting principle 0.16 0.23
Net income per share -- diluted 0.08 0.23
</TABLE>
<TABLE>
<CAPTION>
As of
(In thousands) 2/1/03(1) 2/2/02(2)
- ----------------------------------------------------------------------------
<S> <C> <C>
Working capital $112,596 $105,483
Total assets 307,718 294,858
Stockholders' equity 122,868 121,338
</TABLE>
(1) Effective February 3, 2002, the Company adopted the provisions
of Emerging Issues Task Force ("EITF") No. 02-16, Accounting
by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor, as discussed in Note 1 of the
Consolidated Financial Statements.
(2) The Company has restated its financial statements as discussed
in Note 10 of the Consolidated Financial Statements.
3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
(In thousands, except per share data) 2/1/03(1) 2/2/02(2) 2/3/01(2) 1/29/00(3) 1/30/99(3)
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 442,660 $442,755 $418,442 $403,877 $347,672
Cost of products sold, including warehouse distribution
and occupancy costs 324,280 319,338 304,142 292,440 253,312
--------- -------- -------- -------- --------
Gross profit 118,380 123,417 114,300 111,437 94,360
Operating, selling and
administrative expenses 93,681 97,092 89,897 83,960 69,838
--------- -------- -------- -------- --------
Depreciation and amortization 16,331 15,575 14,793 13,830 12,974
Operating profit 8,368 10,750 9,610 13,647 11,548
Interest expense, net 4,171 4,429 4,804 4,211 4,435
--------- -------- -------- -------- --------
Income before income taxes and cumulative effect of
change in accounting principle 4,197 6,321 4,806 9,436 7,113
Provision for income taxes 1,595 2,402 1,826 3,585 2,703
--------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle 2,602 3,919 2,980 5,851 4,410
Cumulative effect of change in accounting principle(1) (1,201) -- -- -- --
--------- -------- -------- -------- --------
Net income $ 1,401 $ 3,919 $ 2,980 $ 5,851 $ 4,410
========= ======== ======== ======== ========
Net income per common share:
Basic
Income per share before effect of change in
accounting principle $ 0.16 $ 0.24 $ 0.17 $ 0.33 $ 0.25
Cumulative effect of change in accounting principle(1) (0.07) -- -- -- --
--------- -------- -------- -------- --------
Net income per share $ 0.09 $ 0.24 $ 0.17 $ 0.33 $ 0.25
========= ======== ======== ======== ========
Weighted average number of shares outstanding -- basic
Diluted 16,190 16,667 17,955 17,981 17,497
========= ======== ======== ======== ========
Income per share before effect of change in
accounting principle $ 0.16 $ 0.23 $ 0.17 $ 0.32 $ 0.25
Cumulative effect of change in accounting principle(1) (0.08) -- -- -- --
========= ======== ======== ======== ========
Net income per share $ 0.08 $ 0.23 $ 0.17 $ 0.32 $ 0.25
========= ======== ======== ======== ========
Weighted average number of shares outstanding -- diluted 16,566 16,945 17,991 18,250 17,554
========= ======== ======== ======== ========
Pro forma amounts assuming the change in accounting
principle was applied retroactively:(1)
Net income N/A $ 3,866 $ 2,728 $ 5,772 $ 4,310
Net income per share -- basic N/A 0.23 0.15 0.32 0.25
Net income per share -- diluted N/A 0.23 0.15 0.32 0.25
Balance Sheet Data:
Property and equipment, net $ 57,146 $ 56,716 $ 60,659 $ 64,232 $ 67,377
Total assets 307,718 294,858 292,199 287,327 272,037
Long-term debt 44,942 38,846 41,526 35,936 36,944
Stockholders' equity 122,868 121,338 122,259 120,520 114,229
Other Data:
Working capital $ 112,596 $105,483 $103,153 $ 92,987 $ 83,229
</TABLE>
4
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
(1) Effective February 3, 2002, the Company adopted the provisions of
Emerging Issues Task Force ("EITF") No. 02-16, Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a
Vendor, as discussed in Note 1 of the Consolidated Financial
Statements.
(2) The Company has restated its financial statements as discussed in Note
10 of the Consolidated Financial Statements.
(3) The Company has restated its financial statements for the fiscal years
ended January 29, 2000 and January 30, 1999, which are unaudited, for
the reasons indicated in (2).
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This document contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, that involve a number of
risks and uncertainties. A number of factors could cause actual results,
performance, achievements of the Company, or industry results to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These factors include, but are not
limited to, the competitive environment in the book retail industry in general
and in the Company's specific market areas; inflation; economic conditions in
general and in the Company's specific market areas; the number of store openings
and closings; the profitability of certain product lines; capital expenditures
and future liquidity; liability and other claims asserted against the Company;
uncertainties related to the Internet and the Company's Internet operations; and
other factors referenced herein. In addition, such forward-looking statements
are necessarily dependent upon assumptions, estimates and dates that may be
incorrect or imprecise and involve known and unknown risks, uncertainties and
other factors. Accordingly, any forward-looking statements included herein do
not purport to be predictions of future events or circumstances and may not be
realized. Given these uncertainties, stockholders and prospective investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the results of any of the forward-looking statements contained herein
to reflect future events or developments.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
GENERAL
The Company was founded in 1917 and currently operates 207 retail bookstores,
including 163 superstores, concentrated in the southeastern United States.
The Company's growth strategy is focused on opening superstores in new and
existing market areas, particularly in the Southeast. In addition to opening new
stores, management intends to continue its practice of reviewing the
profitability trends and prospects of existing stores and closing or relocating
under-performing stores or converting stores to different formats.
Comparable store sales are determined each fiscal quarter during the year based
on all stores that have been open at least 12 full months as of the first day
of the fiscal quarter. Any stores closed during a fiscal quarter are excluded
from comparable store sales as of the first day of the quarter in which they
close.
Subsequent to the issuance of the Company's fiscal 2002 financial statements,
the Company decided that it was necessary to restate its fiscal 2002 and 2001
financial statements to adjust the accounting treatment of its Millionaire's
Club Card. As a result, the Company now defers and amortizes the membership
revenue from its Millionaire's Club Card based upon the historical usage of the
card over the 12-month life. Such revenue was previously recorded when received
from the customer. Additional information related to the restatement of the
consolidated financial statements and related notes as of and for the years
ended February 2, 2002 and February 3, 2001 is included in Note 10 of the
consolidated financial statements. The following discussion and analysis gives
effect to the restatement.
CRITICAL ACCOUNTING POLICIES
Inventories
Physical inventories are taken throughout the fiscal period. Store inventory
counts are performed by an independent inventory service while warehouse
inventory counts are performed internally. All physical inventory counts are
reconciled to the Company's records. The Company's accrual for inventory
shortages is estimated based upon historical inventory shortage results.
Cost is assigned to store and warehouse inventories using the retail inventory
method. Using this method, store and warehouse inventories are valued by
applying a calculated cost-to-retail ratio to the retail value of inventories.
The retail method is an averaging method that is widely used within the retail
industry. This methodology also requires certain significant management
estimates and judgments involving markdowns, the allocation of vendor allowances
and shrinkage. These practices affect ending inventories at cost as well as the
resulting gross margins and inventory turnover ratios.
Vendor Allowances
The Company receives allowances from its vendors from a variety of programs and
arrangements, including merchandise placement and cooperative advertising
programs. Effective February 3, 2002, the Company adopted the provisions of
Emerging Issues Task Force ("EITF") No. 02-16, Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor, which
addresses the accounting for vendor allowances. As a result of the adoption of
this statement, vendor allowances in excess of incremental direct costs are
reflected as a reduction of inventory costs and recognized in cost of products
sold upon the sale of the related inventory. The impact of the adoption of EITF
No. 02-16 is reflected as a cumulative effect of a change in accounting
principle as of February 3, 2002 of approximately $1.2 million (net of income
tax benefit of $736,000), or $0.08 per diluted share decrease to earnings. Prior
to fiscal 2003, the Company recognized these vendor allowances over the period
covered by the vendor arrangement.
Accrued Expenses
On a monthly basis, certain material expenses are estimated and accrued to
properly record those expenses in the period incurred. Such estimates include
those made for payroll and employee benefits costs, occupancy costs and
advertising expenses among other items. These estimates are made based upon
current and historical results.
Differences in management's estimates and assumptions could result in accruals
that are materially different from the actual results.
6
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition & Results of Operations
Results of Operations
The following table sets forth statement of operations data expressed as a
percentage of net sales for the periods presented.
