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<SEC-DOCUMENT>0000950144-05-004458.txt : 20050428
<SEC-HEADER>0000950144-05-004458.hdr.sgml : 20050428
<ACCEPTANCE-DATETIME>20050427183035
ACCESSION NUMBER: 0000950144-05-004458
CONFORMED SUBMISSION TYPE: 10-K/A
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20040131
FILED AS OF DATE: 20050428
DATE AS OF CHANGE: 20050427
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/A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-20664
FILM NUMBER: 05777737
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/A
<SEQUENCE>1
<FILENAME>g94757e10vkza.txt
<DESCRIPTION>BOOKS-A-MILLION, INC.
<TEXT>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
AMENDMENT NO. 1
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 January 31, 2004
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 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
August 2, 2003 (based on the closing sale price as reported on the NASDAQ
National Market on such date), was $26,923,550.
The number of shares outstanding of the Registrant's Common Stock as of
April 5, 2004 was 16,513,725.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
January 31, 2004 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 3, 2004 are incorporated by reference into Part III of this
report.
2
<PAGE>
EXPLANATORY NOTE:
As previously disclosed in a Form 8-K filed on March 22, 2005, following a
detailed review of its lease-related accounting policies, Books-A-Million, Inc.
(the "Company") determined to restate prior financial statements (the
"Restatement") to correct errors in those financial statements relating to the
computation of depreciation, rent holiday, straight-line rent expense and the
related deferred liability.
Historically, the Company depreciated leasehold improvements over a period of
ten years, regardless of the term of the lease for the store. The Company has
corrected its depreciable life for leasehold improvements to the lesser of the
economic useful life of the asset or the term of the lease. When calculating the
straight-line rent expense per store, the Company previously used the store
opening date as the starting date for the rent expense calculation. The Company
has corrected this calculation to start straight-line rent expense on the date
when the Company takes possession and has the right to control use of the leased
premises. Also, the Company has corrected its method of classification of
landlord construction allowances. For certain new stores, the Company receives
funding from landlords for the construction of leasehold improvements.
Historically, landlord construction allowances were classified as a reduction of
property and equipment on the Company's balance sheet and as a reduction in
capital expenditures in the Company's statements of cash flows. However, the
Company will now classify landlord allowances as a deferred rent liability on
the balance sheet and as an operating activity in the statement of cash flows.
The resulting change in classification for landlord construction allowances will
increase leasehold improvements (Property and Equipment, asset) and increase
other long-term liabilities by a corresponding amount on the balance sheet.
As a result, the accompanying consolidated financial statements have been
restated from the amounts previously reported to incorporate the effects of
these corrections. See Note 11 to the consolidated financial statements.
This amendment No. 1 on Form 10-K/A to the Company's annual report on Form
10-K for the fiscal year ended January 31, 2004, initially filed with the
Securities and Exchange Commission ("SEC") on April 27, 2004 ("Original
Filing"), is being filed to reflect restatements of the Company's consolidated
balance sheets at January 31, 2004 and February 1, 2003 and the Company's
consolidated statements of operations, and consolidated cash flows for the fifty
two weeks ended January 31, 2004, February 1, 2003, February 2, 2002 and the
notes related thereto. For a more detailed description of these restatements,
see Note 11, "Restatement of Financial Statements" to the accompanying
consolidated financial statements.
For the convenience of the reader, this Form 10-K/A includes the Original
Filing in its entirety. However, this Form 10-K/A only amends and restates Items
1 and 2 of Part I, Items 6, 7, 8, and 9A of Part II and Item 15 of Part IV of
the Original Filing for the effects of the restatement and no other material
information in the Original Filing is amended hereby. The foregoing items have
not been updated to reflect other events occurring after the Original Filing or
to modify or update those disclosures affected by subsequent events. Information
on events occurring after the date of the original filing are included in the
Company's Forms 10-Q/A and 8-K's as amended. In addition, pursuant to the rules
of the SEC, Item 15 of Part IV of the Original Filing has been amended to
contain currently-dated certifications from our Chief Executive Officer and
Chief Financial Officer , as required by Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002. The certifications of our Executive Chairman of the
Board, Chief Executive Officer and Chief Financial Officer are attached to this
Form 10-K/A as Exhibits 31.1, 31.2, 31.3, 32.1, 32.2 and 32.3, respectively.
Concurrently with the filing of this Form 10-K/A, we are filing amended
quarterly reports on Form 10-Q/A for the quarters ended May 1, 2004, July 31,
2004 and October 30, 2004. We have not amended and do not intend to amend our
previously filed Annual Reports on Form 10-K other than the 2004 10-K or our
Quarterly Reports on Form 10-Q for the periods affected by the Restatement that
ended prior to January 31, 2004. For this reason, the consolidated financial
statements, auditors' reports and related financial information for all affected
periods contained in any prior reports should no longer be relied upon.
3
<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. is a leading book retailer in the southeastern
United States. The Company was founded in 1917 and operates both superstores and
traditional bookstores. Superstores, the first of which was opened in 1987,
range in size from 8,000 to 36,000 square feet and operate under the names
"Books-A-Million" and "Books and Co." Traditional bookstores are smaller stores
operated under the names "Bookland" and "Books-A-Million". These stores range in
size from 2,000 to 7,000 square feet and are located primarily in enclosed
malls. We also operate newsstands under the name "Joe Muggs Newsstands".
Newsstands range in size from 1,000 to 5,000 square feet and are located in high
traffic areas. 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, we offer our products
over the Internet at Booksamillion.com and Joemuggs.com.
We were originally incorporated under the laws of the State of Alabama in
1964 and were reincorporated in Delaware in September 1992. Our principal
executive offices are located at 402 Industrial Lane, Birmingham, Alabama 35211,
and our telephone number is (205) 942-3737. Unless the context otherwise
requires, references to "we" or "the Company" include our wholly owned
subsidiaries, American Wholesale Book Company, Inc. ("American Wholesale") and
American Internet Service, Inc. ("AIS").
Our periodic and current reports filed with the SEC are made available on
our website at www.booksamillioninc.com as soon as reasonably practicable. Our
corporate governance guidelines, code of conduct and key committee charters are
also available on our website. These reports are available free of charge to
stockholders upon written request. Such requests should be directed to Richard
S. Wallington, the Company's Chief Financial Officer.
BUSINESS SEGMENTS
We have two reportable segments: retail trade and electronic commerce
trade. In the retail trade segment we are engaged in the retail trade of
primarily book merchandise. The retail trade segment includes our distribution
center operations which predominantly supplies merchandise to our retail stores.
In the electronic commerce trade segment we transact business over the Internet
primarily. This segment is managed separately due to divergent technology and
marketing requirements. For additional information, see Note 9 "Business
Segments" in the Notes to Consolidated Financial Statements in the Annual Report
to Stockholders for the year ended January 31, 2004, incorporated herein by
reference.
4
<PAGE>
RETAIL STORES
We opened our first Books-A-Million superstore in 1987. We developed
superstores to capitalize on the growing consumer demand for the convenience,
selection and value associated with the superstore retailing format. Each
superstore is 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. We
operated 163 superstores as of January 31, 2004.
Our superstores emphasize selection, value and customer service. Each of
our superstores offer an extensive selection of best sellers and other hardcover
and paperback books, magazines, local newspapers and gifts, and 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 our superstores also
include a Joe Muggs cafe, serving Joe Muggs coffee and assorted pastries. Our
superstores are conveniently located on major, high-traffic roads and in
enclosed malls or strip shopping centers with adequate parking, and generally
operate for extended hours up to 11:00 pm local time.
Our traditional stores are tailored to the size, demographics and
competitive conditions of the particular market area. Traditional stores are
located primarily in enclosed malls and feature a wide selection of books,
magazines and gift items. We had 35 traditional stores as of January 31, 2004.
Our newsstands are concentrated in business and entertainment districts
and are tailored to the demographics of the particular market area. Joe Muggs
newsstands operate in centers with high traffic. Each newsstand carries an
extensive selection of magazines and newspapers, along with hardcover and
paperback books. The newsstands also offer Joe Muggs four branded coffee drinks
and assorted pastries, among other items. We operated four newsstands as of
January 31, 2004.
ACQUISITION OF STORES
During the first quarter of fiscal 2002, we acquired the lease rights to
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
We employ several value-oriented merchandising strategies. Our best-seller
list, which is developed exclusively by us based on the sales and customer
demand in our stores, are generally sold in the Company's superstores below
publishers' suggested retail prices. In addition, customers can join the
Millionaire's Club and save 10% on all purchases in any of our stores, including
already discounted best-sellers. Our point-of-sale computer system provides the
data necessary to enable us to anticipate consumer demand and customize store
inventory selection to reflect local customer interest.
MARKETING
We promote our bookstores principally through the use of direct mail
advertising, as well as point-of-sale materials posted and distributed in the
stores. In certain markets, television and newspaper advertising is also used on
a selective basis. We also arrange for special appearances and book autograph
sessions with recognized authors to attract customers and to build and reinforce
customer awareness of our stores. A substantial portion of our 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, we apply
standardized site selection criteria that takes into account numerous factors,
including the local demographics, desirability of available leasing
arrangements, proximity to our existing operations and overall level of retail
activity. In general, stores are located on major high-traffic roads convenient
to customers and have adequate parking. We generally negotiate short-term leases
with renewal options. We also periodically review the profitability trends and
prospects of each of our stores and evaluate whether or not any underperforming
stores should be closed, converted to a different format or relocated to more
desirable locations.
5
<PAGE>
INTERNET OPERATIONS
Through our wholly owned subsidiary, AIS, we sell a broad range of
products over the Internet under the names Booksamillion.com and Joemuggs.com.
On Booksamillion.com we sell a wide selection of books, magazines and gift items
similar to those sold in our Books-A-Million superstores. We also operate an
online cafe under the name Joemuggs.com where we offer a wide selection of whole
bean coffee, confections and related gift items for purchase over the Internet.
Internet development efforts are assisted 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 our internet sites and
networking initiatives, NetCentral also serves several outside customers by
offering site development, web hosting and technical services. Management
recognizes web development and maintenance revenue at the time maintenance is
provided or non-returnable product (web development) is delivered. Revenue from
web development and maintenance is less than .01% of the Company's total
revenues.
PURCHASING
Our purchasing decisions are made by our merchandising department on a
centralized basis. Our buyers negotiate terms, discounts and cooperative
advertising allowances for all of our bookstores and decide which books to
purchase, in what quantity and for which stores. The buyers use current
inventory and sales information provided by our in-store point-of-sale computer
system to make reorder decisions.
We purchase merchandise from over 500 vendors. We purchase the majority of
our collectors' supplies from Anderson Press and substantially all of our
magazines from Anderson Media, each of which is a related party. No one vendor
accounted for more than 10.0% of our overall merchandise purchases in the fiscal
year ended January 31, 2004. In general, in excess of 80% of our inventory may
be returned for credit, which substantially reduces our 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 our 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 our 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
we have. We compete directly with national bookstore chains, independent
bookstores, booksellers on the Internet and certain mass merchandisers. 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. We also compete indirectly with 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, our business is seasonal, with the highest
retail sales, gross profit and net income historically occurring in our fourth
fiscal quarter. This seasonal pattern reflects the increased demand for books
and gifts 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 our
business. As a result, our results of operations depend significantly upon net
sales generated during the fourth fiscal quarter, and any significant adverse
trend in the net sales of such period would have a material adverse effect on
our results of operations for the full year. In addition to seasonality, our
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 our results of operations for
that quarter.
6
<PAGE>
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 Readers",
"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 materially important to the
continuation of our operations.
EMPLOYEES
As of fiscal year end, we employed approximately 2,700 full-time
associates and 2,100 part-time associates. The number of part-time associates
employed fluctuates based upon seasonal needs. None of our associates are
covered by a collective bargaining agreement. Management believes that relations
with our associates are excellent.
ITEM 2. PROPERTIES
Our bookstores are located either in enclosed malls or strip shopping
centers. All of our stores are leased. Generally, these leases have terms
ranging from five to ten years and require that we 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).
Our principal executive offices are located in a 20,550 square foot leased
building located in Birmingham, Alabama. We also lease a 37,000 square foot
building located in Irondale, Alabama for additional corporate office space.
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, we lease approximately 4,025 square feet of office
space in Nashville, Tennessee for the offices of NetCentral. This lease extends
to January 31, 2006.
American Wholesale owns its distribution center located in an
approximately 290,000 square foot facility in Florence, Alabama. During fiscal
1995 and 1996, we financed the acquisition and construction of the distribution
facility through loans obtained from the proceeds of an industrial revenue bond,
which are secured by a mortgage interest in this facility. We also lease, from a
related party, a second 210,000 square foot warehouse facility located in
Tuscumbia, Alabama. In addition we lease all of the tractors that pull the
company-owned trailers, which comprise our transportation fleet.
ITEM 3. LEGAL PROCEEDINGS
We are a party to various legal proceedings incidental to our 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 our financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
7
<PAGE>
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 31 of the Amended Annual Report to Stockholders for the year ended January
31, 2004 is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under the heading "Selected Consolidated Financial Data"
for the years ended January 29, 2000, through January 31, 2004 on page 4 of the
Amended Annual Report to Stockholders for the year ended January 31, 2004, 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 5 through 11 of the
Amended Annual Report to Stockholders for the year ended January 31, 2004 is
incorporated herein by reference.
ITEM 7.A. MARKET RISK
We are subject to interest rate fluctuations involving our credit facilities.
The average amount of debt outstanding under our credit facilities was $57.5
million during fiscal 2004. To manage this exposure, the Company utilizes
interest rate swaps to fix the interest rate on variable debt. We entered into
two separate $10 million swaps on July 24, 2002. Both expire August 2005 and,
prior to the payoff of the debt, effectively fix the interest rate on $20
million of variable debt at 5.13%. Also, on May 14, 1996, we entered into a $7.5
million interest rate swap with a ten-year term. The swap effectively fixes the
interest rate on $7.5 million of variable rate debt at 7.98% and expires on June
7, 2006. The counter parties to each of these interest rate swaps are parties to
our revolving credit facilities. We believe the credit and liquidity risk of the
counter parties failing to meet their obligations is remote as we settle our
interest position with the banks on a quarterly basis. All of our 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 we estimate that a 66% increase in LIBOR rates would
increase interest expense by approximately $70,000 for the year ending January
31, 2004. Likewise, a 66% decrease in LIBOR rates would decrease interest
expense by $70,000 for the year ending January 31, 2004. This hypothetical
change in LIBOR rates was calculated based on the fluctuation in LIBOR in 2003,
which was the maximum LIBOR fluctuation in the last ten years. The estimates
also assume a level of debt consistent with the year-ended January 31, 2004
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 21 of the Amended Annual Report to
Stockholders for the year ended January 31, 2004 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 Amended Annual Report to Stockholders for the year ended January
31, 2004 are incorporated herein by reference:
Consolidated Balance Sheets as of January 31, 2004 (as restated) and
February 1, 2003 (as restated).
