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<SEC-DOCUMENT>0000950144-06-003487.txt : 20060413
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ACCESSION NUMBER: 0000950144-06-003487
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20060128
FILED AS OF DATE: 20060413
DATE AS OF CHANGE: 20060413
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BOOKS A MILLION INC
CENTRAL INDEX KEY: 0000891919
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940]
IRS NUMBER: 630798460
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0131
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-20664
FILM NUMBER: 06758940
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>
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<DESCRIPTION>BOOKS-A-MILLION, INC.
<TEXT>
<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 2006
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 if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
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 [ ]
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 a large accelerated filer, an
accelerated filer or a non-accelerated filer.
Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant (assuming for these purposes, but without conceding, that all
executive officers and directors are "affiliates" of the Registrant) as of July
29, 2005 (based on the closing sale price as reported on the NASDAQ National
Market on such date), was $88,405,399.
The number of shares outstanding of the Registrant's Common Stock as of
April 10, 2006 was 16,569,577.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
January 28, 2006 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 8, 2006 are incorporated by reference into Part III of this
report.
================================================================================
<PAGE>
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
10-K INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I
Item I. Business 4
Item IA. Risk Factors 7
Item IB. Unresolved Staff Comments 10
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters To A Vote of Security Holders 11
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 12
Item 9A. Controls and Procedures 13
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and Management 17
Item 13. Certain Relationships and Related Transactions 17
Item 14. Principal Accountant Fees and Services 17
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports On Form 8-K 17
</TABLE>
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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 Books-A-Million, Inc. 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, stockholders 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", "Books-A-Million" and "Joe Muggs
Newsstands". These stores range in size from 2,000 to 7,000 square feet and are
located primarily in enclosed malls. All store formats generally 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 founded in 1917, originally incorporated under the laws of
the State of Alabama in 1964 and 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," "our" 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, our Chief Financial Officer. You
may read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC, including us, at http: //www.sec.gov.
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 8
"Business Segments" in the Notes to Consolidated Financial Statements in the
Annual Report to Stockholders for the year ended January 28, 2006, incorporated
herein by reference.
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<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 173 superstores as of January 28, 2006.
Our superstores emphasize selection, value and customer service. Each of
our superstores offers an extensive selection of best sellers and other
hardcover and paperback books, magazines, local newspapers and gifts and
dedicates 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 generally feature a wide selection of
books, magazines and gift items. We had 32 traditional stores as of January 28,
2006.
MERCHANDISING
We employ several value-oriented merchandising strategies. Books on our
best-seller list, which is developed 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.
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<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.
They provide all web development and maintenance for all of our internet sites
and networking initiatives.
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 1,500 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 (see "Certain
Relationships & Related Transactions" on pages 12 and 13 of the Proxy). No one
vendor accounted for over 11.0% of our overall merchandise purchases in the
fiscal year ended January 28, 2006. 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. Our
largest competitors are Barnes and Nobles, Inc. and Borders Group, Inc. 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.
5
<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,"
"Page Pets," "JOEMUGGS.com," "Laser Line," FAITHPOINT.com," "Joe Muggs,"
"Anderson's Bookland," "Snow Joe," "The Testaments Shoppe" 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 2,900 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 very good.
ITEM 1A. RISK FACTORS.
The following risk factors and other information included in this Annual
Report should be carefully considered. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial also may impair our
business operations. If any of the following risks occur, our business,
financial condition, operating results, and cash flows could be materially
adversely affected.
Intense competition from traditional retail sources and the Internet may
adversely affect our business.
The retail book business is highly competitive and competition within the
industry is fragmented. We face direct competition from other superstores, such
as Barnes & Noble and Borders, and we also face competition from mass
merchandisers, such as Wal-Mart and Costco, and online retailers such as Amazon,
Barnes and Nobles, Borders and Wal-Mart. Our bookstores also compete with
specialty retail stores that offer books in particular subject areas,
independent single store operators, variety discounters, drug stores, warehouse
clubs, mail order clubs and other retailers offering books. In addition, our
bookstores may face additional competition from the expanding market for
electronic books and from other categories of retailers entering the retail book
market.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition, and significantly
greater financial, marketing, and other resources than we have. They may be able
to secure merchandise from vendors on more favorable terms and may be able to
adopt more aggressive pricing policies. Competitors in both the retail and
electronic commerce trade also may be able to devote more resources to
technology development, fulfillment, and marketing than we are able to.
Competition in electronic commerce trade may intensify. The online market
is rapidly evolving and intensely competitive, with few barriers to entry.
Companies in the retail and electronic commerce trade may enter into business
combinations or alliances that strengthen their competitive positions. This
increased competition may reduce our sales, operating profits, or both.
Our business is highly seasonal.
Our business is highly seasonal with sales and earnings generally highest
in the fourth quarter and lowest in the first quarter. Our results of operations
depend significantly upon the holiday selling season in the fourth quarter.
During fiscal 2006, approximately 32% of our sales and approximately 81% of our
operating income were generated in the fourth quarter. If we do not stock
popular products in sufficient amounts or fail to have sources to timely restock
popular products during the busy holiday period such that we fail to meet
customer demand, it could significantly affect our revenue and earnings and our
future growth. In addition, if we experience less than satisfactory net sales
during the fourth quarter, we may not be able to sufficiently compensate for any
losses which may be incurred during the first three quarters of the year.
Our business is dependent upon consumer spending patterns.
Sales of books may depend upon discretionary consumer spending, which may
be affected by general economic conditions, consumer confidence and other
factors beyond our control. Weather, among other things, can affect comparable
store sales, because inclement weather can require us to close certain stores
temporarily and thus reduce store traffic. Even if stores are not closed,
customers may decide to avoid going to stores in bad weather. In addition, sales
are dependant in part on
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the strength of new release titles offered by vendors. A decline in consumer
spending on books could have a material adverse effect on our financial
condition and results of operations.
Our business may be affected by our relationships with suppliers and delays in
product shipments.
We rely heavily upon our suppliers to provide us with new products as
quickly as possible. The loss of any of our suppliers could reduce our product
offerings, which could cause us to be at a competitive disadvantage. In
addition, we depend upon the business terms we can obtain from suppliers,
including competitive prices, unsold product return policies, new release title
quantity allocations, advertising and market development allowances, freight
charges and payment terms. Our failure to maintain favorable business terms with
our suppliers could adversely affect our ability to offer products to consumers
at competitive prices. To the extent that our suppliers rely on overseas sources
for a large portion of their products, any event causing a disruption of
imports, including the imposition of import restrictions in the form of tariffs
or quotas or both and currency fluctuations, could hurt our business.
Our vendor relationships subject us to a number of risks, and we heavily rely on
one supplier for magazine purchases that is a related party.
Although we purchase merchandise from over 1,500 vendors and no one vendor
accounted for more than 11% of our inventory purchases in fiscal 2006, we have
significant vendors that are important to us. If our current vendors were to
stop selling merchandise to us on acceptable terms, we may not be able to
acquire merchandise from other suppliers in a timely and efficient manner and on
acceptable terms. We have entered into and may, in the future, enter into
various transactions and agreements with entities wholly or partially owned by
certain stockholders and directors (including certain officers) of the Company.
We believe that the transactions and agreements that we have entered into are on
terms that are at least as favorable to us as could reasonably have been
obtained at such time from third parties.
If we do not successfully optimize inventory and manage our distribution, our
business could be harmed
If we do not successfully optimize our inventory and operate our
distribution centers, it could significantly limit our ability to meet customer
demand. Because it is difficult to predict demand, we may not manage our
facilities in an optimal way, which may result in excess or insufficient
inventory or warehousing, fulfillment, and distribution capacity. Additionally,
if we open new stores in new geographic areas where we don't currently have a
presence, we may not be able to provide those stores with efficient distribution
and fulfillment services which may impact our stores in those markets. We may
be unable to adequately staff our fulfillment and customer service centers to
meet customer demand. There can be no assurance that we will be able to operate
our network effectively.
We rely heavily on the American Wholesale warehouse distribution
facilities for merchandise distribution functions and to maintain inventory
stock for our retail stores. Our ability to distribute merchandise to our stores
and maintain adequate inventory levels may be materially impacted by any
material damage incurred at our warehouse facilities caused by inclement
weather, fire, flood, power loss, earthquakes, acts of war or terrorism, acts of
God and similar factors.
We also rely heavily on American Wholesale's dedicated transportation
fleet for deliveries of inventory. As a result, our
7
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ability to receive inbound inventory efficiently may be negatively affected by
inclement weather, fire, flood, power loss, earthquakes, labor disputes, acts of
war or terrorism, acts of God and similar factors.