<TABLE>
<CAPTION>
Fiscal Year Ended
2/1/03 2/2/02 2/3/01
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 26.7% 27.8% 27.3%
Operating, selling and administrative expenses 21.2% 21.9% 21.5%
Depreciation and amortization 3.7% 3.5% 3.5%
Operating profit 1.8% 2.4% 2.3%
Interest expense, net 0.9% 1.0% 1.2%
Income before income taxes and cumulative effect of
change in accounting principle 0.9% 1.4% 1.1%
Provision for income taxes 0.3% 0.5% 0.4%
Income before cumulative effect of change in
accounting principle 0.6% 0.9% 0.7%
Cumulative effect of change in accounting principle, net of tax 0.3% 0.0% 0.0%
Net income 0.3% 0.9% 0.7%
</TABLE>
FISCAL 2003 COMPARED TO FISCAL 2002
Consolidated net sales decreased $0.1 million to $442.7 million in fiscal 2003
from $442.8 million in fiscal 2002. Comparable store sales decreased 2.6% when
compared to the same 52-week period last year. Comparable store sales for all
book categories decreased 1.2% for comparable 52-week periods. The remainder of
the decrease in comparable store sales was driven by lower music sales (a
discontinued line of merchandise). The Company opened six new stores during
fiscal 2003 and closed three underperforming stores.
Net sales for the retail trade segment increased $1.4 million, or 0.3%, to
$437.3 million in fiscal 2003 from $435.9 million in fiscal 2002. The slight
increase in sales was due to the six new stores opened during fiscal year 2003.
Net sales for the electronic commerce segment increased $1.1 million, or 4.6%,
to $23.3 million in fiscal 2003 from $22.2 million in fiscal 2002. This increase
was primarily due to growth in business-to-business sales volume during fiscal
2003.
The factors affecting the future trend of comparable store sales include, among
others, overall demand for products the Company sells, the Company's marketing
programs, pricing strategies, store operations and competition.
Gross profit decreased $5.0 million, or 4.1%, to $118.4 million in fiscal 2003
from $123.4 million in fiscal 2002. Gross profit as a percentage of net sales
decreased to 26.7% in fiscal 2003 from 27.8% in fiscal 2002, primarily due to
higher occupancy costs as a percentage of sales combined with more promotional
discount activity during fiscal 2003.
Operating, selling and administrative expenses decreased $3.4 million, or 3.5%,
to $93.7 million in fiscal 2003, from $97.1 million in fiscal 2002. Operating,
selling and administrative expenses as a percentage of net sales decreased to
21.2% in fiscal 2003 from 21.9% in fiscal 2002, primarily due to lower corporate
expenses.
Depreciation and amortization increased $0.7 million, or 4.9% to $16.3 million
in fiscal 2003 from $15.6 million in fiscal 2002. Depreciation and amortization
as a percentage of net sales increased to 3.7% in fiscal 2003 from 3.5% in
fiscal 2002, due to the increased number of superstores operated by the Company
combined with capital improvements made to existing stores this year.
Consolidated operating profit was $8.4 million for fiscal 2003 compared to $10.8
million in fiscal 2002. Operating profit for the retail trade segment was $8.8
million in fiscal 2003 versus $12.4 million in fiscal 2002. This decrease was
primarily attributable to the lower comparable store sales during fiscal 2003.
The operating loss for the electronic commerce segment was $0.9 million compared
to the fiscal 2002 loss of $1.7 million. The improvement in operating results
was due to improved gross margin as a percent to sales, as well as lower
operating costs as a percent to sales.
Net interest expense decreased $0.2 million, or 5.8%, to $4.2 million in fiscal
2003 from $4.4 million in fiscal 2002, primarily due to lower average interest
rates during fiscal 2003.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
Effective February 3, 2002, the Company adopted Emerging Issues Task Force
("EITF") No. 02-16, Accounting by a Customer (including a reseller) for Certain
Consideration Received from a Vendor, which addresses the accounting for vendor
allowances. The adoption of this accounting principle resulted in a cumulative
after-tax reduction to net income of $1.2 million, or $0.08 per diluted share.
Additional information is included in Note 1 to the consolidated financial
statements.
FISCAL 2002 COMPARED TO FISCAL 2001
Consolidated net sales increased $24.4 million, or 5.8%, to $442.8 million in
fiscal 2002 from $418.4 million in fiscal 2001. Comparable store sales decreased
2.8% when compared to the same 52-week period last year. Excluding the effects
of sales of collectible merchandise, comparable store sales increased 0.3% for
the period. The increase in net sales resulted from net sales generated by 18
stores acquired from Crown Books Corporation in March 2001 combined with seven
new stores opened during fiscal 2002. In addition, the Company closed six
underperforming stores in fiscal 2002.
Net sales for the retail trade segment increased $20.8 million, or 5.0%, to
$435.9 million in fiscal 2002 from $415.1 million in fiscal 2001. The increase
in sales was due to sales generated from 18 stores acquired from Crown Books
Corporation in March 2001, combined with seven new stores opened during fiscal
2002. Net sales for the electronic commerce segment increased $9.3 million, or
72.7%, to $22.2 million in fiscal 2002 from $12.9 million in fiscal 2001. The
percentage increase in sales for fiscal 2002 was primarily due to general sales
trends in the electronic commerce industry, as well as competitive pricing
offered by the Company's Internet website.
The factors affecting the future trend of comparable store sales include, among
others, overall demand for products the Company sells, the Company's marketing
programs, pricing strategies, store operations and competition.
Gross profit increased $9.1 million, or 8.0%, to $123.4 million in fiscal 2002
from $114.3 million in fiscal 2001. Gross profit as a percentage of net sales
increased to 27.8% in fiscal 2002 from 27.3% in fiscal 2001, primarily due to
improved sales mix and less promotional activity, combined with improved
inventory management.
Operating, selling and administrative expenses increased $7.2 million, or 8.0%,
to $97.1 million in fiscal 2002, from $89.9 million in fiscal 2001. Operating,
selling and administrative expenses as a percentage of net sales increased to
21.9% in fiscal 2002 from 21.5% in fiscal 2001, primarily due to the lower
comparable store sales for fiscal 2002.
Depreciation and amortization increased $0.8 million, or 5.3%, to $15.6 million
in fiscal 2002 from $14.8 million in fiscal 2001. Depreciation and amortization
as a percentage of net sales was even with last year at 3.5%.
Consolidated operating profit was $10.8 million for fiscal 2002 compared to $9.6
million in fiscal 2001. Operating profit for the retail trade segment was $12.4
million versus $11.1 million in fiscal 2001. The increase was primarily due to
operating profits generated by the new stores opened or acquired during fiscal
2002. The operating loss for the electronic commerce segment was $1.7 million
compared to a loss of $1.9 million in fiscal 2001. The slight decrease in
operating loss was due to higher sales, partially offset by lower gross margin
as a percent to sales due to more competitive pricing in fiscal 2002.
Net interest expense decreased $0.4 million, or 7.8%, to $4.4 million in fiscal
2002 from $4.8 million in fiscal 2001, primarily due to lower average interest
rates during fiscal 2002.
SEASONALITY AND QUARTERLY RESULTS
Similar to many retailers, the Company's business is seasonal, with its highest
retail sales, gross profit and net income historically occurring in the fourth
fiscal quarter. This seasonal pattern reflects the increased demand for books
and gifts experienced during the year-end holiday selling season. Working
capital requirements are generally highest during the third fiscal quarter and
the early part of the fourth fiscal quarter due to the seasonality of the
Company's business.
In addition, the Company's results of operations may fluctuate from quarter to
quarter as a result of the amount and timing of sales and profits contributed by
new stores as well as other factors. New stores require the Company to incur
pre-opening expenses and often require several months of operation before
generating acceptable sales volumes. Accordingly, the addition of a large number
of new stores in a particular quarter could adversely affect the Company's
results of operations for that quarter.
8
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from operations,
including credit terms from vendors, and borrowings under its credit facility.
The Company has an unsecured revolving credit facility that allows borrowings up
to $100.0 million, for which no principal repayments are due until the facility
expires in July 2005. The credit facility has certain financial and
non-financial covenants, the most restrictive of which is the maintenance of a
minimum fixed charge ratio. As of February 1, 2003 and February 2, 2002, $37.4
million and $31.1 million, respectively, were outstanding under this credit
facility. The maximum and average outstanding balances during fiscal 2003 were
$90.4 million and $65.9 million, respectively. The outstanding borrowings as of
February 1, 2003 had interest rates ranging from 2.96% to 3.01%. Additionally,
as of February 1, 2003 and February 2, 2002, the Company has outstanding
borrowings under an industrial revenue bond totaling $7.5 million, which is
secured by certain property.