Consolidated Statements of Operations for the Fiscal Years Ended January
31, 2004 (as restated), February 1, 2003 (as restated), and February 2,
2002 (as restated).
Consolidated Statements of Changes in Stockholders' Equity for the Fiscal
Years Ended January 31, 2004 (as restated), February 1, 2003 (as
restated), and February 2, 2002 (as restated).
Consolidated Statements of Cash Flows for the Fiscal Years Ended January
31, 2004 (as restated), February 1, 2003 (as restated), and February 2,
2002 (as restated).
Notes to Consolidated Financial Statements (as restated)
8
<PAGE>
Report of Independent Registered Public Accounting Firm.
The information under the heading "Summary of Quarterly Results
(Unaudited)" on page 27 of the Amended Annual Report to Stockholders for
the Fiscal Years Ended January 31, 2004 (as restated) and February 1,
2003 (as restated) is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
We maintain 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 our management, including our 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.
As required by SEC Rule 13a-15(b), 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 as of the end of the fiscal period
covered by this amended report. In performing this evaluation, in light of the
pronouncement on February 7, 2005 by the Office of the Chief Accountant of the
SEC in a letter to the AICPA, management focused on our lease accounting
practices. Specifically, as further discussed in Note 11 to the accompanying
consolidated financial statements, we determined that: (i) our practice of
depreciating leasehold improvements over a period of ten years was incorrect,
which we corrected by changing the depreciable life for leasehold improvements
to the lesser of the economic useful life of the asset or the term of the lease;
(ii) our practice of using the store opening date as the starting date for the
rent expense calculation was incorrect, which we corrected by changing the
calculation of leasehold expense so that straight-line rent expense begins on
the date we take possession and have the right to control use of the leased
premises; and (iii) our practice of classifying landlord allowances as a
reduction of property and equipment on our balance sheet and as a reduction in
capital expenditures in our statements of cash flows was incorrect, which we
corrected by changing our method of classification so that landlord allowances
are classified as a deferred rent credit on our balance sheet and as an
operating activity in our statement of cash flows. Funds received from the
landlord intended to reimburse the Company for the cost of leasehold
improvements will be recorded as a deferred rent credit resulting from a lease
incentive and amortized over the lease term as a reduction to rent expense.
Further, after consulting with the Audit Committee and our independent
registered public accounting firm we determined to restate our financial
statements for fiscal year ending January 31, 2004 and for the first three
quarters of fiscal 2005 and to file a Form 10-K/A amending our Annual Report on
Form 10-K for our fiscal year ended January 31, 2004 with restated consolidated
financial statements and Forms 10-Q/A amending our interim condensed
consolidated financial statements for the first three quarters of fiscal 2005.
The restatement is further discussed in "Explanatory Note" in the forepart of
this Form 10-K/A and in Note 11, "Restatement of Financial Statements," to the
accompanying consolidated financial statements. We do not consider the impact of
correcting the previously issued financial statements to be material with
respect to any individual reporting period.
Based on the foregoing, the Company's Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered by this
10-K/A and Annual Report, the Company's disclosure controls and procedures were
effective at the reasonable assurance level. In concluding that our disclosure
controls and procedures were effective as of January 31, 2004, our management
considered, among other things, the circumstances that resulted in the
restatement of our previously issued financial statements. We also considered
the materiality of the restatement adjustments on our consolidated balance sheet
and statement of operations (as more fully set forth in Note 11, "Restatement of
Financial Statements," to the accompanying consolidated financial statements)
and that these non-cash adjustments have no effect on historical or future cash
flows or the timing of payments under our operating leases.
There was no change in the Company's internal controls over financial
reporting during the Company's fiscal quarter covered by this amended report
that has materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting. However, as a result of
the review of our lease accounting policies described above, during the first
quarter of fiscal 2006 we made changes in internal controls over financial
reporting to implement additional review processes over our leasing arrangements
to ensure the collection and communication of information necessary for the
proper accounting for each lease in accordance with generally accepted
accounting principles. The Company implemented the following accounting changes:
9
<PAGE>
(i) we changed depreciable life for leasehold improvements to the lesser of the
economic useful life of the asset or the term of the lease, (ii) we changed the
calculation to start straight-line rent expense on the date when the Company
takes possession and has the right to control use of the leased premises, and
(iii) we changed method of classification of landlord allowances. As explained
above, the Company will now classify landlord allowances as a deferred rent
credit on the balance sheet and as an operating activity in the statement of
cash flows. Funds received from the landlord intended to reimburse the Company
for the cost of leasehold improvements will be recorded as a deferred rent
credit resulting from a lease incentive and amortized over the lease term as a
reduction to rent expense. Management believes that these control changes have
fully remediated the issues described above.
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The sections under the heading "Proposal I-Election of Directors" entitled
"Nominees for Election - Term Expiring 2007", "Incumbent Director - Term
Expiring 2005", and "Incumbent Directors - Term Expiring 2006" on pages 3 and 4
of the Proxy Statement for the Annual Meeting of Stockholders to be held June 3,
2004, are incorporated herein by reference for information on the directors of
the Registrant. The information under the heading "Information Concerning the
Board of Directors" on pages 4 through 7 of the Proxy Statement for the Annual
Meeting of Stockholders to be held June 3, 2004 is incorporated herein by
reference.
EXECUTIVE OFFICERS
All of our executive officers are elected annually by and serve at the
discretion of the Board of Directors. Our current executive officers are listed
below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------- --- -----------------------------------------------------
<S> <C> <C>
Clyde B. Anderson 43 Executive Chairman of the Board
Sandra B. Cochran 45 President, Chief Executive Officer and Secretary
Terrance G. Finley 50 Executive Vice President of Books-A-Million, Inc. and
President of American Internet Service, Inc.
Richard S. Wallington 45 Chief Financial Officer
</TABLE>
Clyde B. Anderson has served as Executive Chairman of the Board since
February 2004 and has served as a director of the Company since August 1987. Mr.
Anderson served as the Chairman of the Board from January 2000 until February
2004 and also served as the Chief Executive Officer of the Company from July
1992 until February 2004. Mr. Anderson also 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 was appointed to the position of Chief Executive Officer
in February 2004, in addition to her duties as President and Secretary. Ms.
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 - Merchandising
of the Company since October 2001 and as the President of American Internet
Service, Inc. since December 1998. Mr. Finley served in various other capacities
in the merchandising department from April 1994 to December 1998. 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.
The section under the heading "Information Concerning Board of Directors"
entitled "Code of Conduct" on page 6 of the Proxy Statement for the Annual
Meeting of Stockholders to be held June 3, 2004 is incorporated herein by
reference.
11
<PAGE>
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 our 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 regulations to furnish us with
copies of all such forms they file. To our knowledge, based solely on a review
of the copies of such reports furnished to us and written representations that
no other reports were required, our directors, executive officers and greater
than 10% stockholders complied with all applicable Section 16(a) filing
requirements during fiscal 2004.
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 8 through 14 of the Proxy Statement for the Annual
Meeting of Stockholders to be held June 3, 2004 are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section under the heading "Information Concerning the Board of
Directors" entitled "Beneficial Ownership of Common Stock" on pages 7 and 8 of
the Proxy Statement for the Annual Meeting of Stockholders to be held June 3,
2004 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 10 and 11 of the Proxy
Statement for the Annual Meeting of Stockholders to be held June 3, 2004 are
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The section under the heading "Information Concerning Board of Directors"
entitled "Auditor Fees and Services" on page 6 of the Proxy Statement for the
Annual Meeting of Stockholders to be held June 3, 2004 is incorporated herein by
reference.
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 January 31, 2004 are incorporated
by reference in Part II, Item 8:
Consolidated Balance Sheets as of January 31, 2004 (as restated) and
February 1, 2003 (as restated).
Consolidated Statements of Operations for the Fiscal Years Ended January
31, 2004 (as restated), February 1, 2003 (as restated), and February 2,
2002 (as restated).
Consolidated Statements of Changes in Stockholders' Equity for the Fiscal
Years Ended January 31, 2004 (as restated), February 1, 2003 (as
restated), and February 2, 2002 (as restated).
Consolidated Statements of Cash Flows for the Fiscal Years Ended January
31, 2004 (as restated), February 1, 2003 (as restated), and February 2,
2002 (as restated).
12
<PAGE>
Notes to Consolidated Financial Statements (as restated).
Report of Independent Registered Public Accounting Firm.
2. Financial Statement Schedule.
The following consolidated financial statement schedule of
Books-A-Million, Inc. is attached hereto:
Report of Independent Registered Public Accounting Firm on Financial
Statement Schedule.
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.
3. Exhibits
Exhibit Number
3.1 -- Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to Registration Statement on Form
S-1, File No. 33-52256, originally filed September 21, 1992
(the "S-1 Registration Statement")).
3.2 -- Bylaws of the Company (incorporated by reference to Exhibit
3.2 to the S-1 Registration Statement).
4.1 -- See Exhibits 3.1 and 3.2 hereto incorporated herein by
reference to the Exhibits of the same number to the S-1
Registration Statement.
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
the S-1 Registration Statement).
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 the S-1 Registration Statement).
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 adopted September 15, 2003, with Suntrust Bank
as Trustee (incorporated by reference to Exhibit 10.6 to
Annual Report on Form 10-K for the fiscal year ended
January 31, 2004, File No.l 0-20664, filed on April 27, 2004).
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).
13
<PAGE>
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.A.
(incorporated by reference to Exhibit 10.20 to Form 10-Q for
the quarter ended August 3, 2002).
13 -- Portions of the amended Annual Report to Stockholders for
the year ended January 31, 2004 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 Registered Public Accounting Firm.
31.1 -- Certification of Clyde B. Anderson, Executive Chairman of
the Board of Books-A-Million, Inc., pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, filed under Exhibit
31 of Item 601 of Regulation S-K.
31.2 -- Certification of Richard S. Wallington, Chief Financial
Officer of Books-A-Million, Inc., pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, filed under Exhibit
31 of Item 601 of Regulation S-K.
31.3 -- Certification of Sandra B. Cochran, President and Chief
Executive Officer of Books-A-Million, Inc., pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, filed
under Exhibit 31 of Item 601 of Regulation S-K.
32.1 -- Certification of Clyde B. Anderson, Executive Chairman of
the Board of Books-A-Million, Inc., pursuant to 18 U.S.C.
Section 1350, filed under Exhibit 32 of Item 601 of Regulation
S-K.
32.2 -- Certification of Richard S. Wallington, Chief Financial
Officer of Books-A-Million, Inc., pursuant to 18 U.S.C.
Section 1350, filed under Exhibit 32 of Item 601 of Regulation
S-K.
32.3 -- Certification of Sandra B. Cochran, President and Chief
Executive Officer of Books-A-Million, Inc., pursuant to 18
U.S.C. Section 1350, filed under Exhibit 32 of Item 601 of
Regulation S-K.
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).
14
<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
Executive Chairman of the Board
Date: April 28, 2005
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
Executive Chairman of the Board
Date: April 28, 2005
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Richard S. Wallington
- ----------------------------------------
Richard S. Wallington
Chief Financial Officer
Date: April 28, 2005
DIRECTORS:
/s/ Clyde B. Anderson
- ----------------------------------------
Clyde B. Anderson
Date: April 28, 2005
15
<PAGE>
DIRECTORS:
/s/ Ronald G. Bruno
- ----------------------------------------
Ronald G. Bruno
Date: April 28, 2005
/s/ J. Barry Mason
- ----------------------------------------
J. Barry Mason
Date: April 28, 2005
/s/ Terry C. Anderson
- ----------------------------------------
Terry C. Anderson
Date: April 28, 2005
/s/ William H. Rogers, Jr.
- ----------------------------------------
William H. Rogers, Jr.
Date: April 28, 2005
16
<PAGE>
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of Books-A-Million, Inc.:
We have audited the consolidated financial statements of Books-A-Million, Inc.
and its subsidiaries (the "Company") as of January 31, 2004 and February 1, 2003
and for each of the three fiscal years in the period ended January 31, 2004, and
have issued our report thereon dated April 19, 2004 (April 25, 2005 as to the
effects of the restatement discussed in Note 11), (which report expresses an
unqualified opinion and includes explanatory paragraphs relating to the adoption
of new accounting principles as described in Note 1 and the restatement
described in Note 11 to the consolidated financial statements); such financial
statements and report are included in the Company's 2004 amended 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.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
April 19, 2004 (April 25, 2005 as to the effects of the restatement discussed in
Note 11)
S-1
<PAGE>
SCHEDULE 2.
BOOKS-A-MILLION, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 2, 2002, FEBRUARY 1, 2003, AND JANUARY 31, 2004
<TABLE>
<CAPTION>
BALANCE AT CHARGED
BEGINNING TO COSTS (DEDUCTIONS) BALANCE AT
OF YEAR AND EXPENSES NET END OF YEAR
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
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
FOR THE YEAR ENDED JANUARY 31, 2004:
Allowance for doubtful accounts $ 711,955 $ 534,300 $ (701,010) $ 545,245
</TABLE>
S-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>2
<FILENAME>g94757exv13.txt
<DESCRIPTION>PORTIONS OF THE AMENDED ANNUAL REPORT TO SHAREHOLDERS
<TEXT>
<PAGE>
EXHIBIT 13
BOOKS-A-MILLION
2004 Annual Report
COMPANY PROFILE
Books-A-Million is one of the nation's leading book retailers and sells on the
Internet at www.booksamillion.com. The Company presently operates more than 200
stores in 18 states and the District of Columbia. The Company operates three
distinct stores formats, including large superstores operating under the names
Books-A-Million and Books & Co., traditional bookstores operating under the
names Books-A-Million and Bookland, and Joe Muggs Newsstands.