Any of the inventory risk factors set forth above may adversely affect our
financial condition, operating results and cash flows.
Failure to retain key personnel
Our continued success depends to a significant extent upon the efforts and
abilities of our senior management. The failure to retain our senior managers
could have a material adverse effect on our business and our results of
operations. We do not maintain "key man" life insurance on any of our senior
managers.
Failure to attract and retain qualified associates and other labor issues could
adversely affect our financial performance.
Our ability to continue to expand our operations depends on our ability to
attract and retain a large and growing number of qualified associates. Our
ability to meet our labor needs generally while controlling our associate wage
and related labor costs is subject to numerous external factors, including the
availability of a sufficient number of qualified persons in the work force,
unemployment levels, prevailing wage rates, changing demographics, health and
other insurance costs and changes in employment legislation. If we are unable to
locate, attract and retain qualified personnel or if our costs of labor or
related costs increase significantly, our financial performance could be
affected adversely.
We rely extensively on communication and computer systems to process
transactions, summarize results and manage our business. Disruptions in these
systems could harm our ability to run our business.
Given the number of individual transactions we have each year, it is
critical that we maintain uninterrupted operation of our computer and
communications hardware and software systems. Our systems are subject to damage
or interruption from power outages, computer and telecommunications failures,
computer viruses, security breaches, catastrophic events such as acts of God,
fires, tornadoes, hurricanes, floods, earthquakes, power losses,
telecommunications failure, acts of war or terrorism, physical or electronic
break-ins, and similar events or disruptions, and usage errors by our employees.
If our systems are damaged or cease to function properly, we may have to make a
significant investment to fix or replace them, and we may suffer interruptions
in our operations in the interim. Any material interruption in our computer
operations may have a material adverse effect on our business or results of
operations.
Our electronic commerce trade faces business risks, which include:
- - risks associated with a limited operating history;
- - competition from other Internet-based companies and traditional retailers;
- - risks associated with a failure to manage growth effectively;
- - risks of the Internet as a medium for commerce including internet security
risks;
- - risks associated with the need to keep pace with rapid technological
change;
- - risks of system failure or inadequacy; and
- - risks associated with the maintenance of domain names.
If any of these risks materializes, it could have an adverse effect on our
electronic commerce trade.
Government regulation of the Internet and E-commerce is evolving and unfavorable
changes could harm our business.
We are subject to general business regulations and laws, as well as
regulations and laws specifically governing the
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Internet and e-commerce. Such existing and future laws and regulations may
impede the growth of the Internet or other online services. These regulations
and laws may cover taxation, privacy, data protection, pricing, content,
copyrights, distribution, electronic contracts and other communications,
consumer protection, the provision of online payment services, unencumbered
Internet access to our services, and the characteristics and quality of products
and services. It is not clear how existing laws governing issues such as
property ownership, sales and other taxes, libel, and personal privacy apply to
the Internet and e-commerce. Unfavorable resolution of these issues may harm our
business.
We could be liable for breaches of security on our website.
A fundamental requirement for e-commerce is the secure storage and
transmission of confidential information. Although we have developed systems and
processes that are designed to protect consumer information and prevent
fraudulent credit card transactions and other security breaches, failure to
mitigate such fraud or breaches may adversely affect our operating results.
We are subject to a number of risks related to payments we accept.
We accept payments by a variety of methods, including credit card, debit
card, gift cards, direct debit from a customer's bank account, physical bank
check and cash. For certain payment transactions, including credit and debit
cards, we pay interchange and other fees, which may increase over time and raise
our operating costs and lower our profit margins. We are also subject to payment
card association operating rules, certification requirements and rules governing
electronic funds transfers, which could change or be reinterpreted to make it
difficult or impossible for us to comply. If we fail to comply with these rules
or requirements, we may be subject to fines and higher transaction fees and lose
our ability to accept credit and debit card payments from our customers, process
electronic funds transfers, or facilitate other types of online payments, and
our business and operating results could be adversely affected. If one or more
of these agreements are terminated and we are unable to replace them on similar
terms, or at all, it could adversely affect our operating results. In addition,
as we offer new payment options to our customers, we may be subject to
additional regulations and compliance requirements and a greater risk of fraud.
We may be unable to protect our intellectual property, which could harm our
brand and reputation.
To protect our proprietary rights in our intellectually property, we rely
generally on copyright, trademark and trade secret laws. Although we do not
believe that our trademarks and other intellectual property are materially
important to the continuation of our operations, our failure or inability to
maintain or protect our proprietary rights could materially decrease their
value, and our brand and reputation could be impaired as a result.
We are subject to certain legal proceedings that may affect our financial
condition and results of operation.
We are involved in a number of legal proceedings. 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. However, we can give no
assurances that certain lawsuits either now or in the future will not materially
affect our financial position or results of operations.
Our stock price may be subject to volatility.
The trading price of our common stock may fluctuate. Trading prices of our
common stock may fluctuate in response to a number of events and factors, many
of which are beyond our control, such as:
- general economic conditions;
- changes in interest rates;
- conditions or trends in the retail book and electronic
commerce trade industries;
- fluctuations in the stock market in general;
- quarterly variations in operating results;
9
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- new products, services, innovations, and strategic
developments by our competitors or us, or business
combinations and investments by our competitors or us;
- changes in financial estimates by us or securities analysts
and recommendations by securities analysts;
- changes in regulation;
- changes in our capital structure, including issuance of
additional debt or equity to the public;
- corporate restructurings, including layoffs or closures of
facilities;
- changes in the valuation methodology of, or performance by,
others in the retail book and electronic trade industries; and
- transactions in our common stock by major investors; and
certain analyst reports, news, and speculation.
Any of these events may cause our stock price to rise or fall and may
adversely affect our business and financing opportunities.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES
Our bookstores are generally 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 (see "Certain Relationships & Related
Transactions" on pages 12 and 13 of the Proxy). The Birmingham, Alabama office
space lease expires on June 30, 2006, and we intend to negotiate additional term
under the lease. 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. The NetCentral space is leased
month-to-month. We believe that the failure to extend the lease of the corporate
office space in Birmingham, Alabama or the loss of any of the corporate office
space currently leased on a month-to-month basis would not have a material
adverse effect on the Company's business, financial condition or results of
operations.
American Wholesale owns its wholesale 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 wholesale
distribution facility through loans obtained from the proceeds of an industrial
revenue bond, which are loans secured by a mortgage interest in this facility.
We also lease, on a month-to-month basis from a related party, a second 210,000
square foot warehouse facility located in Tuscumbia, Alabama. We believe that
the failure to extend the lease for this warehouse facility currently leased on
a month-to-month basis would not have a material adverse effect on the Company's
business, financial condition or results of operations. 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 condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
10
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information in footnote 12 Summary of Quarterly Results (Unaudited) on
page 29 of the Annual Report to Stockholders for the year ended January 28, 2006
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under the heading "Selected Consolidated Financial Data"
for the years ended February 2, 2002, through January 28, 2006 on page 4 of the
Annual Report to Stockholders for the year ended January 28, 2006, 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 13 of the Annual
Report to Stockholders for the year ended January 28, 2006, 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 existing credit
agreement was $10.0 million during fiscal 2006. Outstanding amounts under our
credit agreement bear interest at variable rates.
Additionally, the Company had $7.2 million of borrowings outstanding at
January 28, 2006 from loans made pursuant to an industrial development revenue
bond which are secured by a mortgage interest in one of our warehouse
facilities. 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 8.73% and expires on June 7, 2006. The
counterparty to the remaining interest rate swap is a party to our revolving
credit facilities. We believe the credit and liquidity risk of the counterparty
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.
The information in note 3 "Debt and Lines of Credit" in the Notes to
Consolidated Financial Statements on pages 23 and 24 of the Annual Report to
Stockholders for the year ended January 28, 2006 is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant and its subsidiaries
included in the Annual Report to Stockholders for the year ended January 28,
2006 are incorporated herein by reference:
Consolidated Balance Sheets as of January 28, 2006 and January 29, 2005.
Consolidated Statements of Income for the Fiscal Years Ended January 28,
2006, January 29, 2005, and January 31, 2004.