Financial Position
During fiscal 2003, the Company opened 6 new stores and closed 3 stores. The
store openings, combined with growth in the title base for existing stores,
resulted in increased inventory, accounts payable and long-term debt balances at
February 1, 2003, as compared to February 2, 2002.
Future Commitments
The following table lists the aggregate maturities of various classes of
obligations and expiration amounts of various classes of commitments related to
Books-A-Million, Inc. at February 1, 2003 (in thousands):
<TABLE>
<CAPTION>
Payments Due Under Contractual Obligations
---------------------------------------------------------------------------------------------
Total FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 Thereafter
-------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt -- revolving
credit facility $ 37,440 $ -- $ -- $37,440 $ -- $ -- $ --
Long-term debt -- industrial
revenue bond 7,500 -- -- 7,500 -- -- --
Note payable 172 170 2 -- -- -- --
Operating leases 133,722 27,713 25,368 22,648 17,611 14,167 26,215
-------- ------- ------- ------- ------- ------- -------
Total of obligations $178,834 $27,883 $25,370 $67,588 $17,611 $14,167 $26,215
======== ======= ======= ======= ======= ======= =======
</TABLE>
Guarantees
From time to time, the Company enters into certain types of agreements that
contingently require the Company to indemnify parties against third party
claims. Generally, these agreements relate to: (a) agreements with vendors and
suppliers, under which the Company may provide customary indemnification to its
vendors and suppliers in respect of actions they take at the Company's request
or otherwise on its behalf, (b) agreements with vendors who publish books or
manufacture merchandise specifically for the Company to indemnify the vendor
against trademark and copyright infringement claims concerning the books
published or merchandise manufactured on behalf of the Company, (c) real estate
leases, under which the Company may agree to indemnify the lessors for claims
arising from the Company's use of the property, and (d) agreements with the
Company's directors, officers and employees, under which the Company may agree
to indemnify such persons for liabilities arising out of their relationship with
the Company. The Company has Directors and Officers Liability Insurance, which,
subject to the policy's conditions, provides coverage for indemnification
amounts payable by the Company with respect to its directors and officers up to
specified limits and subject to certain deductibles.
The nature and terms of these types of indemnities vary. The events or
circumstances that would require the Company to perform under these indemnities
are transaction and circumstance specific. Generally, a maximum obligation is
not explicitly stated and therefore the overall maximum amount of the
obligations cannot be reasonably estimated. Historically, the Company has not
incurred significant costs related to performance under these types of
indemnities. No liabilities have been recorded for these obligations on the
Company's balance sheet at February 1, 2003.
Cash Flows
Operating activities provided cash of $10,850,000, $24,559,000 and $8,216,000 in
fiscal 2003, 2002 and 2001, respectively, and included the following effects:
- Cash used for inventories in fiscal 2003 of $15,103,000 was
primarily the result of expanding the store title base in
existing stores. Cash provided by inventories in fiscal 2002
was $1,047,000 and cash used for inventories in fiscal 2001
was $11,362,000.
9
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition & Results of Operations
- Cash provided by accounts payable in fiscal 2003 of $5,472,000
was a result of higher inventory levels for fiscal 2003.
Accounts payable cash flow changes were insignificant amounts
in fiscal 2002 and fiscal 2001.
- Depreciation and amortization expenses were $16,331,000,
$15,575,000 and $14,793,000 in fiscal 2003, 2002 and 2001,
respectively. The increases each year in depreciation and
amortization were due to capital expenditures in each of the
fiscal years.
Cash flows used in investing activities reflected a $16,982,000, $18,206,000 and
$12,351,000 net use of cash for fiscal 2003, 2002 and 2001, respectively. Cash
was used primarily to fund capital expenditures for new store openings,
acquisitions of stores, renovation and improvements to existing stores,
warehouse distribution purposes and investments in management information
systems.
Financing activities provided cash of $5,897,000 in fiscal 2003 from borrowings
under the credit facility. In fiscal 2002, cash used in financing activities was
$6,265,000, which was used to repurchase 1,412,000 shares of common stock and to
repay debt under the credit facility. In fiscal 2001, cash provided by financing
activities was $4,339,000 from borrowings under the credit agreement.
Outlook
For fiscal 2004, the Company currently expects to open approximately six to
eight new stores, relocate or remodel approximately 20 to 25 stores and close
approximately two to four stores. Management estimates that capital expenditures
for fiscal 2004 will be approximately $12.4 million and that such amounts will
be used primarily for new store openings and renovations and improvements to
existing stores. Management believes that existing cash balances and net cash
from operating activities, together with borrowings under the Company's credit
facilities, will be adequate to finance the Company's planned capital
expenditures and to meet the Company's working capital requirements for fiscal
2004.
NEW ACCOUNTING STANDARDS
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SEAS 148"), "Accounting for Stock-Based Compensation -- Transition and
Disclosure -- an Amendment of FASB No. 123." SFAS 148 amends SFAS 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The disclosure provisions of this statement are effective for financial
statements for fiscal years ending after December 15, 2002, and are included
herein. The Company is currently assessing the alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation included in this statement.
FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others," was issued in November 2002. This interpretation requires guarantors to
account at fair value for and disclose certain types of guarantees. The
interpretation's disclosure requirements are effective for the Company's fiscal
year ended February 1, 2003 (see Note 9 to these consolidated financial
statements); the interpretation's accounting requirements are effective for
guarantees issued or modified after December 31, 2002. Historically, the Company
has not incurred significant costs related to performance under these types of
guarantees. No material liabilities have been recorded for these obligations on
the Company's consolidated balance sheet as of February 1, 2003.
FIN No. 46, "Consolidation of Variable Interest Entities," was issued in
January 2003. This interpretation requires consolidation of variable interest
entities ("VIE"), also formerly referred to as "special purpose entities," if
certain conditions are met. The interpretation applies immediately to VIE's
created after January 31, 2003, and to interests obtained in VIE's after January
31, 2003. Beginning after June 15, 2003, the interpretation applies also to
VIE's created or interests obtained in VIE's before January 31, 2003. The
Company believes this interpretation will have no effect on its financial
position, results of operations or cash flows.
RELATED PARTY ACTIVITIES
As discussed in Notes 4 and 6 of Notes to Consolidated Financial Statements, the
Company conducts business with other entities in which certain officers,
directors and principal stockholders of the Company have controlling ownership
interests. The most significant related party transactions include inventory
purchases from, and sales to, related parties. Related party inventory purchases
decreased in fiscal 2003 due to lower purchases of music merchandise. Related
party sales transactions decreased in fiscal 2003 due to lower sales of bargain
books. The Company leases certain office, retail and warehouse space from
related parties of which the rents have remained relatively unchanged.
Management believes the terms of these related party transactions are
substantially equivalent to those available from unrelated parties and,
therefore, have no significant impact on gross profit.