FIVE-YEAR HIGHLIGHTS
<TABLE>
<CAPTION>
For the Fiscal Year Ended
(In thousands, except per share amounts) 1/31/04 (1)(3) 2/1/03 (2)(3) 2/2/02(3) 2/3/01 (3) 1/29/00 (3)
- --------------------------------------------------------------------------------------------------------------------------------
(AS RESTATED) (as restated) (as restated) (as restated) (as restated)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA 52 WEEKS 52 weeks 52 weeks 53 weeks 52 weeks
Net sales $ 460,159 $ 438,215 $ 437,583 $ 412,876 $ 397,188
Income before cumulative effect of a change
in accounting principle (1) 7,126 2,554 3,944 3,012 5,829
Net income 7,126 1,353 3,944 3,012 5,829
Earnings per share - diluted, before cumulative
effect of a change in accounting principle (1) 0.42 0.15 0.23 0.17 0.32
Earnings per share - diluted 0.42 0.08 0.23 0.17 0.32
Weighted average shares - diluted 16,789 16,566 16,945 17,991 18,250
Capital investment 10,402 19,836 12,688 17,065 13,904
BALANCE SHEET DATA
Property and equipment, net $ 59,892 $ 68,912 $ 67,941 $ 72,870 $ 73,438
Total assets 296,398 319,484 306,083 304,410 296,533
Long-term debt 20,640 44,942 38,846 41,526 35,936
Stockholders' equity 131,001 122,694 121,212 122,108 120,336
OTHER DATA
Working capital $ 104,723 $ 112,810 $ 105,638 $ 103,338 $ 93,209
Debt to total capital ratio 0.14 0.27 0.24 0.26 0.23
OPERATIONAL DATA
Total number of stores 202 207 204 185 180
Number of superstores 163 163 157 145 135
Number of traditional stores 35 37 40 37 43
Number of Joe Muggs newsstands 4 7 7 3 2
</TABLE>
(1) Effective February 2, 2003, the Company changed its method of accounting
for inventories to the last-in, first-out method, as discussed in Note 1 to
the Consolidated Financial Statements.
(2) 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.
(3) The Company has restated its financial statements as discussed in Note 11
to the Consolidated Financial Statements.
1
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
LETTER TO STOCKHOLDERS:
Fiscal year 2004 was a successful one for Books-A-Million. After the difficult
retail environment of the past two years and a weak first quarter influenced by
the onset of the war in Iraq, sales rebounded and remained strong throughout the
year. June brought the publication of Harry Potter And The Order Of The Phoenix,
an event that led to record breaking sales and provided strong momentum for our
entire industry.
Sales trends in our core book business were encouraging with several standout
categories. Diet and health, driven by the low carbohydrate diet phenomenon, led
the way. Religion and inspiration, children's books, politics, movie tie-ins and
graphic novels also produced strong sales increases. We had several media driven
blockbuster bestsellers such as The South Beach Diet, The Da Vinci Code, Harry
Potter And The Order Of The Phoenix, Hillary Clinton's memoir Living History and
The Purpose Driven Life. These titles not only sold at record levels but also
spawned spin-offs, non-book product sales and increased sales of related titles.
During the year we gave renewed focus to our proprietary publishing and import
programs. The trend toward increased custom publishing was pronounced in the
industry last year and we plan to continue to be competitive in this arena. Our
cafe business continued to grow with several new lines of drinks.
The positive sales environment in the latter part of the year allowed us to
pursue a less expensive marketing strategy. We also increased the membership
price of the Millionaire's Club program and continued our efforts in cost
control to produce improved margins and profitability. Our store remodel program
continued with an additional 36 stores converted to our new layout and design
criteria. Approximately half of all stores have now completed our remodel
program. In addition we opened four new stores during the year, relocated one
store and closed nine underperforming stores.
2
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
Our overall strategy of focusing on top line sales while pursuing improvements
in inventory management and expense control led to positive results. We plan to
build on the progress we have made to deliver improved sales, margin and profits
in the year to come.
Sandy Cochran was named Chief Executive Officer, in addition to her
responsibilities as President, effective February 1, 2004. Together, we will
strive to build on this year's solid results and to add value for both our
shareholders and our associates.
Thank you for your continued interest and support.
/s/ Clyde B. Anderson /s/ Sandra B. Cochran
- -------------------------------------- -----------------------------------
Clyde B. Anderson Sandra B. Cochran
Executive Chairman of the Board President, Chief Executive Officer
and Secretary
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------
(In thousands, except per share amounts) 1/31/04 (1)(3) 2/1/03 (2)(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 460,159 $ 438,215
Operating profit 15,099 9,207
Income before cumulative affect of change in accounting principle 7,126 2,554
Net income 7,126 1,353
Income per share - diluted, before cumulative effect of change in accounting principle 0.42 0.15
Net income per share 0.42 0.08
</TABLE>
<TABLE>
<CAPTION>
As of
------------------------------
(In thousands) 1/31/04 (1)(3) 2/1/03 (2)(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Working capital $ 104,723 $ 112,810
Total assets 296,398 319,484
Stockholders' investment 131,001 122,694
</TABLE>
(1) Effective February 2, 2003, the Company changed its method of accounting
for inventories to the last-in, first-out method, as discussed in Note 1 to
the Consolidated Financial Statements.
(2) 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 to the Consolidated Financial Statements.
(3) The Company has restated its financial statements as discussed in Note 11
to the Consolidated Financial Statements.
3
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
1/31/04(1)(3) 2/1/03(2)(3) 2/2/02(3) 2/3/01(3) 1/29/00(3)
(AS (as (as (as (as
(In thousands, except per share data) RESTATED) restated) restated) restated) restated)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: 52 WEEKS 52 weeks 52 weeks 53 weeks 52 weeks
Net sales $ 460,159 $ 438,215 $ 437,583 $412,876 $397,188
Cost of products sold, including warehouse distribution and
store occupancy costs 332,373 318,529 313,551 298,180 286,373
Gross profit 127,786 119,686 124,032 114,696 110,815
Operating, selling and administrative expenses 94,530 92,178 95,870 88,853 82,783
Depreciation and amortization 18,157 18,301 17,261 16,142 14,842
Operating profit 15,099 9,207 10,901 9,701 13,190
Interest expense, net 2,909 4,171 4,429 4,804 4,211
Income from continuing operations before income taxes and
cumulative effect of change in accounting principle 12,190 5,036 6,472 4,897 8,979
Provision for income taxes 4,632 1,913 2,459 1,861 3,411
Income from continuing operations before cumulative effect of
change in accounting principle 7,558 3,123 4,013 3,036 5,568
Discontinued operations:
Loss from discontinued operations (including impairment charge) (696) (917) (111) (39) 421
Income tax benefit (provision) 264 348 42 15 (160)
Income (Loss) from discontinued operations (432) (569) (69) (24) 261
Income before cumulative effect of change in accounting
principle 7,126 2,554 3,944 3,012 5,829
Cumulative effect of change in accounting principle, net of
income taxes(2) - (1,201) - - -
Net income $ 7,126 $ 1,353 $ 3,944 $ 3,012 $ 5,829
Net income per common share:
BASIC:
Income from continuing operations before cumulative effect
of change in accounting principle $ 0.47 $ 0.19 $ 0.24 $ 0.17 $ 0.31
Income (loss) from discontinued operations (0.03) (0.04) - - 0.01
Income before cumulative effect of change in accounting
principle 0.44 0.15 0.24 0.17 0.32
Cumulative effect of change in accounting principle (2) - (0.07) - - -
Net income per share $ 0.44 $ 0.08 $ 0.24 $ 0.17 $ 0.32
Weighted average number of shares outstanding - basic 16,279 16,190 16,667 17,955 17,981
DILUTED:
Income from continuing operations before cumulative effect
of change in accounting principle $ 0.45 $ 0.18 $ 0.24 $ 0.17 $ 0.31
Income (loss) from discontinued operations (0.03) (0.03) (0.01) - 0.01
Income before cumulative effect of change in accounting
principle 0.42 0.15 0.23 0.17 0.32
Cumulative effect of change in accounting principle (2) - (0.07) - - -
Net income per share $ 0.42 $ 0.08 $ 0.23 $ 0.17 $ 0.32
Weighted average number of shares outstanding - diluted 16,789 16,566 16,945 17,991 18,250
Pro forma amounts assuming the change in accounting principle was
applied retroactively: (2)
Net income N/A N/A $ 3,891 $ 2,760 $ 5,750
Net income per share - basic N/A N/A 0.23 0.15 0.32
Net income per share - diluted N/A N/A 0.23 0.15 0.32
BALANCE SHEET DATA:
Property and equipment, net 59,892 68,912 67,941 72,870 73,438
Total assets 296,398 319,484 306,083 304,410 296,533
Long-term debt 20,640 44,942 38,846 41,526 35,936
Stockholders' investment 131,001 122,694 121,212 122,108 120,336
OTHER DATA:
Working capital $ 104,723 $ 112,810 $ 105,638 $103,338 $ 93,209
</TABLE>
(1) Effective February 2, 2003, the Company changed its method of account for
inventories to the last-in, fist out method, as discussed in Note 1 to the
Consolidated Financial Statements.
(2) 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.
(3) The Company has restated its financial statements as discussed in Note 11
to the Consolidated Financial Statements.
4
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
The following Management's Discussion & Analysis gives effect to the
restatement discussed in Note 11 to the Consolidated Financial Statements.
GENERAL
The Company was founded in 1917 and currently operates 202 retail
bookstores concentrated primarily in the southeastern United States. Of the 202
stores, 163 are superstores which operate under the names Books-A-Million and
Books & Co., 35 are traditional stores which operate under the Bookland and
Books-A-Million names and four are newsstands which operate under the name Joe
Muggs Newsstand. In addition to the retail store formats, the Company offers its
products over the Internet at www.booksamillion.com and www.joemuggs.com. As of
January 31, 2004, the Company employed approximately 4,800 full- and part-time
employees.
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. With the
Company's focus on superstores, the number of traditional stores has decreased
over the years as new superstores are opened nearby and the traditional stores
are closed. During fiscal 2004, the Company opened four stores, closed nine
stores and relocated one store. In fiscal 2002, the Company began an extensive
remodeling program to bring a consistent look to each store and also to update
equipment. Certain stores completed a major remodeling, including new flooring,
resetting the fixtures and / or relocating the cafe. Other stores completed a
minor remodeling which was limited to resetting fixtures, new signage and paint.
Over the past two years, the remodeled stores have outpaced the chain in
comparable store sales. During fiscal 2004, the Company remodeled 36 stores.
Approximately 50 percent of the Company's stores have been remodeled to date as
part of the remodel program.
The Company's performance is partially measured based on comparable store
sales, which is similar to most retailers. 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.
As previously disclosed in a Form 8-K filed on March 22, 2005, following a
review of its lease-related accounting policies, Books-A-Million, Inc. (the
"Company") determined to restate its prior financial statements (the
"Restatement") to correct errors in those financial statements relating to the
computation of depreciation, rent holiday, straight-line rent expense and the
related deferred liability. See Note 11 in the Notes to the Consolidated
Financial Statements beginning on page 25.
CRITICAL ACCOUNTING POLICIES
General
Management's Discussion and Analysis of Financial Condition and Results of
Operations discuss the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements require management
to make estimates and assumptions in certain circumstances that affect amounts
reported in the accompanying consolidated financial statements and related
footnotes. In preparing these financial statements, management has made its best
estimates and judgments of certain amounts included in the financial statements,
giving due consideration to materiality. The Company believes that the
likelihood is remote that materially different amounts will be reported related
to actual results for the estimates and judgments described below. However,
application of these accounting policies involves the exercise of judgment and
use of assumptions as to future uncertainties and, as a result, actual results
could differ from these estimates.
Other Long-Lived Assets
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, including remodels, is
provided on the straight-line basis over the lesser of the assets estimated
useful lives (ranging from 5 to 40 years) or, if applicable, the periods of the
leases. Determination of useful asset life is based on several factors requiring
judgment by management and adherence to generally accepted accounting principles
for depreciable periods. Judgment used by management in the determination of
useful asset life could relate to any of the following factors: expected use of
the asset; expected useful life of similar assets; any legal, regulatory, or
contractual provisions that may limit the useful life; and, other factors that
may impair the economic useful life of the asset. 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.
5
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
Impairment of Long-Lived Assets
The Company reviews property and equipment and amortizable intangibles
when events or changes in circumstances indicate that their carrying amounts may
not be recoverable or their depreciation or amortization periods should be
accelerated in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". Circumstances that are considered in determining impairment are:
decreases in store sales from the prior year, decreases in store sales from the
current year budget, annual measurement of individual store pre-tax future cash
flows, indications that an asset no longer has an economically useful life, or
other factors that would indicate a store cannot be profitable. Recoverability
of assets held and used is measured by a comparison of the carrying amount of an
asset to undiscounted pre-tax future net cash flows at the lowest level of
independent cash flows, which is generally at the individual store level. Future
events could cause the Company to conclude that impairment indicators exist and
those long-lived assets may be impaired. Any resulting impairment loss could
have a material adverse impact on the Company's financial condition and results
of operations. The Company's long-lived assets are principally retail store
leasehold improvements, lease-rights intangibles and goodwill. 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 impairment is indicated, an impairment loss is recognized for the
amount by which the carrying amount of the assets exceeds the present value of
their projected cash flows. Impairment losses from continuing operations are
included in selling, general and administrative costs. For fiscal 2004, 2003 and
2002, impairment losses of $983,000, $241,000 and $232,000, respectively, were
recorded in selling, general and administrative costs. For all years presented,
the impairment losses related to the retail trade business segment.
Closed Store Expenses
Management considers several factors in determining when to close or
relocate a store. Some of these factors are: decreases in store sales from the
prior year, decreases in store sales from the current year budget, annual
measurement of individual store pre-tax future net cash flows, indications that
an asset no longer has an economically useful life, remaining term of an
individual store lease, or other factors that would indicate a store in the
current location cannot be profitable.