Consolidated Statements of Changes in Stockholders' Equity for the Fiscal
Years Ended January 28, 2006, January 29, 2005, and January 31, 2004
Consolidated Statements of Cash Flows for the Fiscal Years Ended January
28, 2006, January 29, 2005, and January 31, 2004
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm
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The information in footnote 12 Summary of Quarterly Results
(Unaudited) on page 29 of the Annual Report to Stockholders for the
Fiscal Years Ended January 28, 2006 and January 29, 2005 is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Upon the recommendation of the Audit Committee of the Board of Directors
of the Company, Deloitte & Touche LLP ("Deloitte") was dismissed as the
Company's independent auditor effective April 29, 2005. Deloitte served as the
Company's independent auditor for fiscal years 2003, 2004 and 2005. The reports
of Deloitte for those fiscal years did not contain an adverse opinion or
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles. During those fiscal years and for fiscal
year 2006 through April 29, 2005 there were no (A) disagreements with Deloitte
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedures, which disagreements, if not resolved
to the satisfaction of Deloitte, would have caused Deloitte to make reference to
such disagreements in its reports provided to the Company; and (B) reportable
events (as defined in Item 304(a)(1)(v) of Regulation S-K).
Effective April 29, 2005, the Company's Audit Committee engaged Grant
Thornton LLP to audit the Company's financial statements for the fiscal year
ending on January 28, 2006. Prior to the engagement of Grant Thornton LLP,
neither the Company nor anyone on behalf of the Company had consulted with Grant
Thornton LLP during the Company's two most recent fiscal years and for fiscal
year 2006 through April 29, 2005 in any matter regarding either: (A) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's financial statements, and neither was a written report nor oral
advice provided to the Company that Grant Thornton LLP concluded was an
important factor considered by the Company in reaching a decision as to the
accounting, auditing or financial reporting issue; or (B) any matter which was
the subject of either a disagreement or a reportable event, as each are defined
in Item 304(a)(1)(iv) and (v) of Regulation S-K, respectively.
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ITEM 9A. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We are committed to maintaining disclosure controls and procedures
designed to ensure that information required to be disclosed in our reports
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is
recorded, processed, summarized and reported within the time periods specified
in the Commission's rules and forms, and that such information is accumulated
and communicated to our management, including our chief executive officer, chief
financial officer and the Board of Directors, as appropriate, to allow for
timely decisions regarding required disclosure. In designing and evaluating
disclosure controls and procedures, management recognizes 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 is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures and implementing controls and
procedures based on the application of management's judgment.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, management,
with the participation of our chief executive officer and chief financial
officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based upon their
evaluation and subject to the foregoing, the Chief Executive Officer and the
Chief Financial Officer concluded that, as of the end of the period covered by
this report, the Company's disclosure controls and procedures were effective at
the reasonable assurance level.
(b) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Management is responsible for establishing and maintaining adequate
internal control over financial reporting. As defined in Exchange Act Rule
13a-15(f), internal control over financial reporting is a process designed by,
or under the supervision of, the principal executive and principal financial
officer and effected by the board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and
procedures that: (i) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material affect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including
the Chief Executive Officer and Chief Financial Officer, the Company carried out
an evaluation of the effectiveness of its internal control over financial
reporting as of the end of the period covered by this report based on the
"Internal Control - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based upon this evaluation,
management concluded that the Company's internal control over financial
reporting was effective as of the end of the period covered by this report.
Grant Thornton LLP, the independent registered certified public accounting
firm that audited the Company's financial statements included in this report,
has also audited management's assessment of the effectiveness of the Company's
internal control over financial reporting and the effectiveness of the Company's
internal control over financial reporting as of the end of the period covered by
this report as stated in their report incorporated herein as part of the
Company's Annual Report.
(c) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the course of its effort to implement Section 404 of the Sarbanes
Oxley Act, management identified certain control deficiencies in the Company's
internal control over financial reporting. After meeting with the Audit
Committee of the Board of Directors, management determined that certain of these
control deficiencies constituted significant deficiencies which in the aggregate
constituted a material weakness. These significant deficiencies have been
remediated during the third and fourth quarters, as described more fully below.
The material weakness identified during the second quarter consisted of a
combination of the following significant deficiencies relating to accounts
payable: (i) inadequate controls over the data used to perform cost of goods
sold calculations; (ii) inadequate segregation of duties for accounts payable
management and inadequate controls over access to the payables vendor master
file; and (iii) inadequate independent verification of expense invoice payment
supporting documentation.
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Inadequate controls over the data used to perform cost of goods sold
calculations. Because we did not accumulate product cost data at the item level
in the item master file in the past, we calculated cost of goods sold and
determined vendor payments and return credits using product line cost data for
each vendor. We generally purchase inventory at a wholesale cost that is
expressed as a discount from the suggested retail price for the product. When
merchandise was received at the warehouse, the discount percentage
established for each product line a vendor sold to the Company was used
to calculate the expected cost of the merchandise and a warehouse receipt was
generated. The warehouse receipt was matched to the vendor's invoice at
the total receipt/invoice level to ensure the accuracy of the receipt of product
ordered and the amount of payment due to the vendor.
In addition, many vendors have several different product lines which may
have different discount percentages. For example, publishers, who collectively
constitute a majority of our vendors, have several different imprints under
which they publish and sell books which they sell to us under varying discount
percentages. However, because product cost data at the item level was not then
accumulated in the item master file, the information used in the item master
file, which is within the warehouse system, to calculate cost of receipts and
returns was generated based on a standard discount percentage at the vendor
level, which may not have matched the discount percentage on each product line
that we purchased from or returned to that vendor. Calculations done at the
vendor discount level could have caused discrepancies in the cost amounts
determined for the merchandise receipts and returns versus the amounts charged
by the vendor. Discrepancies in merchandise receipt amounts versus vendor
invoice amounts above certain tolerances were reviewed to ensure the vendor was
paid the proper amount. However, the cumulative effect of discrepancies under
the tolerance levels could have had an impact on inventory shrinkage. In
addition, the cost charged for product on returns had been based on the vendor
product line discount reflected in the system and was not reconciled until after
the vendor issued a credit for the return. A delay in vendor processing of
returns, which could increase unresolved return disputes, could also have
impacted inventory shrinkage results. During the third and fourth quarters of
fiscal 2006 we updated the item master file to include product cost data at the
item level, and we will continue to maintain item level product cost data in the
item master file going forward.
In addition, because we do not maintain an automated system to calculate
cost of goods sold at the item level, a weighted average cost by product line
must be determined, which is then applied to sales amounts to calculate cost of
goods sold. The weighted average cost percentages are calculated using invoice
level data to determine the cost of goods sold percentages by product line. The
percentages are determined for each product line using a sampling of invoices
for each period. The sample size used historically through the second quarter of
fiscal 2006 may have not been large enough to allow us to adequately calculate
cost of goods sold on a quarterly basis. However, the sample size of invoices
reviewed for verifying the cost of goods sold percentages by product line was
expanded significantly in the third and fourth quarters of fiscal 2006. As of
the end of the fiscal year covered by this report we had sampled approximately
85% of all year-to-date purchasing activity to ensure that the cost of goods
sold calculations were materially accurate. Management believes that this
expanded sampling of the majority of all merchandise purchases during the fiscal
year, combined with the update and ongoing maintenance of item level product
cost data in the item master file, are effective internal controls to ensure the
accuracy of the cost of goods sold calculations.
To further mitigate the risk of error in the cost of goods sold
calculations a full physical inventory was taken at the warehouse and reconciled
to the financial records during the fourth quarter of fiscal 2006. The shrinkage
calculated during the reconciliation completed during the fourth quarter of
fiscal 2006 was inconsequential. A full physical inventory has been and will
continue to be taken each year at the warehouse and reconciled to the financial
records.
The updates to and maintenance of item level product cost data in the item
master file is also expected to improve the accuracy of discount percentages
used to calculate the credits for merchandise returns. This is expected to
reduce significantly the risk of miscalculating the credits for returns. We will
continue to reconcile the major vendors' statement activity to payables activity
on a quarterly basis to identify return differences and resolve those
discrepancies with vendors.
Inadequate segregation of duties for accounts payable management and
inadequate controls over access to the payables vendor master file. The director
of accounts payable and the manager of accounts payable together manage all
accounts payable, including the reconciliation of accounts payable detail
activity to the general ledger. While our procedures for accounts payable stated
that neither the director nor the manager were allowed to be involved in vendor
master file maintenance, as of the end of the second quarter the system did not
prevent either of them from making entries to, or performing maintenance on, the
vendor master file. As of October 14, 2005, access privileges to the vendor file
for the director and the manager were revoked. Also, starting with the October
2005 monthly closing process, a senior accounting manager outside of the
accounts payable function is reviewing the reconciliation of the accounts
payable detail activity to the general ledger each month. Management believes
that this significant deficiency was remediated as of the end of the third
quarter of fiscal 2006.