10
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As Of
(Dollars in thousands, except per share amounts) 2/1/03 2/2/02
- -------------------------------------------------------------------------------------------------
As Restated
(Note 10)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 4,977 $ 5,212
Accounts receivable, net of allowance for doubtful
accounts of $712 and $785, respectively 7,799 8,040
Related party receivables 437 967
Inventories 224,019 210,853
Prepayments and other 5,380 5,680
Deferred income taxes 6,130 5,530
--------- ---------
Total Current Assets 248,742 236,282
--------- ---------
Property and Equipment:
Land 628 628
Buildings 6,118 6,106
Equipment 62,193 54,119
Furniture and fixtures 44,260 40,394
Leasehold improvements 45,899 43,213
Construction in process 270 968
--------- ---------
Gross Property and Equipment 159,368 145,428
Less accumulated depreciation and amortization 102,222 88,712
--------- ---------
Net Property and Equipment 57,146 56,716
--------- ---------
Other Assets:
Goodwill, net 1,368 1,368
Other 462 492
--------- ---------
Total Other Assets 1,830 1,860
--------- ---------
Total Assets $ 307,718 $ 294,858
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable:
Trade $ 99,585 $ 97,523
Related party 9,071 5,661
Accrued expenses 24,790 24,442
Accrued income taxes 2,530 2,674
Current portion of long-term debt 170 499
--------- ---------
Total Current Liabilities 136,146 130,799
--------- ---------
Long-term Debt 44,942 38,846
Deferred Income Taxes 1,703 1,843
Other Long-term Liabilities 2,059 2,032
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, no shares outstanding -- --
Common stock, $.01 par value; 30,000,000 shares authorized,
18,211,706 and 18,138,963 shares issued at February 1,
2003 and February 2, 2002, respectively 182 181
Additional paid-in capital 70,849 70,719
Treasury stock at cost (2,010,050 shares at February 1, 2003
and February 2, 2002) (5,271) (5,271)
Accumulated other comprehensive loss, net of tax (1,219) (1,217)
Retained earnings 58,327 56,926
--------- ---------
Total Stockholders' Equity 122,868 121,338
--------- ---------
Total Liabilities and Stockholders' Equity $ 307,718 $ 294,858
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
2/1/03 2/2/02 2/3/01
(In thousands, except per share data) As Restated, Note 10 As Restated, Note 10
- -----------------------------------------------------------------------------------------------------------------------------------
52 Weeks 52 Weeks 53 Weeks
<S> <C> <C> <C>
Net sales $ 442,660 $442,755 $418,442
Cost of products sold, including warehouse
distribution and store occupancy costs(1) 324,280 319,338 304,142
--------- -------- --------
GROSS PROFIT 118,380 123,417 114,300
Operating, selling and administrative expenses 93,681 97,092 89,897
Depreciation and amortization 16,331 15,575 14,793
--------- -------- --------
OPERATING PROFIT 8,368 10,750 9,610
Interest expense, net 4,171 4,429 4,804
--------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 4,197 6,321 4,806
Provision for income taxes 1,595 2,402 1,826
--------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 2,602 3,919 2,980
Cumulative effect of change in accounting principle,
net of deferred income tax benefit of $736 (1,201) -- --
--------- -------- --------
NET INCOME $ 1,401 $ 3,919 $ 2,980
========= ======== ========
Net income per common share:
BASIC
Income before effect of change in accounting principle $ 0.16 $ 0.24 $ 0.17
Cumulative effect of change in accounting principle (0.07) -- --
--------- -------- --------
Net income $ 0.09 $ 0.24 $ 0.17
--------- -------- --------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -- BASIC 16,190 16,667 17,955
========= ======== ========
DILUTED
Income before effect of change in accounting principle $ 0.16 $ 0.23 $ 0.17
Cumulative effect of change in accounting principle (0.08) -- --
--------- -------- --------
Net income $ 0.08 $ 0.23 $ 0.17
========= ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -- DILUTED 16,566 16,945 17,991
========= ======== ========
Pro forma amounts assuming the change in accounting principle
was applied retroactively:
Net income N/A $ 3,866 $ 2,728
Net income per share -- basic N/A 0.23 0.15
Net income per share -- diluted N/A 0.23 0.15
</TABLE>
(1) Inventory purchases from related parties were $29,566, $31,492 and
$34,128, respectively, for the periods presented above.
The accompanying notes are an integral part of these consolidated statements.
12
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Treasury Stock Other Total
---------------- Paid-In ----------------- Retained Comprehensive Stockholders'
(In thousands) Shares Amount Capital Shares Amount Earnings Income (Loss) Equity
------ ------ ---------- -------- ------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 29,
2000, AS PREVIOUSLY
REPORTED 18,081 $ 181 $ 70,564 82 $ (252) $ 50,912 $ -- $ 121,405
------ ----- ------- ----- ------- -------- ------- --------
Restatement for
Millionaire's Club
Card, net of
income tax benefit of
$542 (Note 10) (885) (885)
-----------------------------------------------------------------------------------------------
BALANCE, JANUARY 29,
2000, AS RESTATED 18,081 181 70,564 82 (252) 50,027 -- 120,520
Net income, as restated 2,980 2,980
Purchase of treasury
stock 516 (1,311) (1,311)
Issuance of stock
for employee
stock purchase plan 11 70 70
------ ----- ------- ----- ------- -------- ------- --------
BALANCE, FEBRUARY 3,
2001, AS RESTATED 18,092 181 70,634 598 (1,563) 53,007 -- 122,259
====== ===== ======= ===== ======= ======== ======= ========
Net income, as restated 3,919 3,919
Cumulative effect of
accounting change for
derivative instruments,
net of tax benefit of $285 (465) (465)
Unrealized loss on
accounting for derivative
instruments,
net of tax benefit of $461 (752) (752)
Subtotal of comprehensive --------
income 2,702
Purchase of treasury stock 1,412 (3,708) (3,708)
Issuance of stock for
employee
stock purchase plan 46 -- 83 83
Exercise of stock options 1 2 2
------ ----- ------- ----- ------- -------- ------- --------
BALANCE, FEBRUARY 2, 2002,
AS RESTATED 18,139 181 70,719 2,010 (5,271) 56,926 (1,217) 121,338
====== ===== ======= ===== ======= ======== ======= ========
Net income 1,401 1,401
Unrealized loss on
accounting for
derivative instruments (2) (2)
Subtotal of comprehensive --------
income 1,399
Issuance of stock for
employee stock
purchase plan 47 1 85 86
Exercise of stock options 26 45 45
------ ----- ------- ----- ------- -------- ------- --------
BALANCE, FEBRUARY 1, 2003 18,212 $ 182 $70,849 2,010 $(5,271) $ 58,327 $(1,219) $122,868
====== ===== ======= ===== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
13
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
2/1/03 2/2/02 2/3/01
(In thousands) As restated, Note 10 As restated, Note 10
--------- ------------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,401 $ 3,919 $ 2,980
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
principle, net of tax 1,201 -- --
Depreciation and amortization 16,331 15,575 14,793
Loss on disposal of property and equipment 518 342 1,237
Deferred income tax provision (benefit) (4) (134) 387
(Increase) decrease in assets, net of effect
of acquisition in 2002 :
Accounts receivable 241 (402) 1,142
Related party receivables 530 1,391 1,803
Inventories (15,103) 1,047 (11,362)
Prepayments and other 59 (1,173) (1,171)
Increase (decrease) in liabilities:
Accounts payable 5,472 1,611 (1,932)
Accrued income taxes (144) 2,064 (1,442)
Accrued expenses 348 319 1,781
--------- --------- ---------
Total adjustments 9,449 20,640 5,236
--------- --------- ---------
Net cash provided by operating activities 10,850 24,559 8,216
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (17,042) (11,709) (12,417)
Acquisition of stores -- (6,532) --
Proceeds from sale of property and equipment 60 35 66
--------- --------- ---------
Net cash used in investing activities (16,982) (18,206) (12,351)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and
purchase of shares under employee stock purchase plan 131 85 70
Purchase of treasury stock -- (3,708) (1,311)
Repayments of other debt (329) (449) (262)
Borrowings under credit facilities 203,378 186,004 176,592
Repayments under credit facilities (197,283) (188,197) (170,750)
--------- --------- ---------
Net cash provided by (used in) financing activities 5,897 (6,265) 4,339
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (235) 88 204
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,212 5,124 4,920
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,977 $ 5,212 $ 5,124
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,084 $ 4,128 $ 4,904
========= ========= =========
Income taxes, net of refunds $ 1,388 $ 955 $ 2,881
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
14
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Books-A-Million, Inc., and its subsidiaries (the "Company") are principally
engaged in the sale of books, magazines and related items through a chain of
retail bookstores. The Company presently operates 207 bookstores in 18 states,
which are predominantly located in the southeastern United States, and the
District of Columbia. The Company also operates a retail Internet website. The
Company presently consists of Books-A-Million, Inc., and its two wholly-owned
subsidiaries, American Wholesale Book Company, Inc. ("American Wholesale") and
American Internet Services, Inc. ("AIS"). All significant inter-company balances
and transactions have been eliminated in consolidation.
Fiscal Year
The Company operates on a 52-53 week year, with the fiscal year ending on the
Saturday closest to January 31. Fiscal years 2003 and 2002 were 52-week periods.
Fiscal year 2001 was a 53-week period.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from the sale of merchandise at the time the
merchandise is sold and the customer takes delivery. At each period end, an
estimate of sales returns is recorded.
The Company sells its Millionaire's Club Card, which entitles the customer to
receive a 10 percent discount on all purchases made during the twelve-month
membership period, for a $5 non-refundable fee. The Company recognizes this
revenue over the twelve-month membership period based upon historical customer
usage patterns. Related deferred revenue is included in accrued expenses.