When the Company closes or relocates a store, the Company charges
unrecoverable costs to expense. Such costs include the net book value of
abandoned fixtures and leasehold improvements, lease termination costs, costs to
transfer inventory and usable fixtures, other costs in connection with vacating
the leased location, and a provision for future lease obligations, net of
expected sublease recoveries. Costs associated with store closings of $219,000,
$22,000, and $119,000 during fiscal 2004, 2003 and 2002, respectively, are
included in selling and administrative expenses in the accompanying consolidated
statements of operations.
Inventories
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 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. Inventory costing 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.
Effective February 2, 2003, the Company changed from the first-in,
first-out (FIFO) method of accounting for inventories to the last-in, first-out
(LIFO) method. Management believes this change is preferable in that it achieves
a more appropriate matching of revenues and expenses. The impact of this
accounting change was to increase "Costs of Products Sold" in the consolidated
statements of operations by $0.7 million for fiscal year ended January 31, 2004.
This resulted in an after-tax decrease to net income of $0.4 million or a
decrease in net income per diluted share of $0.02. The cumulative effect of a
change in accounting principle from the FIFO method to the LIFO method is not
determinable. Accordingly, such change has been accounted for prospectively. In
addition, pro forma amounts from retroactively applying the change cannot be
reasonably estimated and have not been disclosed. The difference between
replacement and current cost of inventory over stated LIFO value is $0.7 million
whereas inventory before LIFO, at FIFO value is $212 million. The estimated
replacement cost of inventory is the current FIFO value of $212 million. The
LIFO value did not include any layer liquidation since the LIFO method was
adopted in fiscal 2004.
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 sales of the related inventory. The charge of the
adoption of EITF No. 02-16 at the beginning of fiscal 2003 is reflected as a
cumulative effect of a change in accounting principle of approximately $1.2
million (net of income tax benefit of $736,000), or $0.07 per diluted share.
Prior to fiscal 2003, the Company recognized these vendor allowances over the
period covered by the vendor arrangement.
6
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
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.
Certain estimates are made based upon analysis of historical results.
Differences in management's estimates and assumptions could result in accruals
that are materially different from the actual results.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that result in temporary differences
between the amounts recorded in its financial statements and tax returns. Under
this method, deferred tax assets and liabilities are determined based on the
difference 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.
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
--------------------------------
1/31/04 2/1/03 2/2/02
--------------------------------
(AS (as (as
RESTATED) restated) restated)
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 27.8% 27.3% 28.3%
Operating, selling, and administrative expenses 20.5% 21.0% 21.9%
Depreciation and amortization 4.0 % 4.2% 3.9%
Operating profit 3.3% 2.1% 2.5%
Interest expense, net 0.6% 1.0% 1.0%
Income from continuing operations before income taxes and cumulative effect of change in 2.7% 1.1% 1.5%
accounting principle
Provision for income taxes 1.0% 0.4% 0.6%
Income from continuing operations before cumulative effect of change in accounting 1.7% 0.7% 0.9%
principle
Loss from discontinued operations (including impairment charge), net of tax -0.1% -0.1% 0.0%
Income before cumulative effect of change in accounting principle 1.6% 0.6% 0.9%
Cumulative effect of a change in accounting principle 0.0% -0.3% 0.0%
Net income 1.6% 0.3% 0.9%
</TABLE>
FISCAL 2004 COMPARED TO FISCAL 2003
Consolidated net sales increased $22.0 million, or 5.0%, to $460.2 million
in fiscal 2004 from $438.2 million in fiscal 2003. Comparable store sales
increased 3.3% when compared to the same 52-week period last year. The increase
in comparable store sales was primarily attributable to an increase in book
sales and an increase in cafe sales. The book sales increase was due to strong
sales performance in categories such as: Children's, with strong sales of Harry
Potter; Fiction, with strong best sellers such as The DaVinci Code; and Diet &
Health, with successful titles in the low-carb diet category. The cafe sales
increase was due to strong performance in the frappe line of drinks. The Company
opened four new stores during fiscal 2004 resulting in partial year sales of
$5.7 million and closed nine stores during fiscal 2004 with partial year sales
of $4.7 million. Additional detail is discussed in the footnotes regarding
Impairment of Long-Lived Assets, Closed Store Expenses and Discontinued
Operations.
Net sales for the retail trade segment increased $21.1 million, or 4.9%,
to $454.0 million in fiscal 2004 from $432.9 million in fiscal 2003. The
increase in sales was primarily due to strong sales performance in categories
such as: Children's, with strong sales of Harry Potter; Fiction, with strong
best sellers such as The DaVinci Code; and Diet & Health, with successful titles
in the low-carb diet category. Net sales for the electronic commerce segment
increased $2.2 million, or 9.3%, to $25.5 million in fiscal 2004 from $23.3
million in fiscal 2003. This increase was primarily due to growth in
business-to-business sales volume during fiscal 2004.
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, which includes cost of sales, distribution costs and
occupancy costs (including rent, common area maintenance, property taxes,
utilities and merchant association dues), increased $8.1 million, or 6.8%, to
$127.8 million in fiscal 2004 from $119.7 million in fiscal 2003. Gross profit
as a percentage of net sales increased to 27.8% in fiscal 2004 from 27.3% in
fiscal 2003, primarily due to improved sales mix, less promotional discounting
and lower occupancy costs as a percentage of net sales.
7
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
Operating, selling and administrative expenses increased $2.3 million, or
2.6%, to $94.5 million in fiscal 2004, from $92.2 million in fiscal 2003.
Operating, selling and administrative expenses as a percentage of net sales
decreased to 20.5% in fiscal 2004 from 21.0% in fiscal 2003, primarily due to
the impact of higher comparable store sales as well as strong expense controls.
Depreciation and amortization decreased $0.1 million, or 0.8% to $18.2
million in fiscal 2004 from $18.3 million in fiscal 2003. Depreciation and
amortization as a percentage of net sales decreased to 4.0% in fiscal 2004 from
4.2% in fiscal 2003, due to lower capital expenditures in fiscal 2004.
Consolidated operating profit was $15.1 million for fiscal 2004 compared
to $9.2 million in fiscal 2003. Operating profit for the retail trade segment
was $14.2 million in fiscal 2004 versus $8.7 million in fiscal 2003. This
increase was primarily attributable to the higher comparable store sales during
fiscal 2004. The operating profit for the electronic commerce segment was $0.3
million compared to the fiscal 2003 loss of $0.5 million. The improvement in
operating results was due to improved gross margin as a result of increased
sales, as well as lowering operating costs as a percent to sales.
Income taxes were calculated at an effective rate of 38.0% for both fiscal
2004 and 2003.
Net interest expense decreased $1.3 million, or 30.3%, to $2.9 million in
fiscal 2004 from $4.2 million in fiscal 2003, primarily due to lower average
debt levels and lower average interest rates during fiscal 2004.
Loss from discontinued operations was $0.7 million in fiscal 2004 compared
to $0.9 million in fiscal 2003. The income tax benefit on the loss from
discontinued operations was $0.3 million in fiscal 2004 and in fiscal 2003. Loss
from discontinued operations, net of tax, was $0.4 million in fiscal 2004
compared to $0.6 million in fiscal 2003. These losses represent the results of
four stores that were closed in fiscal 2004 in markets where the Company does
not expect to retain the closed stores' customers at another store.
FISCAL 2003 COMPARED TO FISCAL 2002
Consolidated net sales increased $0.6 million to $438.2 million in fiscal
2003 from $437.6 million in fiscal 2002. Comparable store sales decreased 2.6%
when compared to the same 52-week period last year. The primary reasons for the
decrease were weak comparable store sales in book categories and lower music
sales (a discontinued line of merchandise). The Company opened six new stores
during fiscal 2003 and closed three underperforming stores (these stores were
not discontinued operations).
Net sales for the retail trade segment increased $2.2 million, or 0.5%, to
$432.9 million in fiscal 2003 from $430.7 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 $4.3 million, or 3.5%, to $119.7 million in fiscal
2003 from $124.0 million in fiscal 2002. Gross profit as a percentage of net
sales decreased to 27.3% in fiscal 2003 from 28.3% in fiscal 2002, primarily due
to higher occupancy costs as a percentage of sales combined with more
promotional discount activity during fiscal 2003. Gross profit includes cost of
sales, distribution costs and occupancy costs (including rent, common area
maintenance, property taxes, utilities and merchant association dues).
Operating, selling and administrative expenses decreased $3.7 million, or
3.9%, to $92.2 million in fiscal 2003, from $95.9 million in fiscal 2002.
Operating, selling and administrative expenses as a percentage of net sales
decreased to 21.0% in fiscal 2003 from 21.9% in fiscal 2002, primarily due to
lower corporate expenses.
Depreciation and amortization increased $1.0 million, or 6.0% to $18.3
million in fiscal 2003 from $17.3 million in fiscal 2002. Depreciation and
amortization as a percentage of net sales increased to 4.2% in fiscal 2003 from
3.9% in fiscal 2002, due to the increased number of superstores operated by the
Company combined with capital improvements made to existing stores during fiscal
2003.
Consolidated operating profit was $9.2 million for fiscal 2003 compared to
$10.9 million in fiscal 2002. Operating profit for the retail trade segment was
$8.7 million in fiscal 2003 versus $11.2 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 $0.5 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 of 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.
Income taxes were calculated at an effective rate of 38.0% for both fiscal
2003 and 2002.
Loss from discontinued operations was $0.9 million in fiscal 2003
compared to $0.1 million in fiscal 2002. The income tax benefit on the loss from
discontinued operations was $0.3 million in fiscal 2003 compared to $42,000 in
fiscal 2002. Loss from discontinued operations, net of tax, was $0.6 million in
fiscal 2003 compared to $69,000 in fiscal 2002. These losses represent the
results of four stores that were closed in fiscal 2004 in markets where the
Company does not expect to retain the closed stores' customers at another store.
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 $0.07 per
diluted share. Additional information is included in Note 1 to the consolidated
financial statements.
8
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
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. The Company's results of operations depend significantly
upon net sales generated during the fourth fiscal quarter, and any significant
adverse trend in the net sales of such period would have a material adverse
impact on the Company's results of operations for the full year.
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.
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 facilities.
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 coverage ratio. As of January 31, 2004 and February 1,
2003, $13.1 and $37.4 million, respectively, was outstanding under this credit
facility. The maximum and average outstanding balances during fiscal 2004 were
$77.6 million and $57.5 million, respectively. Outstanding borrowings as of
January 31, 2004 had interest rates of 2.75%. Additionally, as of January 31,
2004 and February 1, 2003, the Company has outstanding borrowings under an
industrial revenue bond totaling $7.5 million, which is secured by certain
property.
The Company's capital expenditures totaled $10.4 million in fiscal 2004.
These expenditures were primarily used for new store openings, renovation and
improvements to existing stores, upgrades and expansion of warehouse
distribution facilities and investment in management information systems.
Management estimates that capital expenditures for fiscal 2005 will be
approximately $16.0 million and that such amounts will be used for purposes
similar to fiscal 2004. 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
2005.
Financial Position
During fiscal 2004, the Company opened four new stores and closed nine
stores. The store closings, combined with strong inventory management, resulted
in decreased inventory and accounts payable balances at January 31, 2004, as
compared to February 1, 2003. Net property and equipment decreased due to lower
capital expenditures in fiscal 2004. Additionally, long-term debt balances
decreased as of January 31, 2004 compared to February 1, 2003 due to improved
earnings, lower inventory balances and lower capital expenditures.
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 January 31, 2004:
<TABLE>
<CAPTION>
PAYMENTS DUE UNDER CONTRACTUAL OBLIGATIONS
(in thousands) Total FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 Thereafter
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt - revolving credit facility $ 13,140 $ - $ 13,140 $ - $ - $ - $ -
Long-term debt -industrial revenue bond 7,500 - 7,500 - - - -
Operating leases 116,533 27,561 24,834 19,429 15,910 11,426 17,373
-------- -------- -------- -------- -------- -------- -------
Total of obligations $137,173 $ 27,561 $ 45,474 $ 19,429 $ 15,910 $ 11,426 $17,373
======== ======== ======== ======== ======== ======== =======
</TABLE>
Guarantees
From time to time, the Company enters into certain types of agreements
that 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 vendors
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.
9
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
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. 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 January 31, 2004, as such liabilities are considered
de minimis.
Cash Flows
Operating activities provided cash of $34,678,000, $13,644,000 and
$25,538,000 in fiscal 2004, 2003 and 2002, respectively, and included the
following effects:
- - Cash provided by inventories in fiscal 2004 of $12,428,000 was primarily
the result of increased sales and improved inventory management during the
year. Cash used by 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.
- - Cash used by accounts payable is fiscal 2004 of $11,895,000 was a result
of lower inventory levels for fiscal 2004. Cash provided by accounts
payable in fiscal 2003 was $5,472,000 due to higher inventory levels.
Accounts payable cash flow changes were an insignificant amount in fiscal
2002.
- - Depreciation and amortization expenses were $18,325,000, $18,584,000 and
$17,540,000 in fiscal 2004, 2003 and 2002, respectively. The decrease in
fiscal 2004 was due to decreased capital expenditures during fiscal 2004,
while the increases in fiscal 2003 and 2002 were due to increased capital
expenditures in each of the fiscal years.
- - Cash provided (used) by accrued expenses was $4,144,000, $967,000, and
$(707,000) in fiscal 2004, 2003 and 2002, respectively. The increase in
fiscal 2004 was primarily due to increases in deferred revenues related to
the Company's discount card, deferred rent related to leasehold allowances
and higher bonus accruals due to the Company's improved earnings
performance in fiscal 2004.
Cash used in investing activities in fiscal 2004, 2003 and 2002 reflected
a net use of cash of $10,363,000, $19,776,000 and $19,185,000, 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 used cash of $23,944,000 in fiscal 2004 to repay debt
under the credit facility. Financing activities in fiscal 2003 provided cash of
$5,897,000 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 the Company's common stock and to repay debt under the credit
facility.
Outlook
For fiscal 2005, 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 2005 will be approximately $16.0 million and that such amounts will
be used primarily for new store openings, renovations and improvements to
existing stores, upgrades and expansion of warehouse distribution facilities and
investment in management information systems.