Inadequate independent verification of expense invoice supporting
documentation. In addition to having responsibility for the merchandise payment
process, the accounts payable department also has the responsibility to manage
and process payments for expense invoices. Our policies and procedures in place
as of the second quarter of fiscal 2006 were not adequate to ensure that
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expense invoices processed for payment were approved by management at the
appropriate level and that supporting documentation was adequate to support the
amount being paid.
As of October 14, 2005, we established company wide expense approval
policies and procedures by department that specifically identify which employees
have authority for approving invoices, the maximum dollar threshold they can
approve and the dollar threshold at which additional approval is required. As of
December 1, 2005 we implemented policies and procedures requiring supporting
documentation to be provided with expense invoices for certain categories of
expense activity for approval by management. Management believes that this
significant deficiency was remediated as of December 1, 2005.
To mitigate the risk of misstatement of expense activity prior to the time
the new expense approval policies and procedures were put in place, during the
second and third quarters of fiscal 2006, we completed a subsequent review of
invoices processed for sixty days after the end of the second quarter and for
thirty days after the end of the third quarter. This process did not identify
any significant changes to the amounts originally accrued for the each of the
quarter closings.
The efforts we have taken as described above are subject to continued
management review supported by confirmation and testing by management, our
internal auditors and the outside consultants, as well as audit committee
oversight.
There have been no other material changes in our disclosure controls and
procedures, or our internal control over financial reporting, during the fourth
quarter of fiscal 2006 that have materially affected, or are reasonably likely
to materially affect, our disclosure controls and procedures or our internal
control over financial reporting.
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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 2009," "Incumbent Directors - Term
Expiring 2007," and "Incumbent Directors - Term Expiring 2008" on pages 3 and 4
of the Proxy Statement for the Annual Meeting of Stockholders to be held June 8,
2006, 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 5 through 11 of the Proxy Statement for the Annual
Meeting of Stockholders to be held June 8, 2006 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 45 Executive Chairman of the Board
Sandra B. Cochran 47 President, Chief Executive Officer and Secretary
Terrance G. Finley 52 President Books-A-Million, Inc. Merchandising Group
Richard S. Wallington 47 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 of Hibbett Sporting Goods, Inc., a sporting
goods retailer. Mr. Anderson is the son of Charles C. Anderson, a majority
stockholder, and the brother of Terry C. Anderson, a member 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 Company's Executive Vice President
from February 1996 to August 1999 and as its 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. Sandra B. Cochran serves as an officer and a
board member of certain affiliated companies.
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 of the Company 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 9 of the Proxy Statement for the Annual
Meeting of Stockholders to be held June 8, 2006 is incorporated herein by
reference.
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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 2006.
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 11 through 16 of the Proxy Statement for the
Annual Meeting of Stockholders to be held June 8, 2006 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 page 10 of the
Proxy Statement for the Annual Meeting of Stockholders to be held June 8, 2006
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 13 and 14 of the Proxy
Statement for the Annual Meeting of Stockholders to be held June 8, 2006 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 7 and 8 of the Proxy Statement for
the Annual Meeting of Stockholders to be held June 8, 2006 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 28, 2006
are incorporated by reference in Part II, Item 8:
Consolidated Balance Sheets as of January 28, 2006, and January 29,
2005.
Consolidated Statements of Income for the Fiscal Years Ended January
28, 2006, January 29, 2005 and January 31, 2004.
Consolidated Statements of Changes in Stockholders' Equity for the
Fiscal Years Ended January 28, 2006, January 29, 2005 and January
31, 2004.
Consolidated Statements of Cash Flows for the Fiscal Years Ended
January 28, 2006, January 29, 2005 and January 31, 2004.
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Notes to Consolidated Financial Statements.
Reports of Independent Registered Public Accounting Firms.
2. Financial Statement Schedule:
The following consolidated financial statement schedule of
Books-A-Million, Inc. is attached hereto:
Reports of Independent Registered Public Accounting Firm on
Financial Statement Schedule.
Schedule II 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. 0-20664, filed 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).
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<PAGE>
10.8 -- Executive Incentive Plan (incorporated by reference to Exhibit
10.8 to Annual Report on Form 10-K for the fiscal year ended
January 28, 1995, File No. 0-20664, filed April 28, 1995).
10.20 -- 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).
10.21 -- First Amendment to the Credit Agreement dated as of June 14,
2004 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 10.21
to Annual Report on Form 10-K for the fiscal year ended
January 29, 2005).
10.22 -- Second Amendment to the Credit Agreement dated as of June 20,
2005 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 99
(B)(3) to Tender Offer Statement by Issuer on Form SC TO-I for
the Tender Offer closed on June 23, 2005).
10.23 -- 2005 Incentive Award Plan (incorporated by reference to
Exhibit 10.1 to form 8-K for adoption of the plan on June 1,
2005, File No. 333-126008, filed June 29, 2005).
10.24 -- Executive Deferred Compensation Plan (incorporated by
reference to Exhibit 10.3 on Form 8-K, File No. 0-20664, filed
August 22, 2005).
10.25 -- Director's Deferred Compensation Plan (incorporated by
reference to Exhibit 10.2 on Form 8-K, File No. 0-20664, filed
August 22, 2005).
13 -- Portions of the Annual Report to Stockholders for the year
ended January 28, 2006 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).
23.1 -- Consent of Grant Thornton LLP, Independent Registered Public
Accounting Firm.
23.2 -- Consent of Deloitte & Touche LLP, 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.
(b) 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).
19
<PAGE>
20
<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 13, 2006
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 13, 2006
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Richard S. Wallington
- ------------------------------------------
Richard S. Wallington
Chief Financial Officer
Date: April 13, 2006
DIRECTORS:
/s/ Clyde B. Anderson
- ------------------------------------------
Clyde B. Anderson
Date: April 13, 2006
/s/ Ronald G. Bruno
- ------------------------------------------
Ronald G. Bruno
Date: April 13, 2006
21
<PAGE>
DIRECTORS:
/s/ J. Barry Mason
- ------------------------------------------
J. Barry Mason
Date: April 13, 2006
/s/ Terry C. Anderson
- ------------------------------------------
Terry C. Anderson
Date: April 13, 2006
/s/ Albert C. Johnson
- ------------------------------------------
Albert C. Johnson
Date: April 13, 2006
/s/ William H. Rogers, Jr.
- ------------------------------------------
William H. Rogers, Jr.
Date: April 13, 2006
22
<PAGE>
REPORT OF GRANT THORNTON, LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,
ON FINANCIAL STATEMENTS
Board of Directors and
Shareholders of Books-A-Million, Inc.
We have audited the accompanying balance sheet of Books-A-Million, Inc. as of
January 28, 2006 and the related statements of income, changes in stockholders'
equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with the standards of 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Books-A-Million, Inc. as of
January 28, 2006, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule II for the year ended
January 28, 2006 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of
Books-A-Million, Inc.'s internal control over financial reporting as of January
28, 2006, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 22, 2006 expressed an unqualified
opinion on management's assessment of, and the effective operation of, internal
control over financial reporting.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
March 22, 2006
S-1
<PAGE>
REPORT OF GRANT THORNTON, LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Board of Directors and
Shareholders of Books-A-Million, Inc.
We have audited management's assessment, included in the accompanying
Management's Report on Internal Controls Over Financial Reporting, that
Books-A-Million, Inc. maintained effective internal control over financial
reporting as of January 28, 2006, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Books-A-Million, Inc.'s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Books-A-Million, Inc. maintained
effective internal control over financial reporting as of January 28, 2006, is
fairly stated, in all material respects, based on the Internal Control -
Integrated Framework issued by the COSO. Also in our opinion, Books-A-Million,
Inc. maintained, in all material respects, effective internal control over
financial reporting as of January 28, 2006, based on criteria established in
Internal Control - Integrated Framework issued by the COSO.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the balance sheet of
Books-A-Million, Inc. as of January 28, 2006, and the related statements of
income, stockholders' equity, and cash flows for the year then ended and our
report dated March 22, 2006 expressed an unqualified opinion on those financial
statements.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
March 22, 2006
S-2
<PAGE>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
BOOKS-A-MILLION, INC.