Vendor Allowances
The Company receives allowances from its vendors from a variety of programs and
arrangements, including merchandise placement and cooperative advertising
programs. Effective February 3, 2002, the Company adopted the provisions of
Emerging Issues Task Force ("EITF") No. 02-16, Accounting by a Customer
(including a reseller) for Certain Consideration Received from a Vendor, which
addresses the accounting for vendor allowances. As a result of the adoption of
this statement, vendor allowances in excess of incremental direct costs are
reflected as a reduction of inventory costs and recognized in cost of products
sold upon the sale of the related inventory. The impact of the adoption of EITF
No. 02-16 is reflected as a cumulative effect of a change in accounting
principle as of February 3, 2002 of approximately $1.2 million (net of income
tax benefit of $736,000), or $0.08 per diluted share decrease in earnings. This
change also decreased net income for the year ended February 2, 2003 by
approximately $83,000, or $0.01 per diluted share. Prior to fiscal 2003, the
Company recognized these vendor allowances over the period covered by the vendor
arrangement.
Inventories
Inventories are valued at the lower of cost or market, using the retail method,
with cost determined on a first-in, first-out ("FIFO") basis, and market
determined based on the lower of replacement cost or estimated realizable value.
Using the retail method, store and warehouse inventories are valued by applying
a calculated cost-to-retail ratio to the retail value of inventories.
Physical inventories are taken throughout the course of the fiscal period and
reconciled to the Company's records. Accruals for inventory shortages are
estimated based upon historical shortage results.
Property and Equipment
Property and equipment are recorded at cost. Depreciation on equipment and
furniture and fixtures is provided on the straight-line method over the
estimated service lives, which range from three to seven years. Depreciation of
buildings and amortization of leasehold improvements is provided on the
straight-line basis over the lesser of the assets estimated useful lives
(ranging from 10 to 40 years) or, if applicable, the periods of the leases.
Maintenance and repairs are charged to expense as incurred. Improvement costs
are capitalized to property accounts and depreciated using applicable annual
rates. The cost and accumulated depreciation of assets sold, retired or
otherwise disposed of are removed from the accounts, and the related gain or
loss is credited or charged to income.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-Lived Assets
The Company reviews property and equipment periodically and whenever events or
changes in circumstances indicate that their carrying amounts may not be
recoverable or their depreciation or amortization periods should be accelerated.
The Company assesses recoverability based upon several factors, including
management's intention with respect to its stores and those stores' projected
undiscounted cash flows. If an impairment is indicated, an impairment loss is
generally recognized for the amount by which the carrying amount of the assets
exceeds the present value of their projected cash flows.
Store Opening Costs
Non-capital expenditures incurred in preparation for opening new retail stores
are expensed as incurred.
Advertising Costs
The costs of advertising are expensed as incurred. Advertising costs, net of
applicable vendor reimbursements, are charged to operating, selling and
administrative expenses, and totaled $4,204,000, $7,192,000 and $5,586,000, for
fiscal years 2003, 2002 and 2001, respectively.
Insurance Accruals
The Company is subject to large deductibles under its workers' compensation and
health insurance policies. Amounts are accrued currently for the estimated cost
of claims incurred, both reported and unreported.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all short-term, highly liquid investments with original maturities of
90 days or less to be cash equivalents.
Income Per Share
Basic net income per share ("EPS") is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock are exercised or converted
into common stock and resulted in the issuance of common stock that then shared
in the earnings of the Company. Diluted EPS has been computed based on the
average number of shares outstanding including the effect of outstanding stock
options, if dilutive, in each respective year. A reconciliation of the weighted
average shares for basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
(In thousands) 2/1/03 2/2/02 2/3/01
------ ------ ------
<S> <C> <C> <C>
Weighted average shares outstanding: 16,190 16,667 17,955
Basic
Dilutive effect of stock options
outstanding 376 278 36
Diluted 16,566 16,945 17,991
====== ====== ======
</TABLE>
Weighted options outstanding of 1,577,000, 1,368,000 and 1,487,000 common shares
for the years ended February 1, 2003, February 2, 2002 and February 3, 2001,
respectively, were not included in the table above as they were anti-dilutive in
those periods.
Disclosure of Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SEAS") No. 107, "Disclosure About
Fair Value of Financial Instruments," requires all businesses to disclose the
fair value of financial instruments, both assets and liabilities recognized and
not recognized on the balance sheet, for which it is practicable to estimate
fair value. Based upon the Company's variable rate debt and the short-term
nature of its other financial instruments, the estimated fair values of the
Company's financial instruments recognized on the balance sheet at February 1,
2003 and February 2, 2002 approximate their carrying values at those dates.
16
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
At February 1, 2003, and February, 2, 2002, the Company had one stock option
plan that is described more fully in Note 5. The Company accounts for the plan
under the recognition and measurement principles of Accounting Pronouncements
Bulletin (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and
related Interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under the plan had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and net income per
common share if the Company had applied the fair value recognition provisions
of Statement of Financial Accounting Standards No. 148 ("SFAS 148"),
"Accounting for Stock-Based Compensation - Transaction and Disclosure - an
Amendment of FASB Statement No. 123, "to stock-based employee compensation (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal Year Ended
(In thousands) 2/1/03 2/2/02 2/3/01
------ ------ ------
<S> <C> <C> <C>
Net income, as reported $1,401 $3,919 $2,980
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of tax effects 1,315 1,133 1,042
------ ------ ------
Pro forma net income $ 86 $2,786 $1,938
====== ====== ======
Net income per common share:
Basic - as reported $ 0.09 $ 0.24 $ 0.17
Basic - pro forma $ 0.01 $ 0.17 $ 0.11
Diluted - as reported $ 0.08 $ 0.23 $ 0.17
Diluted - pro forma $ 0.01 $ 0.16 $ 0.11
</TABLE>
The fair value of the options granted under the Company's stock option plan
during fiscal 2003, 2002 and 2001 was estimated on their date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: no dividend yield; expected volatility of 1.01%, 1.21% and 1.20%,
respectively; risk-free interest rates of 3.63% to 5.10%, 3.76% to 5.71% and
4.99% to 6.76%, respectively; and expected lives of six or ten years.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of FASB Statement No. 133," and SFAS No. 138,
"Accounting for Certain Derivatives and Certain Hedging Activities." SFAS No.
133 established accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. The adoption of hedge accounting provided for in these
statements, on February 4, 2001, resulted in a cumulative after-tax increase to
other comprehensive loss, pertaining to years prior to fiscal 2002 of $465,000.
At February 1, 2003 and February 2, 2002, liabilities related to derivatives
are classified as other long-term liabilities of $2,059,000 and $2,032,000,
respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) is net income or loss, plus certain other items
that are recorded directly to stockholders' equity. The only such items
currently applicable to the Company are the unrealized gains (losses) on the
derivative instruments explained in Note 3.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". The principal provisions of
SFAS No. 141 and SFAS No. 142 are as follows:
- - Business combinations initiated after June 30, 2001, are accounted for
using the "purchase" method, under which the identifiable assets and
liabilities of the acquired business are recorded at their respective
fair market values with the residual amount being recorded as
goodwill.
- - Goodwill is no longer amortized but is instead tested for impairment
annually or upon the occurrence of certain "triggering events."
Identifiable intangible assets are amortized over their expected
useful lives; those with indefinite expected useful lives are not
amortized. Identifiable intangible assets will continue to be tested
for impairment under previously existing accounting standards.
Additionally, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," during 2001. SFAS No. 143 related to obligations which
generally are incurred in connection with the ownership of real property. The
Company currently leases the substantial majority of its real property and,
therefore, the provisions of SFAS No. 143 do not apply to its current
operations.
SFAS No. 144 superseded SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations and Transactions"--"Reporting the
Effects of Disposal of a Segment of a Business," and "Extraordinary, Unusual
and Infrequently Occurring Events and Transactions" for the disposal of a
segment of a business.
The Company adopted SFAS No. 141 and SFAS No. 144 on February 3, 2002. The
adoption of these standards did not have a material impact on financial
condition, results of operations or cash flows. The Company also adopted SFAS
No. 142 on February 3, 2002, and, accordingly, discontinued amortization of its
goodwill, the impact of which was not material to the Company's consolidated
financial statements.
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition of Certain
Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. The provisions of SFAS No. 146 are effective for exit or
disposal activities initiated after December 31, 2002. The Company adopted SFAS
No. 146 on January 1, 2003, and the adoption of this standard did not have a
material impact on financial condition, results of operations or cash flows.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB No. 123." SFAS 148 amends SFAS 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The disclosure provisions of this statement are effective for
financial statements for fiscal years ending after December 15, 2002, and are
included herein. The Company is currently assessing the alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation included in this statement.
FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others," was issued in November 2002. This interpretation requires guarantors
to account at fair value for and disclose certain types of guarantees. The
interpretation's disclosure requirements are effective for the Company's fiscal
year ended February 1, 2003 (see Note 9 to these consolidated financial
statements); the interpretation's accounting requirements are effective for
guarantees issued or modified after December 31, 2002.
18
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIN No. 46, "Consolidation of Variable Interest Entities," was issued in
January 2003. This interpretation requires consolidation of variable interest
entities ("VIE"), also formerly referred to as "special purpose entities," if
certain conditions are met. The interpretation applies immediately to VIE's
created after January 31, 2003 and to interests obtained in VIE's after January
31, 2003. Beginning after June 15, 2003, the interpretation applies also to
VIE's created or interests obtained in VIE's before January 31, 2003. The
Company believes this interpretation will have no effect on its financial
position, results of operations or cash flows.
Prior Year Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. INCOME TAXES
A summary of the components of the provision for income tax is as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
2/1/03 2/2/02 2/3/01
------- ------- ------
<S> <C> <C> <C>
Current:
Federal $ 1,567 $ 2,450 $1,386
State 32 86 53
------- ------- ------
$ 1,599 $ 2,536 $1,439
======= ======= ======
Deferred:
Federal $ (3) $ (132) $ 381
State (1) (2) 6
------- ------- ------
(4) (134) 387
------- ------- ------
Provision for income taxes $ 1,595 $ 2,402 $1,826
======= ======= ======
</TABLE>
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
2/1/03 2/2/02 2/3/01
------ ------ ------
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.0%
State income tax provision 1.0% 1.3% 1.0%
Nondeductible meals and entertainment expense 2.7% 1.0% 1.3%
Other 0.3% 1.7% 1.7%
---- ---- ----
Effective income tax rate 38.0% 38.0% 38.0%
==== ==== ====
</TABLE>
Temporary differences (in thousands) which created deferred tax assets
(liabilities) at February 1, 2003 and February 2, 2002, are as follows:
<TABLE>
<CAPTION>
As of 2/1/03 As of 2/2/02
--------------------------- ---------------------------
Current Noncurrent Current Noncurrent
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Depreciation $ -- $(2,082) $ -- $(1,944)
Accruals 2,736 -- 3,334 --
Interest rate swap 747 -- 746 --
Inventory 2,318 -- 1,354 --
State net operating loss carryforwards -- 441 -- 199
Other 329 (62) 96 (98)
------ ------- ------ -------
Deferred tax asset (liability) $6,130 $(1,703) $5,530 $(1,843)
====== ======= ====== =======
</TABLE>
At February 1, 2003, the Company had state net operating loss carryforwards of
approximately $11,029,000 that expire beginning in 2015 through 2018.
No valuation allowance for net deferred income tax assets is deemed necessary,
as the realization of recorded deferred tax assets is considered more likely
than not.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DEBT AND LINES OF CREDIT
The Company refinanced its credit facility during fiscal 2003. This facility
allows for unsecured borrowings up to $100 million for which no principal
payments are due until the facility expires in July 2005. Interest on borrowing
is determined based upon applicable LIBOR rates and the Company's rate spread,
which varies depending on the maintenance of certain covenants. The credit
facility has certain financial and non-financial covenants. The most restrictive
financial covenant is the maintenance of a minimum fixed charge ratio. As of
February 1, 2003 and February 2, 2002, $37.4 million and $31.1 million,
respectively, were outstanding under this credit facility. The maximum and
average outstanding balances during fiscal 2003 were $90.4 million and $65.9
million, respectively. The outstanding borrowings as of February 1, 2003 had
interest rates ranging from 2.96% to 3.01%. The current option of long-term debt
is related to a note payable.
The Company is subject to interest rate fluctuations involving its credit
facility. However, the Company uses both fixed and variable rate debt to manage
this exposure. On February 9, 1998, the company entered into an interest rate
swap agreement with a five-year term that carried a notional principal amount
of $30.0 million. The swap effectively fixed the interest rate on $30.0 million
of variable rate debt at 6.78%. The swap agreement expired on February 11,
2003. The Company entered into two separate $10 million swaps on July 24, 2002.
Both expire August 2005 and effectively fix the interest rate on $20 million of
variable rate debt at 5.13%, except during the fourth quarter of fiscal 2003,
during which neither swaps were in effect. The counter parties to the interest
rate swaps are two of the Company's primary banks. The Company believes the
credit and liquidity risk of the counter parties failing to meet their
obligation is remote as the Company settles its interest position with the
banks on a quarterly basis.
During fiscal 1996 and fiscal 1995, the Company acquired and constructed
certain warehouse and distribution facilities with the proceeds of loans made
pursuant to an industrial development revenue bond (the "Bond"), which are
secured by a mortgage interest in these facilities. As of February 1, 2003 and
February 2, 2002, there was $7.5 million of borrowings outstanding under these
arrangements, at variable rates. The net book value of the collateral property
securing the Bond was $5,320,000 as of February 1, 2003. The Bond has a
maturity date of December 1, 2019, with a purchase provision obligating the
Company to repurchase the Bond on May 11, 2005, unless extended by the
bondholder. Such an extension may be renewed annually by the bondholder, at the
Company's request, to a date no more than five years from the renewal date. The
Company maintains a $7.5 million interest rate swap that effectively fixes the
interest rate on the Bond at 7.98%. The swap was entered into in May 1996 and
has a term of ten years.
The Company's hedges are designated as cash flow hedges. Cash flow hedges
protect against the variability in future cash outflows of current or
forecasted debt. Interest rate swaps that convert variable payments to fixed
payments are cash flow hedges. The changes in the fair value of these hedges
are reported on the balance sheet with a corresponding adjustment to
accumulated other comprehensive income (loss) or in earnings, depending on the
type of hedging relationship. Over time, the unrealized gains and losses held
in accumulated other comprehensive income (loss) may be realized and
reclassified to earnings.
The derivative instruments were reported as a liability classified in other
long-term liabilities in the accompanying consolidated balance sheets at their
fair value of $2.1 million and $2.0 million as of February 1, 2003 and February
2, 2002, respectively. For the fifty-two weeks ended February 1, 2003 and
February 2, 2002, adjustments of $(2,000) and $(1,217,000) were recorded as
unrealized losses in accumulated other comprehensive income (loss), after-tax.
4. LEASES
The Company leases the premises for its retail bookstores under operating
leases, which expire in various years through 2013. Many of these leases contain
renewal options and require the Company to pay executory costs (such as property
taxes, maintenance and insurance). In addition to fixed minimum rentals, some of
the Company's leases require contingent rentals based on a percentage of sales.
The Company also leases certain office, warehouse and retail store space from
related parties. Rental expense under these leases was approximately $572,000,
$651,000 and $658,000 in fiscal 2003, 2002 and 2001, respectively. Total
minimum future rental payments under these leases are $412,000 at February 1,
2003.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of February 1, 2003, are as follows
(in thousands):
<TABLE>
<CAPTION>
Fiscal Year
- -----------
<S> <C>
2004 $ 27,713
2005 25,368
2006 22,648
2007 17,611
2008 14,167
Subsequent years 26,215
--------
Total $133,722
========
</TABLE>
20
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rental expense for all operating leases consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
2/1/03 2/2/02 2/3/01
------- ------- -------
<S> <C> <C> <C>
Minimum rentals $30,157 $28,880 $26,084
Contingent rentals 552 595 496
------- ------- -------
Total $30,709 $29,475 $26,580
======= ======= =======
</TABLE>
5. EMPLOYEE BENEFIT PLANS
401(k) Profit-Sharing Plan
The Company and its subsidiaries maintain a 401(k) plan covering all employees
who have completed 12 months of service and who are at least 21 years of age,
and permit participants to contribute from 2% to 15% of compensation to the
plan. Company matching and supplemental contributions are made at management's
discretion. The expense under this plan was $437,000, $417,000 and $335,000 in
fiscal 2003, 2002 and 2001, respectively.