NEW ACCOUNTING STANDARDS
In December 2002, the Financial Accounting Standards Board ("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 has not adopted the fair value method
of recording stock options under SFAS No. 123. The FASB now determined that
stock-based compensation should be recognized as a cost in the financial
statements and that such cost be measured according to the fair value of the
stock options. The FASB has not as yet determined the methodology for
calculating fair value and plans to issue an accounting standard that would
become effective in 2005. The Company will continue to monitor communications on
this subject from the FASB in order to determine the impact on the Company's
financial position, results of operations or cash flows.
FASB Interpretation ("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. In December 2003, the FASB issued FASB Interpretation
No. 46R, "Consolidation of Variable Interest Entities--an interpretation of ARB
51" (revised December 2003) ("FIN 46R"), which includes significant amendments
to
10
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BOOKS-A-MILLION
2004 Annual Report
previously issued FIN No. 46. Among other provisions, FIN 46R includes
revised transition dates for public entities. The Company is now required to
adopt the provisions of FIN 46R no later than the first quarter of Fiscal 2005.
The adoption of this interpretation is not expected to have a material effect on
the Company's financial position, results of operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts. The
provisions of SFAS 149 require that contracts with comparable characteristics be
accounted for similarly. The provisions of SFAS No. 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The requirements of SFAS No. 149
did not have a material impact on the Company's financial position, results of
operations or cash flows.
RELATED PARTY ACTIVITIES
As discussed in Note 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
were essentially flat in fiscal 2004 when compared to fiscal 2003. Related party
sales transactions increased in fiscal 2004 due to higher sales of book product.
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.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
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.
11
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BOOKS-A-MILLION
2004 Annual Report
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of
(Dollars In thousands, except per share amounts) 1/31/04 2/1/03
------------- -------------
(SEE NOTE 11) (see Note 11)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,348 $ 4,977
Accounts receivable, net of allowance for doubtful accounts of $545 and $712, respectively 7,271 7,799
Related party receivables 351 437
Inventories 211,591 224,019
Prepayments and other 5,890 5,380
Deferred income taxes 4,450 6,130
--------- ---------
Total Current Assets 234,901 248,742
--------- ---------
PROPERTY AND EQUIPMENT:
Land 628 628
Buildings 6,130 6,118
Equipment 67,418 62,193
Furniture and fixtures 44,815 44,260
Leasehold improvements 70,777 68,000
Construction in process 193 270
--------- ---------
Gross Property and Equipment 189,961 181,469
Less accumulated depreciation and amortization 130,069 112,557
--------- ---------
Net Property and Equipment 59,892 68,912
--------- ---------
OTHER ASSETS:
Goodwill 1,368 1,368
Other 237 462
--------- ---------
Total Other Assets 1,605 1,830
--------- ---------
Total Assets $ 296,398 $ 319,484
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade $ 87,984 $ 99,585
Related party 8,777 9,071
Accrued expenses 30,191 24,790
Accrued income taxes 3,226 2,316
Current portion of long-term debt - 170
--------- ---------
Total Current Liabilities 130,178 135,932
--------- ---------
LONG-TERM DEBT 20,640 44,942
DEFERRED INCOME TAXES 1,957 1,810
OTHER LONG-TERM LIABILITIES 12,622 14,106
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, 18,465,387 and 18,211,706
shares issued at January 31, 2004 and February 2, 2002, respectively 185 182
Additional paid-in capital 71,799 70,849
Treasury stock at cost (2,010,050 shares at January 31, 2004 and February 1, 2003) (5,271) (5,271)
Unvested restricted stock (34,620 shares at January 31, 2004) (284) -
Accumulated other comprehensive loss, net of tax (707) (1,219)
Retained earnings 65,279 58,153
--------- ---------
Total Stockholders' Equity 131,001 122,694
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 296,398 $ 319,484
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
12
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
(In thousands, except per share data) 1/31/04 2/1/03 2/2/02
------------- ------------- -------------
(see Note 11) (see Note 11) (see Note 11)
------------- ------------- -------------
52 WEEKS 52 weeks 52 weeks
<S> <C> <C> <C>
Net sales $ 460,159 $ 438,215 $ 437,583
Cost of products sold, including warehouse distribution and store occupancy
costs(1) 332,373 318,529 313,551
--------- --------- ---------
GROSS PROFIT 127,786 119,686 124,032
Operating, selling and administrative expenses 94,530 92,178 95,870
Depreciation and amortization 18,157 18,301 17,261
--------- --------- ---------
OPERATING PROFIT 15,099 9,207 10,901
Interest expense, net 2,909 4,171 4,429
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 12,190 5,036 6,472
Provision for income taxes 4,632 1,913 2,459
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 7,558 3,123 4,013
Discontinued operations:
Loss from discontinued operations (including impairment charge) (696) (917) (111)
Income tax benefit 264 348 42
--------- --------- ---------
Loss from discontinued operations (432) (569) (69)
--------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 7,126 2,554 3,944
Cumulative effect of change in accounting principle, net of deferred income tax
benefit of $736 - (1,201) -
--------- --------- ---------
NET INCOME $ 7,126 $ 1,353 $ 3,944
========= ========= =========
Net income per common share:
BASIC:
Income from continuing operations before cumulative effect of change in
accounting principle $ 0.47 $ 0.19 $ 0.24
Loss from discontinued operations (0.03) (0.04) --
--------- --------- ---------
Income before cumulative effect of change in accounting principle 0.44 0.15 0.24
Cumulative effect of change in accounting principle - (0.07) --
--------- --------- ---------
Net income per share $ 0.44 $ 0.08 $ 0.24
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 16,279 16,190 16,667
========= ========= =========
DILUTED:
Income from continuing operations before cumulative effect of change in
accounting principle $ 0.45 $ 0.18 $ 0.24
Loss from discontinued operations (0.03) (0.03) (0.01)
--------- --------- ---------
Income before cumulative effect of change in accounting principle 0.42 0.15 0.23
Cumulative effect of change in accounting principle - (0.07) -
--------- --------- ---------
Net income per share $ 0.42 $ 0.08 $ 0.23
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 16,789 16,566 16,945
========= ========= =========
Pro forma amounts assuming the change in accounting principle was applied
retroactively:
NET INCOME N/A N/A $ 3,891
NET INCOME PER SHARE - BASIC N/A N/A $ 0.23
NET INCOME PER SHARE - DILUTED N/A N/A $ 0.23
</TABLE>
(1) Inventory purchases from related parties were $30,380, $30,212 and $29,679,
respectively, for the periods presented above.
The accompanying notes are an integral part of these consolidated statements.
13
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (as restated)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Treasury Stock Other Total
------------- Paid-In -------------- Deferred Retained Comprehensive Stockholders
(In thousands) Shares Amount Capital Shares Amount Compensation Earnings Income (Loss) Equity
- ---------------------------------------- ------ ------ ---------- ------ ------- ------------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 3, 2001
(AS PREVIOUSLY REPORTED) 18,092 $181 $70,634 598 $(1,563) $ - $ 53,007 $ - $ 122,259
CUMULATIVE ADJUSTMENT (SEE NOTE 11) 151 151
------ ---- ------- ----- ------- ----------- -------- ------------- ------------
BALANCE, FEBRUARY 3, 2001
(AS RESTATED, SEE NOTE 11) 18,092 $181 $70,634 598 $(1,563) $ - $ 52,856 $ - $ 122,108
====== ==== ======= ===== ======= =========== ======== ============= ============
Net Income (as restated, see Note 11) 3,944 3,944
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 2,727
------------
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,
SEE NOTE 11) 18,139 181 70,719 2,010 (5,271) 56,800 (1,217) 121,212
====== ==== ======= ===== ======= =========== ======== ============= ============
Net income (as restated, see Note 11) 1,353 1,353
Unrealized loss on accounting for
derivative instruments (2) (2)
------------
Subtotal comprehensive income 1,351
------------
Issuance of stock for employee stock
purchase plan 47 1 85 86
Exercise of stock options 26 39 39
Tax benefit from exercise of stock
options 6 6
------ ---- ------- ----- ------- ----------- -------- ------------- ------------
BALANCE, FEBRUARY 1, 2003 (AS RESTATED,
SEE NOTE 11) 18,212 $182 $70,849 2,010 $(5,271) $ 58,153 (1,219) $ 122,694
====== ==== ======= ===== ======= =========== ======== ============= ============
Net income (as restated, see Note 11) 7,126 7,126
Unrealized gain on accounting for
derivative instruments, net of tax
provision of $139 228 228
Reclassification of unrealized loss
related to de-designation of cash
flow hedge, net of tax benefit
of $174 284 284
------------
Subtotal comprehensive income 7,638
------------
Issuance of unvested restricted stock 34 284 (284) -
Issuance of stock for employee stock
purchase plan 42 83 83
Exercise of stock options 177 3 442 445
Tax benefit from exercise of stock
Options 141 141
------ ---- ------- ----- ------- ----------- -------- ------------- ------------
BALANCE, JANUARY 31, 2004 (AS RESTATED,
SEE NOTE 11) 18,465 $185 $71,799 2,010 $(5,271) (284)$ 65,279 (707) $ 131,001
====== ==== ======= ===== ======= =========== ======== ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
14
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
(In thousands) 1/31/04 2/1/03 2/2/02
------------- ------------- -------------
(SEE NOTE 11) (see Note 11) (see Note 11)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,126 $ 1,353 $ 3,944
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 18,325 18,584 17,540
Loss on impairment of assets 1,211 382 232
Loss on sale of property 73 136 110
Deferred income tax provision (benefit) 1,934 104 (56)
Tax benefits of exercise of stock options 141 6 --
Unrealized loss from cash flow hedge 284 -- --
(Increase) decrease in assets, net of effect of acquisition in 2002:
Accounts receivable 528 241 (402)
Related party receivables 86 530 1,391
Inventories 12,428 (15,103) 1,047
Prepayments and other (510) 59 (1,173)
Increase (decrease) in liabilities:
Accounts payable (11,601) 2,062 3,454
Related party payables (294) 3,410 (1,843)
Accrued income taxes 803 (282) 2,001
Accrued expenses 4,144 967 (707)
--------- --------- ---------
Total adjustments 27,552 12,297 21,594
--------- --------- ---------
Net cash provided by operating activities 34,678 13,650 25,538
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,402) (19,836) (12,688)
Acquisition of stores -- -- (6,532)
Proceeds from sale of property and equipment 39 60 35
--------- --------- ---------
Net cash used in investing activities (10,363) (19,776) (19,185)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 192,490 203,378 186,004
Repayments under credit facilities (216,790) (197,283) (188,197)
Proceeds from exercise of stock options and issuance of common stock under
employee stock purchase plan 528 125 85
Purchase of treasury stock -- -- (3,708)
Repayments of other debt (172) (329) (449)
--------- --------- ---------
Net cash provided by (used in) financing activities (23,944) 5,891 (6,265)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 371 (235) 88
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,977 5,212 5,124
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,348 $ 4,977 $ 5,212
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 3,133 $ 4,084 $ 4,128
========= ========= =========
Income taxes, net of refunds $ 1,694 $ 1,388 $ 955
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
15
<PAGE>
BOOKS-A-MILLION
2004 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 202 bookstores in 18
states and the District of Columbia, which are predominantly located in the
southeastern United States. 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 Service, Inc ("AIS"). All inter-company balances and
transactions have been eliminated in consolidation. For a discussion of the
Company business segments, see Note 9.
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 2004, 2003 and 2002 were all
52-week periods.
Use of Estimates in the Preparation of Financial Statements
In preparing these financial statements, management has made its best
estimates and judgments of certain amounts included in the financial statements,
giving due consideration to materiality. The Company believes that the
likelihood is remote that materially different amounts will be reported related
to actual results for the estimates and judgments described below. However,
application of these accounting policies involves the exercise of judgment and
use of assumptions as to future uncertainties and, as a result, actual results
could differ from these estimates.
Revenue Recognition
The Company recognizes revenue from the sale of merchandise at the time
the merchandise is sold and the customer takes delivery. Sales returns are
recognized at the time the merchandise is returned and processed. At each period
end, an estimate of sales returns is recorded. Sales return reserves are based
on historical returns percentage is applied to the sales for which returns are
projected to be received after period end. The estimated returns percentage and
return dollars have not materially changed in the last several years.
The Company sells its Millionaire's Club Card, which entitles the customer
to receive a ten percent discount on all purchases made during the twelve-month
membership period, for a 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.
Management recognizes web development and maintenance revenue at the time
maintenance is provided or non-returnable product/service (web development) is
delivered. Revenue from web development and maintenance is less than .01% of the
Company's total revenues.
Vendor Allowances
The Company receives allowances from its vendors from a variety of
programs and arrangements, including placement and co-operative 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 costs of goods
sold upon the sale of the related inventory. The charge of the adoption of EITF
No. 02-16 at the beginning of fiscal 2003 is reflected as a cumulative effect of
a change in accounting principle of approximately $1.2 million (net of income
tax benefit of $736,000), or $0.07 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. Market is determined based on the lower of replacement cost or estimated
realizable value. Using the retail method, store and warehouse inventories are
values by applying a calculated cost to retail ratio to the retail value of
inventories.
As of February 2, 2003, the Company changed from the first-in, first-out
(FIFO) method of accounting for inventories to the last-in, first-out (LIFO)
method. Management believes this change was preferable in that it achieves a
more appropriate matching of revenues and expenses. The impact of this
accounting change was to increase "Costs of Products Sold" in the consolidated
statements of operations by $0.7 million for the fiscal year ended January 31,
2004. This resulted in an after-tax decrease to net income of $0.4 million or a
decrease in net income per diluted share of $0.02. The cumulative effect of a
change in accounting principle from the FIFO method to LIFO method is not
determinable. Accordingly, such change has been accounted for prospectively. In
addition, pro forma amounts retroactively applying the change cannot be
reasonably estimated and have not been disclosed. The difference between
replacement and current cost of inventory over stated LIFO value is $0.7 million
whereas inventory before LIFO, at FIFO value is $212 million. The estimated
replacement cost of inventory is the current FIFO value of $212 million. The
LIFO value did not include any layer liquidation since the LIFO method was
adopted in fiscal 2004.
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BOOKS-A-MILLION
2004 Annual Report
Physical inventory counts 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.