BIRMINGHAM, ALABAMA
We have audited the accompanying consolidated balance sheets of Books-A-Million,
Inc. and subsidiaries (the "Company") as of January 29, 2005 and January 31,
2004 and the related consolidated statements of income , stockholders' equity,
and cash flows for the fiscal years then ended. 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 of 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. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, 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 subsidiaries as of January 29, 2005 and January 31, 2004, and the
results of their operations and their cash flows for the fiscal years then
ended, 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, 2003, the Company changed its method of accounting for inventories.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
April 25, 2005 (April 12, 2006 as to Note 7)
<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 29, 2005 and January 31, 2004
and for each of the fiscal years then ended January 29, 2005, and have issued
our report thereon dated April 25, 2005 (April 12, 2006 as to Note 7) (which
report expresses an unqualified opinion and includes an explanatory paragraph
relating to the adoption of new accounting principles as described in Note 1 to
the consolidated financial statements); such financial statements and report are
included in the Company's 2006 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of Books-A-Million, Inc. for the years ended January 29, 2005
and January 31, 2004, 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 25, 2005
S-4
<PAGE>
SCHEDULE II.
BOOKS-A-MILLION, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 2004, JANUARY 29, 2005 AND JANUARY 28, 2006
<TABLE>
<CAPTION>
CHARGED/
BALANCE AT (CREDITED) (DEDUCTIONS)/
BEGINNING TO COSTS RECOVERIES BALANCE AT
OF YEAR AND EXPENSES NET END OF YEAR
---------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31, 2004:
Allowance for doubtful accounts $ 711,955 $ 534,300 $(701,010) $ 545,245
FOR THE YEAR ENDED JANUARY 29, 2005:
Allowance for doubtful accounts $ 545,245 $ 241,152 $(205,845) $ 580,552
FOR THE YEAR ENDED JANUARY 28, 2006:
Allowance for doubtful accounts $ 580,552 $ 218,493 $ 41,086 $ 840,131
</TABLE>
S-5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>2
<FILENAME>g00783exv13.txt
<DESCRIPTION>EX-13 PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS
<TEXT>
<PAGE>
EXHIBIT 13
BOOKS-A-MILLION
2006 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 19 states and the District of Columbia. The Company operates two
distinct store formats, including large superstores operating under the names
Books-A-Million and Books & Co. and traditional bookstores operating under the
names Books-A-Million, Bookland and Joe Muggs Newsstand.
FIVE-YEAR HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED:
(In thousands, except per share amounts) 1/28/06 1/29/05 1/31/04(1) 2/1/03(2) 2/2/02
- ---------------------------------------- --------- --------- ----------- ---------- ---------
52 WEEKS 52 weeks 52 weeks 52 weeks 52 weeks
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales $ 503,751 $ 474,099 $ 457,234 $ 435,339 $ 434,829
Income before cumulative effect of a change
in accounting principle(2) 13,067 10,199 7,126 2,554 3,944
Net income 13,067 10,199 7,126 1,353 3,944
Earnings per share - diluted, before cumulative
effect of a change in accounting principle(2) 0.77 0.59 0.42 0.15 0.23
Earnings per share - diluted 0.77 0.59 0.42 0.08 0.23
Weighted average shares - diluted 16,964 17,178 16,789 16,566 16,945
Capital investment 11,297 14,923 10,402 19,836 12,688
Dividends per share - declared 0.23 0.23 0.00 0.00 0.00
BALANCE SHEET DATA
Property and equipment, net $ 51,001 $ 55,946 $ 59,892 $ 68,912 $ 67,941
Total assets 311,659 300,812 296,398 319,484 306,083
Long-term debt 7,200 7,500 20,640 44,942 38,846
Stockholders' equity 145,009 134,859 131,001 122,694 121,212
OTHER DATA
Working capital $ 106,637 $ 95,382 $ 104,723 $ 112,810 $ 105,638
Debt to total capital ratio 0.05 0.05 0.14 0.27 0.24
OPERATIONAL DATA
Total number of stores 205 206 202 207 204
Number of superstores 173 168 163 163 157
Number of traditional stores 32 38 39 44 47
</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
of 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.
1
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
TO OUR STOCKHOLDERS:
Fiscal year 2006 was one of continued progress for Books-A-Million. We achieved
strong comparable store sales results while reducing inventory, improving
margins, and strengthening our balance sheet.
Book sales were excellent. Nearly all categories showed increases. Highlights
included children's books, the games category, teen reading, entertainment,
biography, humor, history, cooking and inspirational books.
Media once again played a key role in driving sales. The release of Harry Potter
and The Half Blood Prince was a major media event. Movie tie-ins such as The
Chronicles Of Narnia and Harry Potter further drove business in children's
books. The Sudoku craze, reinforced by exposure in countless newspapers and
magazines, fueled the game book category. Oprah's pick of James Frey's A Million
Little Pieces -- and the resulting controversy -- generated tremendous sales in
the biography category. Food Network stars Paula Deen and Rachael Ray dominated
the cookbook category. Ultimately, it was a great year for books, and our team
did a good job planning for and making the most of these media-driven
opportunities.
Our non-book departments also performed well. Games and puzzles grew rapidly,
benefiting from the Sudoku craze. An initiative in inspirational gifts delivered
strong results, as did executive gifts resulting from our increased emphasis on
imported gift merchandise. The cafe business is increasingly competitive, but
the cold-drink category continues to grow, and an expanded selection of
specialty candy saw excellent sales.
2
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
The positive sales results, combined with improvements in systems and
operations, contributed to another year of improving margins, better inventory
turn, and reduced debt. We opened seven new stores in 2006 and continued our
remodeling program.
As a result of our team's dedicated efforts, we saw net income increase more
than 28% and earnings per share improve by more than 30%. We increased our
quarterly dividend to $0.08 per share, which is now at an annual rate of $0.32
per share.
We look forward to the new year with a commitment to maintaining our focus on
the fundamentals of our business and continued growth. Thank you for your
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) 1/28/06 1/29/05
- ---------------------------------------- --------- ---------
<S> <C> <C>
Net sales $ 503,751 $ 474,099
Operating profit 23,037 18,092
Net income 13,067 10,199
Net income per share - diluted 0.77 0.59
Dividends per share - declared 0.23 0.23
</TABLE>
<TABLE>
<CAPTION>
AS OF
---------------------
(In thousands) 1/28/06 1/29/05
- --------------------- --------- ---------
<S> <C> <C>
Working capital $ 106,637 $ 95,382
Total assets 311,659 300,812
Stockholders' equity 145,009 134,859
</TABLE>
3
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
(In thousands, except per share data) 1/28/06 1/29/05 1/31/04(1) 2/1/03(2) 2/2/02
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
52 WEEKS 52 weeks 52 weeks 52 weeks 52 weeks
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 503,751 $ 474,099 $ 457,234 $ 435,339 $ 434,829
Cost of products sold, including warehouse distribution and store
occupancy costs 357,166 339,012 330,150 316,257 311,398
---------- ---------- ---------- ---------- ----------
Gross profit 146,585 135,087 127,084 119,082 123,431
Operating, selling and administrative expenses 109,160 99,207 93,974 91,567 95,254
Gain on insurance recovery 1,248 -- -- -- --
Depreciation and amortization 15,636 17,788 18,065 18,229 17,195
---------- ---------- ---------- ---------- ----------
Operating profit 23,037 18,092 15,045 9,286 10,982
Interest expense, net 1,441 1,874 2,909 4,171 4,429
---------- ---------- ---------- ---------- ----------
Income from continuing operations before income taxes and cumulative
effect of change in accounting principle 21,596 16,218 12,136 5,115 6,553
Provision for income taxes 8,545 6,001 4,613 1,944 2,489
---------- ---------- ---------- ---------- ----------
Income from continuing operations before cumulative effect of change
in accounting principle 13,051 10,217 7,523 3,171 4,064
Discontinued operations:
(Loss) income from discontinued operations (including impairment
charge) 27 (29) (641) (996) (192)
Income tax provision (benefit) 11 (11) (244) (379) (72)
---------- ---------- ---------- ---------- ----------
(Loss) income from discontinued operations 16 (18) (397) (617) (120)
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of change in accounting principle 13,067 10,199 7,126 2,554 3,944
Cumulative effect of change in accounting principle, net of income
taxes -- -- -- (1,201) --
---------- ---------- ---------- ---------- ----------
Net income $ 13,067 $ 10,199 $ 7,126 $ 1,353 $ 3,944
========== ========== ========== ========== ==========
Net income per common share:
BASIC:
Income from continuing operations before cumulative effect of
change in accounting principle $ 0.80 $ 0.62 $ 0.46 $ 0.20 $ 0.24
Loss from discontinued operations -- -- (0.02) (0.04) --
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of change in accounting principle 0.80 0.62 0.44 0.16 0.24
Cumulative effect of change in accounting principle -- -- -- (0.08) --
---------- ---------- ---------- ---------- ----------
Net income per share $ 0.80 $ 0.62 $ 0.44 $ 0.08 $ 0.24
========== ========== ========== ========== ==========
Weighted average number of shares outstanding - basic 16,384 16,453 16,279 16,190 16,667
========== ========== ========== ========== ==========
DILUTED:
Income from continuing operations before cumulative effect of
change in accounting principle $ 0.77 $ 0.59 $ 0.45 $ 0.19 $ 0.24
Loss from discontinued operations -- -- (0.03) (0.04) (0.01)
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of change in accounting principle 0.77 0.59 0.42 0.15 0.23
Cumulative effect of change in accounting principle -- -- -- (0.07) --
---------- ---------- ---------- ---------- ----------
Net income per share $ 0.77 $ 0.59 $ 0.42 $ 0.08 $ 0.23
========== ========== ========== ========== ==========
Weighted average number of shares outstanding - diluted 16,964 17,178 16,789 16,566 16,945
========== ========== ========== ========== ==========
Dividends per share - declared $ 0.23 $ 0.23 -- -- --
Pro forma amounts assuming the change in accounting principle was
applied retroactively:(1)
Net income N/A N/A N/A N/A $ 3,891
Net income per share - basic N/A N/A N/A N/A 0.23
Net income per share - diluted N/A N/A N/A N/A 0.23
BALANCE SHEET DATA:
Property and equipment, net $ 51,001 $ 55,946 $ 59,892 $ 68,912 $ 67,941
Total assets 311,659 300,812 296,398 319,484 306,083
Long-term debt 7,200 7,500 20,640 44,942 38,846
Stockholders' investment 145,009 134,859 131,001 122,694 121,212
OTHER DATA:
Working capital $ 106,637 $ 95,382 $ 104,723 $ 112,810 $ 105,638
</TABLE>
(1) 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, as discussed in Note 1 of 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.