Stock Option Plan
The Company maintains a stock option plan reserving 3,800,000 shares of the
Company's common stock for grants to executive officers, directors and key
employees. Prior to January 9, 2001, all options granted to employees become
exercisable in equal annual increments over a five-year period and expire on the
sixth anniversary of the date of grant. On January 9, 2001, the Compensation
Committee of the Board of Directors approved an amendment to the Stock Option
Plan that allows all options granted after that date to vest in equal annual
increments over a three-year period and expire on the tenth anniversary of the
date of the grant. All stock options have exercise prices equal to the fair
market value of the common stock on the date of grant. A summary of the status
of the Company's stock option plan is as follows (shares in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------------
February 1, 2003 February 2, 2002 February 3, 2001
-------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,468 $5.30 2,210 $5.76 1,562 $8.26
Granted 386 2.41 409 3.03 822 1.88
Exercised (26) 1.74 (1) 1.69 -- --
Forfeited (253) 5.30 (150) 5.89 (174) 9.84
----- ----- ----- ----- ----- -----
Outstanding at end of year 2,575 $4.90 2,468 $5.30 2,210 $5.76
----- ----- ----- ----- ----- -----
Exercisable at end of year 1,468 $5.60 1,108 $6.14 657 $7.41
----- ----- ----- ----- ----- -----
Weighted average fair value
of options granted $2.20 $2.90 $1.75
===== ===== =====
</TABLE>
During fiscal years 2003, 2002 and 2001, the Company recognized tax benefits
related to the exercise of stock options in the amount of $6,000, $0 and $0,
respectively. The tax benefits were credited to paid-in capital in the
respective years.
The following table summarizes information about stock options outstanding at
February 1, 2003 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- --------------------------------
Weighted
Number Average Number
Outstanding at Remaining Weighted Exercisable at Weighted
Range of February 1, Contractual Average February 1, Average
Exercise Price 2003 Life (Years) Exercise Price 2003 Exercise Price
- -------------- -------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.38 - $ 2.37 997 8.57 $ 1.92 431 $ 1.67
$2.39 - $ 7.69 1,130 4.81 $ 5.31 703 $ 5.63
$8.19 - $13.00 448 2.22 $10.50 334 $10.60
----- -----
Totals 2,575 5.82 $ 4.90 1,468 $ 5.60
===== =====
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Purchase Plan
The Company maintains an employee stock purchase plan under which 400,000 shares
of the Company's common stock are reserved for purchase by employees at 85% of
the fair market value of the common stock at the lower of the market value for
the Company's stock as of the beginning of the fiscal year or the end of the
fiscal year. The reserve was increased to 400,000 shares from 200,000 at the
fiscal 2002 annual meeting of the stockholders. Of the total reserved shares,
182,800 shares have been purchased as of February 1, 2003.
6. RELATED PARTY TRANSACTIONS
Certain stockholders and directors (including certain officers) of the Company
have controlling ownership interests in other entities with which the Company
conducts business. Transactions between the Company and these various other
entities ("related parties") are summarized in the following paragraph and Note
4.
The Company purchases a portion of its inventories for resale from related
parties; such purchases amounted to $29,566,000, $31,492,000 and $34,128,000 in
fiscal 2003, 2002 and 2001, respectively. The Company sells a portion of its
inventories to related parties; such sales amounted to $(76,000), $1,752,000
and $3,940,000 in fiscal 2003, 2002 and 2001, respectively. The Company
provides internet services to related parties that amounted to $184,000,
$153,000 and $0 in fiscal 2003, 2002 and 2001, respectively. The Company also
purchases logistics services from related parties that amounted to $0, $64,000
and $250,000 in fiscal 2003, 2002 and 2001, respectively. The Company incurred
expenses related to professional services from related parties that amounted to
$144,000 in each of fiscal 2003, 2002 and 2001.
7. ACQUISITION OF STORES
During March 2001, the Company acquired inventory and lease-rights of eighteen
stores from Crown Books Corporation for $6.5 million (which was allocated
predominantly to inventories). The stores are located in the Chicago and
Washington, D.C. metropolitan areas. The results of operations for these stores
are reflected in the consolidated financial statements beginning in the first
quarter of fiscal 2002. Pro-forma information is not presented as it would not
differ materially from the actual reflected results.
8. BUSINESS SEGMENTS
The Company has two reportable segments: electronic commerce trade and retail
trade. The retail trade segment is a strategic business segment that is engaged
in the retail trade of mostly book merchandise and includes the Company's
distribution center operations, which predominantly supplies merchandise to the
Company's retail stores. The electronic commerce trade segment is a strategic
business segment that transacts business over the Internet and is managed
separately due to divergent technology and marketing requirements.
The accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies. The Company
evaluates performance of the segments based on profit and loss from operations
before interest and income taxes. Certain intersegment cost allocations have
been made based upon consolidated and segment revenues.
<TABLE>
<CAPTION>
Fiscal Year Ended
Segment Information (in thousands) 2/1/03 2/2/02 2/3/01
--------- --------- ---------
<S> <C> <C> <C>
NET SALES
Retail Trade $ 437,310 $ 435,914 $ 415,054
Electronic Commerce Trade 23,277 22,247 12,884
Intersegment Sales Elimination (17,927) (15,406) (9,496)
--------- --------- ---------
Net Sales $ 442,660 $ 442,755 $ 418,442
========= ========= =========
OPERATING PROFIT
Retail Trade $ 8,810 $ 12,382 $ 11,109
Electronic Commerce Trade (899) (1,714) (1,880)
Intersegment Elimination of Certain Costs 457 82 381
--------- --------- ---------
Total Operating Profit $ 8,368 $ 10,750 $ 9,610
========= ========= =========
ASSETS (END OF YEAR)
Retail Trade $ 306,542 $ 293,567
Electronic Commerce Trade 1,752 1,939
Intersegment Elimination (576) (648)
--------- ---------
Total Assets $ 307,718 $ 294,858
========= =========
</TABLE>
22
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to its business.
In the opinion of management, after consultation with legal counsel, the
ultimate liability, if any, with respect to those proceedings is not presently
expected to materially affect the financial position or results of operations
or cash flows of the Company.
From time to time, the Company enters into certain types of agreements that
contingently require the Company to indemnify parties against third party
claims. Generally, these agreements relate to: (a) agreements with vendors and
suppliers, under which the Company may provide customary indemnification to its
vendors and suppliers in respect of actions they take at the Company's request
or otherwise on its behalf, (b) agreements with vendors who publish
books or manufacture merchandise specifically for the Company to indemnify
the vendor against trademark and copyright infringement claims concerning the
books published or merchandise manufactured on behalf of the Company, (c)
real estate leases, under which the Company may agree to indemnify the lessors
for claims arising from the Company's use of the property, and (d) agreements
with the Company's directors, officers and employees, under which the Company
may agree to indemnify such persons for liabilities arising out of their
relationship with the Company. The Company has Directors and Officers Liability
Insurance, which, subject to the policy's conditions, provides coverage for
indemnification amounts payable by the Company with respect to its directors
and officers up to specified limits and subject to certain deductibles.
The nature and terms of these types of indemnities vary. The events or
circumstances that would require the Company to perform under these indemnities
are transaction and circumstance specific. Generally, a maximum obligation is
not explicitly stated and therefore the overall maximum amount of the
obligations cannot be reasonably estimated. Historically, the Company has not
incurred significant costs related to performance under these types of
indemnities. No liabilities have been recorded for these obligations on the
Company's balance sheet at February 1, 2003.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. RESTATEMENT
Subsequent to the issuance of the Company's fiscal 2002 financial statements,
the Company decided that it was necessary to restate its fiscal 2002 and 2001
financial statements to adjust the accounting treatment of its Millionaire's
Club Card. As a result, the Company now defers and amortizes the membership
revenue from its Millionaire's Club Card based upon the historical usage of the
card over its 12-month life. Such revenue was previously recorded when received
from the customer.
The Company has also reclassified certain vendor allowances of $5,496,000 and
$5,255,000 in fiscal 2002 and 2001, respectively, previously reported as a
reduction of operating, selling and administration expenses, to cost of
products sold.