Inventories were:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------
January 31, February 1,
(In thousands) 2004 2003
- -------------- ----------- ----------
<S> <C> <C>
Inventories (at FIFO) $212,251 $224,019
LIFO reserve (660) --
Net inventories $211,591 $224,019
</TABLE>
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, including remodels, is
provided on the straight-line basis over the lesser of the assets estimated
useful lives (ranging from 5 to 40 years) or, if applicable, the periods of the
leases. Determination of useful asset life is based on several factors requiring
judgment by management and adherence to generally accepted accounting principles
for depreciable periods. Judgment used by management in the determination of
useful asset life could relate to any of the following factors: expected use of
the asset; expected useful life of similar assets; any legal, regulatory, or
contractual provisions that may limit the useful life; and, other factors that
may impair the economic useful life of the asset. Maintenance and repairs are
charged to expense as incurred. Improvement costs, which extend the useful life
of an asset, are capitalized to property accounts and depreciated over the
expected remaining life. 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.
Impairment of Long-Lived Assets
The Company reviews property and equipment and amortizable intangibles
when events or changes in circumstances indicate that their carrying amounts may
not be recoverable or their depreciation or amortization periods should be
accelerated in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". Circumstances that are considered in determining impairment are:
decreases in store sales from the prior year, decreases in store sales from the
current year budget, annual measurement of individual store pre-tax future cash
flows, indications that an asset no longer has an economically useful life, or
other factors that would indicate a store cannot be profitable. Recoverability
of assets held and used is measured by a comparison of the carrying amount of an
asset to undiscounted pre-tax future net cash flows at the lowest level of
independent cash flows, which is generally at the individual store level. Future
events could cause the Company to conclude that impairment indicators exist and
those long-lived assets may be impaired. Any resulting impairment loss could
have a material adverse impact on the Company's financial condition and results
of operations. The Company's long-lived assets are principally retail store
leasehold improvements, lease-rights intangibles and goodwill. 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 impairment is indicated, an impairment loss is recognized for the
amount by which the carrying amount of the assets exceeds the present value of
their projected cash flows. Impairment losses from continuing operations are
included in selling, general and administrative costs. For fiscal 2004, 2003 and
2002, impairment losses of $983,000, $241,000 and $232,000, respectively, were
recorded in selling, general and administrative costs (also see Note 8 for
impairment losses included in discontinued operations). For all years presented,
the impairment losses related to the retail trade business segment.
Deferred Rent
The Company recognizes rent expense by the straight-line method over the
lease term, including lease renewal option periods that can be reasonably
assured at the inception of the lease. The lease term commences on the date when
the Company takes possession and has the right to control use of the leased
premises. Also, funds received from the lessor intended to reimburse the Company
for the cost of leasehold improvements are recorded as a deferred credit
resulting from a lease incentive and are amortized over the lease term as a
reduction of rent expense.
Loss from Discontinued Operations
The Company periodically closes under-performing stores. The Company
believes that a store is a component under Statement of Financial Accounting
Standard ("SFAS") No. 144. Therefore, each store closure would result in the
reporting of discontinued operations unless the operations and cash flows from
the closed store could be absorbed in some part by surrounding Company stores(s)
within the same market area. Management evaluates certain factors in determining
whether a closed store's operations could be absorbed by surrounding store(s);
the primary factor considered is the distance to the next closest
Books-A-Million store. When a closed store results in a discontinued operation,
the results of operations of the closed store include store closing costs and
any related asset impairments. See Note 8 for discontinued operations
disclosures.
Store Opening Costs
Non-capital expenditures incurred in preparation for opening new retail
stores are expensed as incurred.
17
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
Store Closing Costs
The Company continually evaluates the profitability of its stores. When
the company closes or relocates a store, the Company incurs unrecoverable costs,
including lease termination payments, costs to transfer inventory and usable
fixtures and other costs of vacating the leasing location. Such costs are
primarily expensed as incurred and are included in selling, general and
administrative costs. During fiscal 2004, 2003 and 2002, the Company recognized
store closing costs of $219,000, $22,000 and $119,000, respectively.
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 $2,995,000, $4,204,000 and $7,192,000 for
fiscal years 2004, 2003 and 2002, 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 result in temporary differences
between the amounts recorded in its financial statements and 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.
Receivables
Receivables represent customer, landlord and other receivables due within
one year and are net of any allowance for doubtful accounts. Net receivables
were $7,622,000 and $8,236,000 for January 31, 2004 and February 1, 2003,
respectively.
Cash and Cash Equivalents
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.
Stockholders' Equity
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 stock options granted to employees are exercised 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) 1/31/04 2/1/03 2/2/02
- -------------- ------- ------ ------
<S> <C> <C> <C>
Weighted average shares outstanding:
Basic 16,279 16,190 16,667
Dilutive effect of stock options outstanding 510 376 278
------ ------ ------
Diluted 16,789 16,566 16,945
====== ====== ======
</TABLE>
Weighted options outstanding of 801,000, 1,577,000 and 1,368,000 for the
years ended January 31, 2004, February 1, 2003 and February 2, 2002,
respectively, were not included in the table above as they were anti-dilutive in
those periods.
In fiscal 2000, the Board of Directors authorized a common stock
repurchase program for up to $6.0 million of the Company's outstanding shares.
At January 31, 2003 and February 1, 2002, the Company had repurchased 2,010,050
shares for a cost of $5,271,000. Those shares are held in treasury. This
repurchase program was discontinued in March 2004.
In March 2004, the Board of Directors authorized a new common stock
repurchase program for up to an additional 1.6 million shares, or 10% of the
outstanding stock.
Disclosure of Fair Value of Financial Instruments
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 January 31, 2004 and
February 1, 2003 approximate their carrying values at those dates.
18
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BOOKS-A-MILLION
2004 Annual Report
Stock-Based Compensation
At January 31, 2004 and February 1, 2003, 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:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------
1/31/04 2/1/03 2/2/02
------- ------ ------
<S> <C> <C> <C>
Net income, as reported $7,126 $1,353 $3,944
Deduct: Total stock-based employee compensation
expense determined under fair value
based method for all awards, net of tax effects 1,346 1,299 1,111
------ ------ ------
Pro forma net income: $5,780 $ 54 $2,833
====== ====== ======
Net income per common share
Basic - as reported $ 0.44 $ 0.08 $ 0.24
Basic - pro forma $ 0.36 - $ 0.17
Diluted - as reported $ 0.42 $ 0.08 $ 0.23
Diluted - pro forma $ 0.34 - $ 0.17
</TABLE>
The fair value of the options granted under the Company's stock option
plan during fiscal 2004, 2003 and 2002 was estimated on their date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: no dividend yield; expected stock price volatility rate of 1.06,
1.01 and 1.21, respectively; risk free interest rates of 3.87% to 4.90%, 3.63%
to 5.10% and 3.76% to 5.71%, 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,"
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,"
and SFAS No.149, "Amendment of SFAS No. 133 on Derivatives and 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 January 31, 2004 and February 1, 2003, liabilities related to
derivatives are classified as other long-term liabilities of $1,507,000 and
$2,059,000, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) is net income or loss, plus certain other
items that are recorded directly to shareholders' equity. The only such items
currently applicable to the Company are the unrealized gains (losses) on the
derivative instruments explained in Note 3.
Recent Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board ("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 has not adopted the fair value method
of recording stock options under SFAS No. 123. The FASB has now determined that
stock-based compensation should be recognized as a cost in the financial
statements and that such cost be measured according to the fair value of the
stock options. The FASB has not as yet determined the methodology for
calculating fair value and plans to issue an accounting standard that would
become effective in 2005. The Company will continue to monitor
19
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BOOKS-A-MILLION
2004 Annual Report
communications on this subject from the FASB in order to determine the impact on
the Company's financial position, results of operations or cash flows.
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities,"
("FIN 46") 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. In December 2003, the FASB issued FASB Interpretation
No. 46R, "Consolidation of Variable Interest Entities - An Interpretation of ARB
51," (revised December 2003) ("FIN 46R"), which includes significant amendments
to previously issued FIN No. 46. Among other provisions, FIN 46R includes
revised transition dates for public entities. The Company is now required to
adopt the provisions of FIN 46 R no later than the first quarter of fiscal 2005.
The adoption of this interpretation is not expected to have a material effect on
the Company's financial position, results of operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities," ("SFAS 149"). This statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts. The provisions of SFAS No. 149 require that contracts with comparable
characteristics be accounted for similarly. The provisions of SFAS No. 149 are
effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The requirements of SFAS
No. 149 did not have a material impact on the Company's 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 income tax provision is as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
1/31/04 2/1/03 2/2/02
------- ------ ------
<S> <C> <C> <C>
Current:
Federal $2,916 $1,566 $2,450
State 25 32 86
------ ------ ------
$2,941 $1,598 $2,536
====== ====== ======
Deferred:
Federal $1,558 $ (35) $ (125)
State (131) 2 6
------ ------ ------
1,427 (33) (119)
------ ------ ------
Provision for income taxes $4,368 $1,565 $2,417
====== ====== ======
</TABLE>
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------
1/31/04 2/1/03 2/2/02
------- ------ ------
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.0%
State income tax provision 0.2% 1.0% 1.3%
Nondeductible meals and entertainment
expense 0.6% 2.7% 1.0%
Other 3.2% 0.3% 1.7%
---- ---- ----
Effective income tax rate 38.0% 38.0% 38.0%
==== ==== ====
</TABLE>
Temporary differences (in thousands) which created deferred tax assets
(liabilities) at January 31, 2004 and February 1, 2003, are as follows:
<TABLE>
<CAPTION>
AS OF 1/31/04 As of 2/1/03
----------------------------- ----------------------------
(AS RESTATED) (AS RESTATED) (as restated) (as restated)
CURRENT NONCURRENT Current Noncurrent
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Depreciation $ - $ (6,589) $ - $ (6,549)
Accruals 3,174 3,916 2,736 4,360
Interest rate swap 434 747 -
Inventory 639 - 2,318 -
State net operating loss carryforwards - 831 - 441
Other 203 (115) 329 (62)
------- --------- ------ ---------
Deferred tax asset (liability) $ 4,450 $ (1,957) $6,130 $ (1,810)
======= ======== ====== ========
</TABLE>
20
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BOOKS-A-MILLION
2004 Annual Report
At January 31, 2004, the Company had state net operating loss
carryforwards of approximately $20,308,000 that expire beginning in 2006 through
2024.
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.
3. DEBT AND LINES OF CREDIT
The Company refinanced its credit facility during fiscal 2003. The new
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
coverage ratio. As of January 31, 2004 and February 1, 2003, $13.1 million and
$37.4 million, respectively, were outstanding under this credit facility. The
maximum and average outstanding balances during fiscal 2004 were $77.6 million
and $57.5 million, respectively. The outstanding borrowings as of January 31,
2004, had interest rates of 2.75%.
The Company is subject to interest rate fluctuations involving its credit
facility. To manage this exposure, the Company is subject to interest rate swaps
to fix the interest rate on variable debt. The Company entered into two separate
$10.0 million swaps on July 24, 2002. Both expire in August 2005 and effectively
fix the interest rate on $20.0 million of variable debt at 5.13%, except during
the fourth quarter of fiscal 2003, during which neither swap was effective. 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 January 31, 2004 and
February 1, 2003, there was $7.5 million of borrowings outstanding under these
arrangements, which bear interest at variable rates. The net book value of the
collateral property securing the Bond was $5,179,000 as of January 31, 2004. 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 because they are
interest rate swaps that convert variable payments to fixed payments. Cash flow
hedges protect against the variability in future cash outflows of current or
forecasted debt. 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, amounts held in accumulated other comprehensive income
(loss) will be reclassified to earnings if the hedge transaction becomes
ineffective.
The Company's interest rate swaps were reported as a liability classified
in other long-term liabilities in the accompanying consolidating balance sheets
at their fair value of $1.5 million and $2.1 million as of January 31, 2004 and
February 1, 2003, respectively. For the fiscal years ending January 31, 2004,
February 1, 2003, and February 2, 2002, adjustments of $228,000, $(2,000), and
$(752,000) were recorded as unrealized gains (losses) in accumulated other
comprehensive income (loss), after tax. During the fourth quarter of fiscal
2004, one interest rate swap no longer qualified for hedge accounting under SFAS
No. 133. Therefore, the Company de-designated the hedge resulting in an expense
of approximately $284,000.
4. LEASES
The Company leases the premises for its retail bookstores under operating
leases, which expire in various years through the year 2014. 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.
Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of one year as of January 31, 2004 are as
follows (in thousands):
<TABLE>
<CAPTION>
FUTURE MINIMUM
FISCAL YEAR RENT
- ----------- ----
<C> <C>
2005 $ 27,561
2006 24,834
2007 19,429
2008 15,910
2009 11,426
Subsequent years 17,373
--------
Total $116,533
========
</TABLE>
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BOOKS-A-MILLION
2004 Annual Report
Rental expense for all operating leases consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
1/31/04 2/1/03 2/2/02
------- ------ ------
<S> <C> <C> <C>
Minimum rentals $28,194 $27,982 $26,875
Contingent rentals 684 552 595
------- ------- -------
Total $28,878 $28,534 $27,470
======= ======= =======
</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 6 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 $467,000, $437,000 and
$417,000 in fiscal 2004, 2003 and 2002, 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 on or 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:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------
JANUARY 31, 2004 February 1, 2003 February 2, 2002
--------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
(Shares in thousands) SHARES PRICE Shares Price Shares Price
- --------------------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,576 $4.90 2,469 $5.30 2,210 $5.76
Granted 278 6.45 386 2.41 410 3.03
Exercised (177) 2.51 (26) 1.74 (1) 1.69
Forfeited (369) 5.24 (253) 5.30 (150) 5.89
----- ----- ----- ----- ----- -----
Outstanding at end of year 2,308 $5.22 2,576 $4.90 2,469 5.30
----- ----- ----- ----- ----- -----
Exercisable at end of year 1,525 $5.52 1,468 $5.60 1,108 $6.14
----- ----- ----- ----- ----- -----
Weighted average fair value of options granted $5.97 $2.20 $2.90
===== ===== ===== ===== ===== =====
</TABLE>
During fiscal years 2004, 2003 and 2002, the Company recognized tax
benefits related to the exercise of stock options in the amount of $141,000,
$6,000 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 January 31, 2004 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------------
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF JANUARY 31, CONTRACTUAL AVERAGE JANUARY 31, AVERAGE
EXERCISE PRICE 2004 LIFE (YEARS) EXERCISE PRICE 2004 EXERCISE PRICE
- -------------- -------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.38 - $ 2.37 817 7.63 $ 1.95 603 $ 1.80
$2.39 - $ 7.69 1,055 6.30 $ 5.57 517 $ 5.91
$8.19 - $13.00 436 1.23 $10.50 405 $10.58
-------------- --------------
Totals 2,308 5.81 $ 5.22 1,525 $ 5.52
============== ============ ============== ============== ==============
</TABLE>
The Company also maintains separate options plans for its subsidiaries. A
total of 40,000 shares of common stock is authorized under these plans and all
40,000 shares were available for issuance as of January 31, 2004.