4
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
GENERAL
The Company was founded in 1917 and currently operates 205 retail bookstores
concentrated primarily in the southeastern United States. Of the 205 stores, 173
are superstores that operate under the names Books-A-Million and Books & Co.,
and 32 are traditional stores that operate under the Bookland, Books-A-Million
and Joe Muggs Newsstand names. 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 28, 2006, the Company employed approximately
5,000 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. During fiscal 2006, the Company opened seven stores,
closed eight stores and relocated three stores. 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. The remodeled stores have consistently shown
improvement in comparable store sales in the first year after completing their
remodel. During fiscal 2006, the Company remodeled 16 stores. Approximately 66%
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. 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.
CHANGE IN ACCOUNTANTS
Upon the recommendation of the Audit Committee of the Board of Directors of the
Company, Deloitte & Touche LLP ("Deloitte") was dismissed as the Company's
independent auditor effective April 29, 2005. Deloitte served as the Company's
independent auditor for fiscal years 2003, 2004 and 2005. The reports of
Deloitte for those fiscal years did not contain an adverse opinion or disclaimer
of opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles. During those fiscal years and for fiscal year 2006
through April 29, 2005 there were no (A) disagreements with Deloitte on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of Deloitte, would have caused Deloitte to make reference to such
disagreements in its reports provided to the Company; and (B) reportable events
(as defined in Item 304(a)(1)(v) of Regulation S-K).
Effective April 29, 2005, the Company's Audit Committee engaged Grant Thornton
LLP to audit the Company's financial statements for the fiscal year ending on
January 28, 2006. Prior to the engagement of Grant Thornton LLP, neither the
Company nor anyone on behalf of the Company had consulted with Grant Thornton
LLP during the Company's two most recent fiscal years and for fiscal year 2006
through April 29, 2005 in any matter regarding either: (A) the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's financial
statements, and neither was a written report nor oral advice provided to the
Company that Grant Thornton LLP concluded was an important factor considered by
the Company in reaching a decision as to the accounting, auditing or financial
reporting issue; or (B) any matter which was the subject of either a
disagreement or a reportable event, as each are defined in Item 304(a)(1)(iv)
and (v) of Regulation S-K, respectively.
CRITICAL ACCOUNTING POLICIES
General
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses 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.
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 five 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
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BOOKS-A-MILLION
2006 Annual Report
Other Long-Lived Assets
The Company's other long-lived assets consist of property and equipment which
includes leasehold improvements. At January 28, 2006, the Company had $51.0
million of property and equipment, net of accumulated depreciation, accounting
for approximately 16.4% of the Company's total assets. The Company reviews its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." The Company
evaluates long-lived assets for impairment at the individual store level, which
is the lowest level at which individual cash flows can be identified. When
evaluating long-lived assets for potential impairment, the Company will first
compare the carrying amount of the assets to the individual store's estimated
future undiscounted cash flows. If the estimated future cash flows are less than
the carrying amount of the assets, an impairment loss calculation is prepared.
The impairment loss calculation compares the carrying amount of the assets to
the individual store's fair value based on its estimated discounted future cash
flows. If required, an impairment loss is recorded for that portion of the
asset's carrying value in excess of fair value. Impairment losses totaled $0.2
million, $0.3 million and $1.0 million in fiscal 2006, 2005 and 2004,
respectively, and were recorded in selling, general and administrative costs.
For all years presented, the impairment losses related to the retail trade
business segment.
Goodwill
At January 28, 2006, the Company had $1.4 million of goodwill, accounting for
approximately 0.4% of the Company's total assets. SFAS No. 142, "Goodwill and
Other Intangible Assets," requires that goodwill and other unamortizable
intangible assets no longer be amortized, but instead be tested for impairment
at least annually or earlier if there are impairment indicators. The Company
performs a two-step process for impairment testing of goodwill as required by
SFAS No. 142. The first step of this test, used to identify potential
impairment, compares the estimated fair value of a reporting unit with its
carrying amount. The second step (if necessary) measures the amount of the
impairment. The Company completed its annual impairment test on the goodwill
during the fourth quarter of fiscal 2006 and deemed that no impairment charge
was necessary. The Company has noted no subsequent indicators of impairment.
Changes in market conditions, among other factors, could have a material impact
on these estimates.
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 $40,000, $55,000 and
$219,000 during fiscal 2006, 2005 and 2004, 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.
The Company utilizes the last-in, first-out (LIFO) method of accounting for
inventories. The cumulative difference between replacement and current cost of
inventory over stated LIFO value is $1.5 million as of January 28, 2006 and $1.1
million as of January 29, 2005. The estimated replacement cost of inventory is
the current FIFO value of $206.3 million.
Vendor Allowances
The Company receives allowances from its vendors from a variety of programs and
arrangements, including merchandise placement and cooperative advertising
programs. Effective February 3, 2002, the Company adopted the provisions of
Emerging Issues Task Force ("EITF") No. 02-16, Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor, which
addresses the accounting for vendor allowances. As a result of the adoption of
this statement, vendor allowances in excess of incremental direct costs are
reflected as a reduction of inventory costs and recognized in cost of products
sold upon the sale of the related inventory.
6
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BOOKS-A-MILLION
2006 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
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.
RESULTS OF OPERATIONS
The following table sets forth statement of income data expressed as a
percentage of net sales for the periods presented.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
1/28/06 1/29/05 1/31/04
------- ------- -------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 29.1% 28.5% 27.8%
Operating, selling, and administrative expenses 21.7% 20.9% 20.5%
Gain on insurance recoveries (0.3%) 0.0% 0.0%
Depreciation and amortization 3.1% 3.8% 4.0%
Operating profit 4.6% 3.8% 3.3%
Interest expense, net 0.3% 0.4% 0.6%
Income from continuing operations before income taxes 4.3% 3.4% 2.7%
Provision for income taxes 1.7% 1.2% 1.0%
Income from continuing operations 2.6% 2.2% 1.7%
(Gain)/loss from discontinued operations (including impairment charge), net of tax 0.0% 0.0% 0.1%
Net income 2.6% 2.2% 1.6%
</TABLE>
Fiscal 2006 Compared to Fiscal 2005
Consolidated net sales increased $29.7 million, or 6.3%, to $503.8 million in
fiscal 2006 from $474.1 million in fiscal 2005. 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 and
gift sales. Several categories of book sales showed increases, including
children's books, the games category, teen reading, entertainment, biography,
humor, history, cooking, and inspirational books. Media played a key role in
driving sales. The release of Harry Potter and The Half Blood Prince was a major
media event. Movie tie-ins such as The Chronicles Of Narnia and Harry Potter
drove business in children's books. The Sudoku craze fueled the game book
category. Teen fiction continued to experience dynamic growth, predominately as
a result of interest in a wide ranging number of fiction titles. Oprah's pick of
James Frey's A Million Little Pieces generated sales in the biography category.