The following is a reconciliation of certain balance sheet amounts and of the
results of operations as previously reported to the as restated amounts (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Consolidated Balance Sheet as of February 2, 2002
--------------------------------------------------
As Previously
Reported(1) Adjustments (As Restated)
------------- ----------- -------------
<S> <C> <C> <C>
Accrued expenses $ 22,769 $ 1,673 $ 24,442
Deferred income taxes (asset) (4,894) (636) (5,530)
Retained earnings 57,963 (1,037) 56,926
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Operations
for the Fiscal Year Ended February 2, 2002
-------------------------------------------------
As Previously
Reported(1) Adjustments (As Restated)
------------- ----------- -------------
<S> <C> <C> <C>
Net sales $442,886 $ (131) $442,755
Cost of products sold 324,655 (5,317) 319,338
-------- ------- --------
Gross profit 118,231 5,186 123,417
Operating, selling and administrative expenses 91,799 5,293 97,092
Depreciation and amortization 15,575 -- 15,575
-------- ------- --------
Operating profit 10,857 (107) 10,750
Interest expense, net 4,429 -- 4,429
-------- ------- --------
Income before taxes 6,428 (107) 6,321
Income taxes 2,443 (41) 2,402
-------- ------- --------
Net income $ 3,985 $ (66) $ 3,919
======== ======= ========
Net income per common share - basic $ 0.24 $ -- $ 0.24
======== ======= ========
Net income per common share - diluted $ 0.24 $ (0.01) $ 0.23
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Operations
for the Fiscal Year Ended February 3, 2001
------------------------------------------------
As Previously
Reported(1) Adjustments (As Restated)
------------- ----------- -------------
<S> <C> <C> <C>
Net sales $418,606 $ (164) $418,442
Cost of products sold 309,397 (5,255) 304,142
-------- ------- --------
Gross profit 109,209 5,091 114,300
Operating, selling and administrative expenses 84,667 5,230 89,897
Depreciation and amortization 14,793 -- 14,793
-------- ------- --------
Operating profit 9,749 (139) 9,610
Interest expense, net 4,804 -- 4,804
-------- ------- --------
Income before taxes 4,945 (139) 4,806
Income taxes 1,879 (53) 1,826
-------- ------- --------
Net income $ 3,066 $ (86) $ 2,980
======== ======= ========
Net income per common share - basic $ 0.17 $ -- $ 0.17
======== ======= ========
Net income per common share - diluted $ 0.17 $ -- $ 0.17
======== ======= ========
</TABLE>
(1) Including certain reclassifications.
24
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
INDEPENDENT AUDITORS' REPORT
Books-A-Million, Inc.:
We have audited the accompanying consolidated balance sheets of
Books-A-Million, Inc. and its subsidiaries as of February 1, 2003 and
February 2, 2002, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the three fiscal
years in the period ended February 1, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Books-A-Million, Inc. and its subsidiaries as of February 1, 2003 and February
2, 2002, and the results of their operations and their cash flows for each of
the three fiscal years in the period ended February 1, 2003 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective
February 4, 2001, the Company changed its method of accounting for derivative
instruments and hedging activities, and effective February 3, 2002, changed its
method of accounting for vendor allowances.
As discussed in Note 10, the accompanying fiscal 2002 and 2001 consolidated
financial statements have been restated.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
April 30, 2003
25
<PAGE>
BOOKS-A-MILLION
2003 ANNUAL REPORT
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 1, 2003
-------------------------------------------------------------------
First Second Third Fourth
(In thousands, except per share amounts) Quarter(2) Quarter(2) Quarter(2) Quarter
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Net sales $ 101,311 $ 104,654 $ 97,256 $139,439
Gross profit 27,630 28,213 22,875 39,662
Operating profit (loss) 754 315 (3,170) 10,469
Income (loss) before cumulative effect of change
in accounting principle (111) (425) (2,755) 5,893
Income (loss) per share - basic
before cumulative effect of change in accounting principle (1) (0.01) (0.03) (0.17) 0.36
Income (loss) per share - diluted
before cumulative effect of change in accounting principle (1) (0.01) (0.03) (0.17) 0.36
Net income (loss) (1,312) (425) (2,755) 5,893
Net income (loss) per share - basic (1) (0.08) (0.03) (0.17) 0.36
Net income (loss) per share - diluted (0.08) (0.03) (0.17) 0.36
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended February 2, 2002
-------------------------------------------------------------------
First Second Third Fourth
(In thousands, except per share amounts) Quarter(2) Quarter(2) Quarter(2) Quarter(2)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $97,580 $103,900 $97,900 $143,375
Gross profit 26,393 27,749 25,891 43,384
Operating profit (loss) 675 (43) (1,803) 11,921
Net income (loss) (367) (735) (1,819) 6,840
Net income (loss) per share - basic (1) (0.02) (0.04) (0.11) 0.42
Net income (loss) per share - diluted (1) (0.02) (0.04) (0.11) 0.41
</TABLE>
(1) The sum of quarterly per share amounts are different from the annual
per share amounts because of differences in the weighted average
number of common and common equivalent shares used in the quarterly
and annual computations.
(2) As restated.
26
<PAGE>
DIRECTORS AND CORPORATE OFFICERS
BOARD OF DIRECTORS
CLYDE B. ANDERSON
Chairman of the Board and Chief Executive Officer
CHARLES C. ANDERSON
Retired Chairman
TERRY C. ANDERSON
Chief Executive Officer and President, American Promotional Events, Inc.
RONALD G. BRUNO
President, Bruno Capital Management Corporation
DR. J. BARRY MASON
Dean, Culverhouse College of Commerce The University of Alabama
WILLIAM H. ROGERS, JR.
Executive Vice President, SunTrust Banks, Inc.
CORPORATE OFFICERS
CLYDE B. ANDERSON
Chairman of the Board and Chief Executive Officer
SANDRA B. COCHRAN
President and Secretary
TERRANCE G. FINLEY
Executive Vice President of Books-A-Million, Inc. and President,
American Internet Services, Inc.
RICHARD S. WALLINGTON
Chief Financial Officer
27
<PAGE>
CORPORATE INFORMATION
CORPORATE OFFICE
Books-A-Million, Inc.
402 Industrial Lane
Birmingham, Alabama 35211
(205) 942-3737
TRANSFER AGENT
Bank of New York
(800) 524-4458
STOCKHOLDER INQUIRIES:
Stockholder Relations Department - 11E
P.O. Box 11258
Church Street Station
New York, NY 10286
E-Mail address: shareowner-svcs@bankofny.com
Bank of New York's Stock Transfer Website:
http://www.stockbny.com
CERTIFICATES FOR TRANSFER AND ADDRESS CHANGES TO:
Receive and Deliver Department - 11W
P.O. Box 11002
Church Street Station
New York, NY 10286
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Birmingham, Alabama
FORM 10-K AND INVESTOR CONTACT
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 2003, as filed with the Securities and Exchange Commission is
available without charge to stockholders upon written request. Such requests and
other investor inquiries should be directed to Richard S. Wallington, the
Company's Chief Financial Officer, or you can view the Company's Annual Report
at www.booksamillioninc.com.
MARKET AND DIVIDEND INFORMATION
COMMON STOCK
The Common Stock of Books-A-Million, Inc., is traded in the Nasdaq National
Market under the symbol BAMM. The chart below sets forth the high and low stock
prices for each quarter of the fiscal years ending February 1, 2003, and
February 2, 2002.
<TABLE>
<CAPTION>
Quarter Ended High Low
- ------------- ------ ------
<S> <C> <C>
January, 2003 $ 2.85 $ 2.20
October, 2002 3.75 2.50
July, 2002 4.40 3.10
April, 2002 5.25 2.96
January, 2002 $ 3.90 $ 2.80
October, 2001 3.50 2.32
July, 2001 2.89 2.12
April, 2001 2.54 1.72
</TABLE>
The closing price on April 8, 2003, was $2.12. No cash dividends have been
declared since completion of the Company's initial public offering in 1992. As
of April 8, 2003, Books-A-Million, Inc., had approximately 10,500 stockholders
based on the number of individual participants represented by security position
listings.
ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders will be held on June 5, 2003, at 10:00 a.m.
central time at The Harbert Center, 2019 Fourth Avenue North, Birmingham,
Alabama 35203. Stockholders of record as of April 8, 2003, are invited to
attend this meeting.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>g82532exv23.txt
<DESCRIPTION>EX-23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<TEXT>
<PAGE>
EXHIBIT 23
Consent of Deloitte & Touche LLP, independent public accountants
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-71812 and 33-86980 of Books-A-Million, Inc. (the Company) on Form S-8 of our
report dated April 30, 2003 (which report expresses an unqualified opinion and
includes explanatory paragraphs relating to the restatement described in Note 10
and the adoption of a new accounting principle as described in Note 1 to the
consolidated financial statements), incorporated by reference in this Annual
Report on Form 10-K of the Company for the year ended February 1, 2003, and of
our report on the financial statement schedule, dated April 30, 2003, appearing
in this Annual Report on Form 10-K of the Company for the year ended February 1,
2003.
/s/ DELOITTE & TOUCHE LLP
Birmingham, Alabama
April 30, 2003
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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