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BOOKS-A-MILLION
2004 Annual Report
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. Of the total reserved shares, 224,305 shares have been
purchased as of January 31, 2004.
Executive Incentive Plan
The Company maintains an Executive Inventive Plan (the "Incentive Plan").
The Incentive Plan provides for awards to certain executive officers of both
cash and shares of restricted stock. Issuance of awards under the Incentive Plan
is based on the Company achieving pre-established performance goals during a
three consecutive fiscal year performance period. Awards issued under the
Incentive Plan vest based on the grantee's employment at the end of a three year
restriction period which commences at the end of the performance period for
which the awards were issued. Awards under the Incentive Plan are expensed
ratably over the period from the date that the issuance of such awards becomes
probable through the end of the restriction period. Awards granted under the
Incentive Plan for the three year performance period ended January 31, 2004
totaled $284,000. No awards were issued under the Incentive Plan for the three
year performance period ended February 1, 2003 and February 2, 2002.
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 paragraphs.
The Company purchases a substantial portion of its magazines as well as
certain of their seasonal music and newspapers from Anderson Media Corporation
("Anderson Media"), an affiliate through common ownership. During fiscal 2004,
2003 and 2002, purchases of these items from Anderson Media totaled $28,160,000,
$27,736,000 and $27,934,000, respectively. The Company purchases certain of
their collectibles, gifts and books from Anderson Press, Inc. ("Anderson
Press"), an affiliate through common ownership. During fiscal 2004, 2003 and
2002, such purchases from Anderson Press totaled $853,000, $1,153,000 and
$440,000, respectively. The Company purchases certain of its greeting cards and
gift products from C.R. Gibson, Inc., an affiliate through common ownership. The
purchases of these items in fiscal 2004, 2003, and 2002 were $265,000, $460,000
and $368,000, respectively. The Company purchases certain magazine subscriptions
from Magazines.com, an affiliate through common ownership. During Fiscal 2004,
2003, and 2002, purchases of these items were $89,000, $59,000 and $58,000,
respectively. The Company purchases content for publication from Publication
Marketing Corporation, an affiliate through common ownership. During fiscal
2004, 2003, and 2002, purchases of these items were $72,000, $56,000 and
$38,000, respectively. The Company purchases various gift products from American
Promotional Events, Inc. ("American Promotional Events"), an affiliate through
common ownership. These items totaled $29,000, $18,000 and $80,000 during fiscal
2004, 2003, and 2002, respectively. The Company utilizes import sourcing and
consolidation services from Anco Far East Importers, LTD ("Anco Far East"), an
affiliate through common ownership. The total paid to Anco Far East was
$910,000, $729,000 and $761,000 for fiscal 2004, 2003, and 2002, respectively.
These amounts paid to Anco Far East primarily included the actual cost of the
product, as well as duty, freight, and fee for sourcing and consolidation
services. All other costs other than the sourcing and consolidation service fees
were passed through from other vendors. Anco Far East fees, net of the
passed-through costs, were $77,000, $73,000 and $76,000, respectively.
The Company sold books to Anderson Media in the amounts of $383,000,
$58,000 and $1,457,000 in fiscal 2004, 2003 and 2002, respectively. The Company
sales to Anderson Media significantly decreased in fiscal 2003, and 2002;
however, returns were still being processed from previous years and, as a
result, net returns were recorded for those years. During fiscal year 2004, 2003
and 2002, the Company provided $226,000, $131,000 and $128,000, respectively, of
internet services to Magazines.com. The Company provided internet services to
American Promotional Events of $50,000, $55,000 and $73,000 in fiscal 2004, 2003
and 2002, respectively.
The Company leases its principal executive offices from a trust, which was
established for the benefit of the grandchildren of Mr. Charles C. Anderson, a
member of the Board of Directors. The lease extends to January 31, 2006. During
fiscal 2004, 2003 and 2002, the Company paid rent of $137,000 in each year to
the trust under this lease. Anderson & Anderson LLC ("A&A"), which is an
affiliate through common ownership, also leases three buildings to the Company.
During fiscal 2004, 2003 and 2002, the Company paid A&A a total of $447,000,
$455,000 and $515,000, respectively, in connection with such leases. Total
minimum future rental payments under all four of these leases are $275,000 at
January 31, 2004. The Company subleases certain property to Hibbett Sporting
Goods, Inc. ("Hibbett"), a sporting good retailer in the southeastern United
States. The Company's Executive Chairman, Clyde B. Anderson, is a member of
Hibbett's board of directors. During fiscal 2004, 2003 and 2002, the Company
received $191,000, $161,000 and $161,000, respectively, in rent payments from
Hibbett.
The Company also purchased logistics services from Clark Distribution, a
distribution company affiliated through common ownership, which amounted to $0,
$0 and $64,000 in fiscal 2004, 2003 and 2002, respectively. The Company incurred
expenses related to professional services from A&A and Charles C. Anderson, a
member of the Board of Directors, which amounted to $0 in fiscal 2004 and
$144,000 in each of fiscal 2003 and 2002. The Company shares ownership of a
plane, which the Company uses in the operations of its business, with an
affiliated company. The Company rents the plane to affiliated companies at rates
that cover all the variable cost and a portion of the fixed cost. The total
amounts received from affiliated companies for use of the plane in fiscal 2004,
2003, and 2002 were $275,000, $269,000, and $198,000, respectively. The Company
also occasionally rents a plane from
23
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
A&A as well. The amounts paid to A&A for plane rental were $44,000, $48,000 and
$84,000 for fiscal 2004, 2003 and 2002, respectively.
7. ACQUISITION OF STORES
During March 2001, the Company acquired inventory and lease-rights of 18
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.
8. LOSS FROM DISCONTINUED OPERATIONS
Discontinued operations represent the fiscal 2004 closure of four retail
stores in markets located in Georgia (two stores), Louisiana and North Carolina
where the Company does not expect another of its existing stores to absorb the
closed store customers. These stores had sales of $2,457,000, $4,445,000 and
$5,172,000 and pretax operating losses of $696,000, $917,000 and $111,000 for
fiscal 2004, 2003 and 2002, respectively. Included in the loss on discontinued
operations are impairment losses of $228,000, $141,000 and $0 for fiscal 2004,
2003 and 2002, respectively. Also, included in the loss on discontinued
operations are store closing costs of $64,000, $178,000, and $0 for fiscal 2004,
2003 and 2002, respectively.
9. BUSINESS SEGMENTS
The Company has two reportable segments: retail trade and electronic
commerce 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 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.
Shipping income related to internet sales is included in net sales and shipping
expense is included in cost of sales.
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
Segment information (in thousands) 1/31/04 2/1/03 2/2/02
- ---------------------------------- ------------- ------------- -------------
(AS RESTATED) (as restated) (as restated)
<S> <C> <C> <C>
Net Sales
Retail Trade $ 454,000 $ 432,865 $ 430,742
Electronic Commerce Trade 25,451 23,277 22,247
Intersegment Sales Elimination (19,292) (17,927) (15,406)
--------- --------- ---------
Net Sales $ 460,159 $ 438,215 $ 437,583
========= ========= =========
Operating Profit
Retail Trade $ 14,225 $ 8,709 $ 11,239
Electronic Commerce Trade 332 (490) (1,718)
Intersegment Elimination of Certain Costs 542 988 1,380
--------- --------- ---------
Total Operating Profit $ 15,099 $ 9,207 $ 10,901
========= ========= =========
Assets
Retail Trade $ 295,437 $ 318,308
Electronic Commerce Trade 1,527 1,752
Intersegment Sales Elimination (566) (576)
--------- ---------
Total Assets $ 296,398 $ 319,484
========= =========
</TABLE>
10. 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 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 vendors
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
24
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
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. The overall maximum amount of
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 January 31, 2004, as such liabilities are considered
de minimis.
11. RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's fiscal 2004 consolidated
financial statements the Company under went a detailed review of its
lease-related accounting policies, and determined to restate its prior financial
statements to correct errors relating to the computation of depreciation, rent
holidays, straight-line rent expense and the related deferred rent liability.
Historically, the Company depreciated leasehold improvements over a period
of ten years, regardless of the term of the lease for the store. When
calculating the straight-line rent expense per store, the Company previously
used the store opening date as the starting date for the rent expense
calculation. For certain new stores, the Company receives funding from landlords
for the construction of leasehold improvements. Historically, these landlord
allowances were been classified as a reduction of property and equipment on the
Company's balance sheet and as a reduction in capital expenditures in the
Company's statements of cash flows.
The Company has corrected its depreciable life for leasehold improvements
to the lesser of the economic useful life of the asset or the term of the lease.
The Company has corrected the calculation to start straight-line rent expense on
the date when the Company takes possession and has the right to control use of
the leased premises. Also, the Company has corrected its method of
classification of landlord allowances. The Company will now classify landlord
allowances as a deferred rent credit on the balance sheet and as an operating
activity in the statement of cash flows. Funds received from the landlord
intended to reimburse the Company for the cost of leasehold improvements will be
recorded as a deferred rent credit resulting from a lease incentive and
amortized over the lease term as a reduction to rent expense. As a result, the
consolidated financial statements have been restated from the amounts previously
reported to incorporate the effects of these restatements.
The following is a summary of the impact of the Restatement on the
consolidated balance sheets at January 31, 2004 and February 1, 2003, and the
consolidated statements of operations for the fifty-two week periods ended
January 31, 2004, February 1, 2003, and February 1, 2002.
<TABLE>
<CAPTION>
As of January 31, 2004 As of February 1, 2003
----------------------------------------------------------------------------------
As
Previously As Previously
CONSOLIDATED BALANCE SHEET Reported Adjustment As Restated Reported Adjustment As Restated
- -------------------------- ---------- ---------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Deferred income taxes (asset) $ 4,446 $ 4 $ 4,450 $ 6,130 $ - $ 6,130
Total current assets 234,897 4 234,901 248,742 - 248,742
Gross property and equipment 166,466 23,495 189,961 159,368 22,101 181,469
Accumulated depreciation 117,289 12,780 130,069 102,222 10,335 112,557
Net property and equipment 49,177 10,715 59,892 57,146 11,766 68,912
Total assets 285,679 10,719 296,398 307,718 11,766 319,484
Accrued expenses 30,189 2 30,191 24,790 - 24,790
Accrued income taxes 3,527 (301) 3,226 2,530 (214) 2,316
Total current liabilities 130,477 (299) 130,178 136,146 (214) 135,932
Deferred income taxes (liability) 1,805 152 1,957 1,703 107 1,810
Other long-term liabilities 1,507 11,115 12,622 2,059 12,047 14,106
Total non-current liabilities 23,952 11,267 35,219 48,704 12,154 60,858
Retained earnings 65,528 (249) 65,279 58,327 (174) 58,153
Total stockholders' equity 131,250 (249) 131,001 122,868 (174) 122,694
Total liabilities and stockholders' equity $285,679 $ 10,719 $296,398 $307,718 $ 11,766 $319,484
</TABLE>
25
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
<TABLE>
<CAPTION>
Fiscal Year Ended January 31, 2004 Fiscal Year Ended February 1, 2003
-------------------------------------- ---------------------------------------
As As
Previously Previously
CONSOLIDATED STATEMENTS OF OPERATIONS Reported Adjustment As Restated Reported Adjustment As Restated
- ------------------------------------- ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cost of products sold $ 334,697 $ (2,324) $ 332,373 $ 320,704 $ (2,175) $ 318,529
Gross profit 125,462 2,324 127,786 117,511 2,175 119,686
Depreciation and amortization 15,712 2,445 18,157 16,048 2,253 18,301
Operating profit 15,220 (121) 15,099 9,285 (78) 9,207
Income from continuing operations
before income taxes and
cumulative effect of change in
accounting principle 12,311 (121) 12,190 5,114 (78) 5,036
Income taxes 4,678 (46) 4,632 1,943 (30) 1,913
Income from continuing operations
before cumulative effect of
change in accounting principle 7,633 (75) 7,558 3,171 (48) 3,123
Income before cumulative effect of
change in accounting principle 7,201 (75) 7,126 2,602 (48) 2,554
Net income $ 7,201 $ (75) $ 7,126 $ 1,401 $ (48) $ 1,353
Basic income from continuing
operations before cumulative
effect of change in accounting
principle, per common share $ 0.47 - $ 0.47 $ 0.20 $ (0.01) $ 0.19
Basic income before cumulative
effect of change in accounting
principle, per common share $ 0.44 - $ 0.44 $ 0.16 $ (0.01) $ 0.15
Basic net income per common share $ 0.44 - $ 0.44 $ 0.09 $ (0.01) $ 0.08
Diluted income from continuing
operations before cumulative
effect of change in accounting
principle, per common share $ 0.45 - $ 0.45 $ 0.19 $ (0.01) $ 0.18
Diluted income before cumulative
effect of change in accounting
principle, per common share $ 0.43 $ (0.01) $ 0.42 $ 0.16 $ (0.01) $ 0.15
Diluted net income per share $ 0.43 $ (0.01) $ 0.42 $ 0.08 - $ 0.08
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended February 2, 2002
-----------------------------------------
As Previously
CONSOLIDATED STATEMENTS OF OPERATIONS Reported Adjustment As Restated
- ------------------------------------------------------------------------------- ------------- ---------- -----------
<S> <C> <C> <C>
Cost of products sold $315,556 $ (2,005) $ 313,551
Gross profit 122,027 2,005 124,032
Depreciation and amortization 15,296 1,965 17,261
Operating profit 10,861 40 10,901
Income from continuing operations before income taxes and cumulative effect of
change in accounting principle 6,432 40 6,472
Income taxes 2,444 15 2,459
Income from continuing operations before cumulative effect of change in
accounting principle 3,988 25 4,013
Income before cumulative effect of change in accounting principle 3,919 25 3,944
Net income 3,919 25 3,944
Basic income from continuing operations before cumulative effect of change in
accounting principle, per common share $ 0.24 - $ 0.24
Basic income before cumulative effect of change in accounting principle, per
common share $ 0.24 - $ 0.24
Basic net income per common share $ 0.24 - $ 0.24
Diluted income from continuing operations before cumulative effect of change in
accounting principle, per common share $ 0.24 - $ 0.24
Diluted income before cumulative effect of change in accounting principle,
per common share $ 0.23 - $ 0.23
Diluted net income per share $ 0.23 - $ 0.23
</TABLE>
26
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
<TABLE>
<CAPTION>
Fiscal Year Ended January 31, 2004 Fiscal Year Ended February 1, 2003 (1)
------------------------------------ --------------------------------------
As As
Previously Previously
CONSOLIDATED STATEMENTS OF CASH FLOWS Reported Adjustment As Restated Reported Adjustment As Restated
- ----------------------------------------- ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 7,201 $ (75) $ 7,126 $ 1,401 $ (48) $ 1,353
Depreciation and amortization 15,880 2,445 18,325 16,331 2,253 18,584
Deferred income tax provision (benefit) 1,786 148 1,934 (4) 108 104
Accrued income taxes 997 (194) 803 (144) (138) (282)
Accrued expenses 5,074 (930) 4,144 348 619 967
Total adjustments 26,083 1,469 27,552 9,449 2,848 12,297
Net cash provided by operating activities 33,284 1,394 34,678 10,850 2,800 13,650
Capital expenditures (9,008) (1,394) (10,402) (17,042) (2,794) (19,836)
Net cash used in investing activities (8,969) (1,394) (10,363) (16,982) (2,794) (19,776)
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended February 2, 2002
--------------------------------------
As
Previously
CONSOLIDATED STATEMENTS OF CASH FLOWS Reported Adjustment As Restated
- ----------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Net income $ 3,919 $ 25 $ 3,944
Depreciation and amortization 15,575 1,965 17,540
Deferred income tax provision (benefit) (134) 78 (56)
Accrued income taxes 2,064 (63) 2,001
Accrued expenses 319 (1,026) (707)
Total adjustments 20,640 954 21,594
Net cash provided by operating activities 24,559 979 25,538
Capital expenditures (11,709) (979) (12,688)
Net cash used in investing activities (18,206) (979) (19,185)
</TABLE>
(1) Cash flows from financing activities have been adjusted by $6 to reflect the
tax benefit of the exercise of stock options in fiscal year 2003.