Bestselling titles 1776 and The World is Flat drove sales in the history
category, and Food Network stars Paula Deen and Rachael Ray dominated the
cookbook category.
The gift department also performed well. Games and puzzles grew rapidly,
benefiting from the Sudoku craze. An initiative in inspirational gifts delivered
strong results, as did executive gifts from our increased emphasis on imported
gift merchandise. The cafe business is increasingly competitive, but the
cold-drink category continues to grow, and an expanded selection of specialty
candy helped improve sales.
The Company opened seven new stores during fiscal 2006 resulting in partial year
sales of $9.9 million and closed eight stores during fiscal 2006 with partial
year sales of $4.3 million. The stores in Biloxi, Mississippi, and Deerfield
Beach, Florida, were temporarily closed due to the hurricanes which decreased
sales by $1.4 million for fiscal 2006 versus fiscal 2005.
Net sales for the retail trade segment increased $30.9 million, or 6.6%, to
$496.6 million in fiscal 2006 from $465.7 million in fiscal 2005. The increase
in comparable store sales was primarily attributable to the increases in book
and gift sales described above.
Net sales for the electronic commerce segment increased $0.9 million, or 3.6%,
to $27.6 million in fiscal 2006 from $26.7 million in fiscal 2005. This increase
was primarily due to growth in business-to-business sales volume during fiscal
2006.
Gross profit, which includes cost of sales, distribution costs and occupancy
costs (including rent, common area maintenance,
7
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BOOKS-A-MILLION
2006 Annual Report
property taxes, utilities and merchant association dues), increased $11.5
million, or 8.5%, to $146.6 million in fiscal 2006 from $135.1 million in fiscal
2005. Gross profit as a percentage of net sales increased to 29.1% in fiscal
2006 from 28.5% in fiscal 2005, partially due to increased sales of proprietary
product which has a higher gross profit than regular product. Also, the Company
was able to generate higher sales in fiscal 2006 with less promotional
discounting.
Operating, selling and administrative expenses increased $10.0 million, or
10.0%, to $109.2 million in fiscal 2006, from $99.2 million in fiscal 2005.
Operating, selling and administrative expenses as a percentage of net sales
increased to 21.7% in fiscal 2006 from 20.9% in fiscal 2005, primarily due to
the impact of costs incurred for Sarbanes-Oxley compliance, costs associated
with the NASDAQ de-listing hearing in October 2005 and other corporate expenses
In fiscal 2006, the Company recognized an insurance gain of $754,000, net of
taxes, related to insurance recoveries for hurricane damage suffered at three
stores in the third quarter of fiscal 2005. The insurance recovery amounts were
finalized with the insurance company during fiscal 2006, therefore the gain was
recorded in the current fiscal year.
Depreciation and amortization decreased $2.2 million, or 12.1%, to $15.6 million
in fiscal 2006 from $17.8 million in fiscal 2005. Depreciation and amortization
as a percentage of net sales decreased to 3.1% in fiscal 2006 from 3.8% in
fiscal 2005, due to lower capital expenditures in fiscal 2006, as well as
the impact of certain assets becoming fully depreciated during the prior year.
Consolidated operating profit was $23.0 million for fiscal 2006 compared to
$18.1 million in fiscal 2005. Operating profit for the retail trade segment was
$22.4 million in fiscal 2006 versus $16.9 million in fiscal 2005. This increase
was partially attributable to increased comparable store sales which resulted in
higher gross profit for fiscal 2006. Also, gross profit improved as a percentage
of sales due to increased sales of proprietary product which has a higher gross
profit, as well as less promotional discounting due to the strong sales
environment. These increases were partially offset by higher operating, selling
and administrative expenses as a percentage of sales due to the costs incurred
for Sarbanes-Oxley compliance, costs associated with the NASDAQ de-listing
hearing and other corporate expenses. The operating profit for the electronic
commerce segment was $1.0 million compared to $0.9 million in fiscal 2005. The
improvement in operating results was due to improved gross margin as a result of
increased sales.
Net interest expense decreased $0.5 million, or 23.1%, to $ 1.4 million in
fiscal 2006 from $1.9 million in fiscal 2005, primarily due to lower average
debt levels during fiscal 2006.
The effective rate for income tax purposes was 39.6% for fiscal 2006 and 37.0%
for fiscal 2005. The increase in the effective tax rate was due to a higher
state effective tax rate in fiscal 2006.
The Company closed two stores in fiscal 2006 and 2005 in markets where the
Company does not expect to retain the closed stores' customers at another store.
The financial impact of these closings was reported as discontinued operations
in the financial statements, but had a minimal impact on the financial results
of the Company.
Fiscal 2005 Compared to Fiscal 2004
Consolidated net sales increased $16.9 million, or 3.7%, to $474.1 million in
fiscal 2005 from $457.2 million in fiscal 2004. Comparable store sales increased
2.5% when compared to the same 52-week period of fiscal 2004. The increase in
comparable store sales was primarily attributable to an increase in book sales
and increase in cafe sales. The book sales increase was due to strong sales
performance in categories such as: Fiction, which had broad based strength in
many titles; Inspirational, with strong sales of The Purpose Driven Life;
Biography, with strong sales of Bill Clinton's My Life; and Humor, which was
driven by sales of Jon Stewart's America (The Book) and He's Just Not That Into
You. The cafe sales increase was driven by the strong performance in the frappe
line of cold drinks. The Company opened six new stores during fiscal 2005
resulting in partial year sales of $3.6 million and closed two stores during
fiscal 2005 with partial year sales of $1.0 million. One of the closed stores
was located in Stewart, Florida, and was not reopened after substantial damage
due to Hurricane Jean. 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 $14.6 million, or 3.2%, to
$465.7 million in fiscal 2005 from $451.1 million in fiscal 2004. The increase
in comparable store sales was primarily attributable to an increase in book
sales and increase in cafe sales. The book sales increase was due to strong
sales performance in categories such as: Fiction, which had broad based strength
in many titles; Inspirational, with strong sales of The Purpose Driven Life;
Biography, with strong sales of Bill Clinton's My Life; and Humor, which was
driven by sales of Jon Stewart's America (The Book) and He's Just Not That Into
You. The cafe sales increase was driven by the strong performance in the frappe
line of cold drinks. Net sales for the electronic commerce segment increased
$1.2 million, or 4.7%, to $26.7 million in fiscal 2005 from $25.5 million in
fiscal 2004. This increase was primarily due to growth in business-to-business
sales volume during fiscal 2005.
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 $8.0 million, or 6.3%, to $135.1 million
in fiscal 2005 from $127.1 million in fiscal 2004. Gross profit as a percentage
of net sales increased to 28.5% in fiscal 2005 from 27.8% in fiscal 2004,
8
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BOOKS-A-MILLION
2006 Annual Report
primarily due to less promotional discounting and improved margin due to
increased sales of proprietary product.
Operating, selling and administrative expenses increased $5.2 million, or 5.6%,
to $99.2 million in fiscal 2005, from $94.0 million in fiscal 2004. Operating,
selling and administrative expenses as a percentage of net sales increased to
20.9% in fiscal 2005 from 20.5% in fiscal 2004, partially due to the impact of
costs incurred for Sarbanes-Oxley compliance, as well as increased general
corporate expenses.
Depreciation and amortization decreased $0.3 million, or 1.5%, to $17.8 million
in fiscal 2005 from $18.1 million in fiscal 2004. Depreciation and amortization
as a percentage of net sales decreased to 3.8% in fiscal 2005 from 4.0% in
fiscal 2004, due to lower capital expenditures in fiscal 2005.
Consolidated operating profit was $18.1 million for fiscal 2005 compared to
$15.0 million in fiscal 2004. Operating profit for the retail trade segment was
$16.9 million in fiscal 2005 versus $14.2 million in fiscal 2004. This increase
was primarily attributable to the higher comparable store sales during fiscal
2005. The operating profit for the electronic commerce segment was $0.9 million
compared to $0.3 million in fiscal 2004. The improvement in operating results
was due to improved gross margin as a result of increased sales, as well as
improved sales mix.
Net interest expense decreased $1.0 million, or 35.6%, to $1.9 million in fiscal
2005 from $2.9 million in fiscal 2004, primarily due to lower average debt
levels during fiscal 2005.
The effective rate for income tax purposes was 37.0% for fiscal 2005 and 38.0%
for fiscal 2004.