27
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO BOOKS-A-MILLION, INC.:
We have audited the accompanying consolidated balance sheets of Books-A-Million,
Inc. (a Delaware corporation) (the Company), and its subsidiaries as of January
31, 2004 and February 1, 2003 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three fiscal
years in the period ended January 31, 2004. 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 the Public Company
Accounting Oversight Board (United States). 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 January 31, 2004 and February 1, 2003 and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 31, 2004 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 2, 2002, the Company changed its method of accounting for vendor
allowances and effective February 2, 2003, the Company changed its method of
accounting for inventories.
As discussed in Note 11, the Consolidated Financial Statements have been
restated.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
April 19, 2004
(April 25, 2005 as to the effects of the restatement discussed in Note 11 to the
Consolidated Financial Statements)
28
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
SUMMARY OF QUARTERLY RESULTS (Unaudited)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, 2004 (1)(2)
---------------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
(In thousands, except per share amounts) QUARTER QUARTER QUARTER QUARTER YEAR
- -------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------
(AS RESTATED) (AS RESTATED) (AS RESTATED) (AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C> <C>
Net sales $ 98,505 $ 113,081 $102,724 $145,849 $ 460,159
Gross profit (as previously reported) 24,937 30,815 26,412 43,298 125,462
Gross profit (as restated, see Note 11) 25,511 31,396 26,991 43,888 127,786
Operating profit (loss) (as previously reported) (674) 3,238 (232) 12,888 15,220
Operating profit (loss) (as restated, see Note 11) (689) 3,213 (265) 12,840 15,099
Net income (loss) (as previously reported) (1,042) 1,361 (755) 7,637 7,201
Net income (loss) (as restated, see Note 11) (1,052) 1,346 (775) 7,607 7,126
Net income (loss) per share - basic (as previously reported) (0.06) 0.08 (0.05) 0.47 0.44
Net income (loss) per share - basic (as restated, see Note 11) (0.06) 0.08 (0.05) 0.47 0.44
Net income (loss) per share - diluted (as previously reported) (0.06) 0.08 (0.05) 0.45 0.43
(3)
Net income (loss) per share - diluted (as restated, see Note (0.06) 0.08 (0.05) 0.45 0.42
11)
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended January 31, 2003 (1)(2)
---------------------------------------------------------------------
First Second Third Fourth Total
(In thousands, except per share amounts) Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------
(as restated) (as restated) (as restated) (as restated) (as restated)
<S> <C> <C> <C> <C> <C>
Net sales $100,273 $ 103,550 $ 96,280 $ 138,112 $ 438,215
Gross profit (as previously reported) 27,380 27,989 22,718 39,424 117,511
Gross profit (as restated, see Note 11) 27,929 28,536 23,242 39,979 119,686
Operating profit (loss) (as previously reported) 871 470 (2,965) 10,909 9.285
Operating profit (loss) (as restated, see Note 11) 884 462 (3,006) 10,867 9,207
Income (loss) before cumulative effect of change in
accounting principle (as previously reported) (111) (425) (2,755) 5,893 2,602
Income (loss) before cumulative effect of change in
accounting principle (as restated, see Note 11) (103) (430) (2,780) 5,867 2,554
Income (loss) per share - basic before cumulative effect of
change in accounting principle (as previously reported) (3) (0.01) (0.03) (0.17) 0.36 0.16
Income (loss) per share - basic before cumulative effect of
change in accounting principle (as restated, see Note 11) (0.01) (0.03) (0.17) 0.36 0.15
Income (loss) per share - diluted before cumulative effect of
change in accounting principle (as previously
reported) (3) (0.01) (0.03) (0.17) 0.36 0.16
Income (loss) per share - diluted before cumulative effect of
change in accounting principle (as restated, see Note 11) (0.01) (0.03) (0.17) 0.36 0.15
Net income (loss) (as previously reported) (1,312) (425) (2,755) 5,893 1,401
Net income (loss) (as restated, see Note 11) (1,304) (430) (2,780) 5,867 1,353
Net income (loss) per share - basic (as previously
reported) (3) (0.08) (0.03) (0.17) 0.36 0.09
Net income (loss) per share - basic (as restated, see
Note 11) (0.08) (0.03) (0.17) 0.36 0.08
Net income (loss) per share - diluted (as previously
reported) (0.08) (0.03) (0.17) 0.36 0.08
Net income (loss) per share - diluted (as restated,
see Note 11) (0.08) (0.03) (0.17) 0.36 0.08
</TABLE>
(1) Certain reclassifications were made to the quarterly amounts for fiscal
2004 and 2003 to appropriately reflect discontinued operations.
(2) As restated, see Note 11 of the Consolidated Financial Statements.
(3) 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.
29
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
DIRECTORS AND CORPORATE OFFICERS
<TABLE>
<CAPTION>
BOARD OF DIRECTORS CORPORATE OFFICERS
<S> <C>
CLYDE B. ANDERSON CLYDE B. ANDERSON
Executive Chairman of the Board Executive Chairman of the Board
CHARLES C. ANDERSON SANDRA B. COCHRAN
Retired Chairman President, Chief Executive Officer and
Secretary
TERRY C. ANDERSON TERRANCE G. FINLEY
Chief Executive Officer and President, Executive Vice President of Books-A-
American Promotional Events, Inc. Million, Inc. and President, American
Internet Service, Inc.
RONALD G. BRUNO RICHARD S. WALLINGTON
President, Chief Financial Officer
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.
</TABLE>
30
<PAGE>
BOOKS-A-MILLION
2004 Annual Report
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://stock.bankofny.com
CERTIFICATES FOR TRANSFER AND ADDRESS CHANGES TO:
Receive and Deliver Department - 11W
P.O. Box 11002, Church Street Station
New York, NY 10286
REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Birmingham, Alabama
FORM 10-K/A AND INVESTOR CONTACT
A copy of the Company's Annual Report on Form 10-K/A for the fiscal year
ended January 31, 2004, as filed with the Securities and Exchange Commission, as
well as key committee charters, and code of conduct, are 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 those items 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 January 31, 2004
and February 1, 2003.
<TABLE>
<CAPTION>
Quarter Ended High Low
- ------------- -------- --------
<S> <C> <C>
JANUARY 2004 $ 7.02 $ 4.41
OCTOBER 2003 5.00 2.80
JULY 2003 3.34 2.07
APRIL 2003 2.45 2.05
January 2003 2.77 2.27
October 2002 3.70 2.53
July 2002 4.26 3.22
April 2002 5.12 3.02
</TABLE>
The closing price on April 5, 2004, was $6.68. No cash dividends have been
declared since completion of the Company's initial public offering in 1992. As
of April 5, 2004, 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 3, 2004, at 10:00
a.m. central time at The Harbert Center, 2019 Fourth Avenue North, Birmingham,
Alabama 35203. Stockholders of record as of April 5, 2004, are invited to attend
this meeting.
31
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>3
<FILENAME>g94757exv23.txt
<DESCRIPTION>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
<TEXT>
<PAGE>
Exhibit 23
Consent of Deloitte & Touche LLP, independent registered public accounting firm
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 19, 2004 (April 25, 2005 as to the effects of the
restatement discussed in Note 11), (which report expresses an unqualified
opinion and includes explanatory paragraphs relating to the adoption of new
accounting principles as described in Note 1 and the restatement described in
Note 11 to the consolidated financial statements), incorporated by reference in
this Annual Report on Form 10-K/A for the year ended January 31, 2004, and of
our report on the financial statement schedule, dated April 19, 2004, appearing
in this Annual Report on Form 10-K/A for the year ended January 31, 2004.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
April 28, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>4
<FILENAME>g94757exv31w1.txt
<DESCRIPTION>CERTIFICATION OF CLYDE B. ANDERSON, EXECUTIVE CHAIRMAN OF THE BOARD
<TEXT>
<PAGE>
Exhibit 31.1
CERTIFICATIONS
I, Clyde B. Anderson, certify that:
1. I have reviewed this annual report on Form 10-K/A of Books-A-Million, Inc.;
2. Based on my knowledge, this 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 periods presented in this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
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 report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal year that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: April 28, 2005
/s/ Clyde B. Anderson
------------------------------
Clyde B. Anderson
Executive Chairman of the Board
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>5
<FILENAME>g94757exv31w2.txt
<DESCRIPTION>CERTIFICATION OF RICHARD S WALLINGTON, CHIEF FINANCIAL OFFICER
<TEXT>
<PAGE>
Exhibit 31.2
CERTIFICATIONS
I, Richard S. Wallington, certify that:
1. I have reviewed this annual report on Form 10-K/A of Books-A-Million, Inc.;
2. Based on my knowledge, this 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 periods presented in this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
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 report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal year that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: April 28, 2005
/s/ Richard S. Wallington
---------------------------------
Richard S. Wallington
Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.3
<SEQUENCE>6
<FILENAME>g94757exv31w3.txt
<DESCRIPTION>CERTIFICATION OF SANDRA B. COCHRAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
<TEXT>
<PAGE>
Exhibit 31.3
CERTIFICATIONS
I, Sandra B. Cochran, certify that:
1. I have reviewed this annual report on Form 10-K/A of Books-A-Million, Inc.;
2. Based on my knowledge, this 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 periods presented in this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
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 report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal year that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: April 28, 2005
/s/ Sandra B. Cochran
--------------------------------------
Sandra B. Cochran
President and Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>7
<FILENAME>g94757exv32w1.txt
<DESCRIPTION>CERTIFICATION OF CLYDE B. ANDERSON, EXECUTIVE CHAIRMAN OF THE BOARD
<TEXT>
<PAGE>
Exhibit 32.1
CERTIFICATION OF EXECUTIVE CHAIRMAN OF THE BOARD
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of Books-A-Million, Inc.
(the "Company") hereby certifies, to the best of such officer's knowledge, that:
(i) the accompanying Annual Report on Form 10-K/A of the Company for
the fiscal year ended January 31, 2004 (the "Report") fully complies with
the requirements of Section 13(a) or Section 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: April 28, 2005 /s/ Clyde B. Anderson
------------------------------
Clyde B. Anderson
Executive Chairman of the Board
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>8
<FILENAME>g94757exv32w2.txt
<DESCRIPTION>CERTIFICATION OF RICHARD S WALLINGTON, CHIEF FINANCIAL OFFICER
<TEXT>
<PAGE>
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of Books-A-Million, Inc.
(the "Company") hereby certifies, to the best of such officer's knowledge, that:
(i) the accompanying Annual Report on Form 10-K/A of the Company for
the fiscal year ended January 31, 2004 (the "Report") fully complies with
the requirements of Section 13(a) or Section 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: April 28, 2005 /s/ Richard S. Wallington
-------------------------------
Richard S. Wallington
Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.3
<SEQUENCE>9
<FILENAME>g94757exv32w3.txt
<DESCRIPTION>CERTIFICATION OF SANDRA B. COCHRAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
<TEXT>
<PAGE>
Exhibit 32.3
CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of Books-A-Million, Inc.
(the "Company") hereby certifies, to the best of such officer's knowledge, that:
(i) the accompanying Annual Report on Form 10-K/A of the Company for
the fiscal year ended January 31, 2004 (the "Report") fully complies with
the requirements of Section 13(a) or Section 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: April 28, 2005 /s/ Sandra B. Cochran
--------------------------------------
Sandra B. Cochran
President and Chief Executive Officer
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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