Loss from discontinued operations was $0.0 million in fiscal 2005 compared to
$0.6 million in fiscal 2004. The income tax benefit on the loss from
discontinued operations was $0.0 million in fiscal 2005 and $0.2 million in
fiscal 2004. Loss from discontinued operations, net of tax, was $0.0 million in
fiscal 2005 compared to $0.4 million in fiscal 2004. These losses in fiscal 2005
and fiscal 2004 represent the results during those years of two stores that were
closed in fiscal 2006, two stores that were closed in fiscal 2005 and 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.
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 under a credit agreement
with a syndicate of banks that allows borrowings up to $100.0 million, for which
no principal repayments are due until the facility expires in July 2007.
Availability under the facility is reduced by outstanding letters of credit
issued under this facility. The credit agreement contains certain financial and
non-financial covenants, the most restrictive of which is the maintenance of a
minimum fixed charge coverage ratio. As of January 28, 2006 and January 29,
2005, there were no outstanding balances under this credit facility and the face
amount of letters of credit issued under the facility was $3.0 million and $2.6
million, respectively. The maximum and average outstanding borrowings under the
credit facility (excluding the face amount of letters of credit issued
thereunder) during fiscal 2006 were $23.7 million and $10.0 million,
respectively.
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 28, 2006 and January 29,
2005, there was $7.2 million and $7.5 million of borrowings outstanding,
respectively, under these arrangements, which bear interest at variable rates.
The Company's capital expenditures totaled $11.3 million in fiscal 2006. 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 2007 will be
approximately $26.4 million and that such amounts will be used for purposes
similar to fiscal 2006. The increase in capital expenditures projected for
fiscal 2007 is
9
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BOOKS-A-MILLION
2006 Annual Report
partially due to more new stores expected to be opened and relocations expected
in fiscal 2007 versus fiscal 2006, and partially due to a greater number of the
new stores expected to be opened in fiscal 2007 being built entirely by the
Company with the Company then being reimbursed by the landlord through
allowances treated as a sale/leaseback transaction. 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 2007.
Financial Position
During fiscal 2006, the Company opened seven stores and closed eight stores.
Improved inventory management resulted in a decrease in inventory balances to
$204.8 million at January 28, 2006, as compared to $210.3 million at January 29,
2005. The improvement in inventory management was driven by enhancements to the
inventory replenishment systems which allowed the Company to more effectively
manage inventory levels at the individual store level. Net property and
equipment decreased due to lower capital expenditures in fiscal 2006.
Additionally, cash and cash equivalents increased as of January 28, 2006
compared to January 29, 2005 primarily 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 28, 2006:
<TABLE>
<CAPTION>
PAYMENTS DUE UNDER CONTRACTUAL OBLIGATIONS
----------------------------------------------------------------------------
(in thousands) TOTAL FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 THEREAFTER
- -------------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt - revolving credit facility $ -- $ -- $ -- $ -- $ -- $ -- $ --
Long-term debt - industrial revenue bond 7,200 -- 7,200 -- -- -- --
Operating leases 138,506 30,916 27,343 22,083 17,028 13,404 27,732
-------- -------- -------- -------- -------- -------- --------
Total of obligations $145,706 $ 30,916 $ 34,543 $ 22,083 $ 17,028 $ 13,404 $ 27,732
======== ======== ======== ======== ======== ======== ========
</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.
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 28, 2006 and January 29, 2005, as such
liabilities are considered de minimis.
Cash Flows
Operating activities provided cash of $36,713,000, $47,193,000 and $34,678,000
in fiscal 2006, 2005 and 2004, respectively, and included the following effects:
- Cash provided by inventories was $5,481,000, $1,321,000 and
$12,428,000 in fiscal 2006, fiscal 2005 and fiscal 2004,
respectively. This was primarily the result of increased sales and
improved inventory management during the respective years.
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BOOKS-A-MILLION
2006 Annual Report
- Cash used by accounts payable (including related party payables) in
fiscal 2006 of $5,914,000 was due to lower inventory levels for
fiscal 2006 which resulted in lower accounts payable balances. Cash
provided by accounts payable (including related party payables) in
fiscal 2005 of $10,015,000 was the result of improved accounts
payable leveraging with vendors in fiscal 2005. Cash used by
accounts payable (including related party payables) in fiscal 2004
of $11,895,000 was due to lower inventory levels for fiscal 2004
which resulted in lower accounts payable balances.
- Depreciation and amortization expenses were $15,651,000, $17,843,000
and $18,325,000 in fiscal 2006, 2005 and 2004, respectively. The
decrease in fiscal 2006 and 2005 was primarily due to certain assets
becoming fully depreciated in those years.
- Cash provided by accrued expenses was $5,519,000, $6,379,000 and
$4,144,000 in fiscal 2006, 2005 and 2004, respectively. The increase
in fiscal 2006, 2005 and 2004 was primarily due to increases in
deferred revenues related to the Company's discount card, deferred
rent related to landlord allowances and higher bonus accruals due to
the Company's improved earnings performance in fiscal 2006, 2005 and
2004.
Cash used in investing activities in fiscal 2006, 2005 and 2004 reflected a net
use of cash of $11,286,000, $14,879,000 and $10,363,000, respectively. Cash was
used to fund capital expenditures for new store openings, renovation and
improvements to existing stores, warehouse distribution purposes and investments
in management information systems.
Financing activities used cash of $4,467,000 in fiscal 2006 primarily to
purchase stock ($5,324,000) and for dividend payments ($3,273,000), offset by
proceeds from the issuance of stock upon the exercise of stock options
($4,430,000). Financing activities used cash of $21,103,000 in fiscal 2005
primarily to repay debt under the credit facility ($13,140,000), to purchase
stock ($6,359,000) and for dividend payments ($3,009,000). Financing activities
used cash of $23,944,000 in fiscal 2004 representing a net repayment of debt
under the credit facility.
Dividends
The Company paid $3.3 million in dividends in fiscal 2006 and $3.0 million in
dividends in fiscal 2005. See the table below for summary of dividends declared
each quarter.
<TABLE>
<CAPTION>
Dividends Declared
Fiscal 2006 Fiscal 2005
----------- ------------
<S> <C> <C>
First quarter $ 0.05 --
Second quarter $ 0.05 $ 0.15 (1)
Third quarter $ 0.05 $ 0.03
Fourth quarter $ 0.08 $ 0.05
------ ------
Annual Total $ 0.23 $ 0.23
====== ======
</TABLE>
(1) In August, 2004 a special one-time dividend of $0.12 per share was
declared, as well as the first quarterly dividend of $0.03 per share.
Outlook
For fiscal 2007, the Company currently expects to open approximately eight to
ten new stores, relocate or remodel approximately 10 to 15 stores and close
approximately two to four stores. Management estimates that capital expenditures
for fiscal 2007 will be approximately $26.4 million and that such amounts will
be used primarily for new store openings, renovations and improvements to
existing stores, warehouse distribution improvements, and investment in
management information systems. The increase in capital expenditures versus
prior years is partially due to more new stores and relocations projected in
fiscal 2007, as well as a greater number of the new stores being built by the
Company with the Company then being reimbursed by the landlord through
allowances treated as a sale/leaseback transaction.
NEW ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (revised 2004, "Share-Based Payment.") SFAS No. 123R, "Accounting for
Stock-Based Compensation" is a revision of SFAS No. 123 and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. SFAS No. 123R is effective at the beginning of the first annual period
beginning after June 15, 2005 (as modified by the SEC on April 14, 2005). Under
APB Opinion No. 25, no stock-based compensation cost had been reflected in the
net income of the Company for grants of stock options to employees. No new stock
options have been granted to employees since December 2004. Beginning in fiscal
2007, the Company will recognize compensation expense in its financial
statements based on the fair value of all share-based payments to employees. The
impact of adopting this new accounting standard will be to reduce net income by
approximately $400,000, net of taxes, or $0.02 per diluted share in fiscal 2007
for unvested options issued prior to January 28, 2006.
In November, 2004 FASB issued SFAS No. 151, "Inventory Costs," which amends ARB
No. 43, Chapter 4 "Inventory Pricing." SFAS No. 151 clarifies the accounting for
inventory costs related to abnormal amounts of idle facility expense, freight,
handling costs, and wasted material. This Statement requires that those items be
recognized as current period charges regardless of whether they meet the
criteria of "so abnormal." SFAS No. 151 is effective with fiscal years
beginning after June 15, 2005. The impact of adopting this new accounting
standard on the Company's financial position, results of operations or cash
flows has not yet been determined.
In December, 2004 FASB issued SFAS No. 153 "Exchanges of Nonmonetary Assets",
which amends APB Opinion No. 29, "Accounting For Nonmonetary Transactions," to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS No. 153 is effective in the
first fiscal period beginning after June 15, 2005. The adoption of this new
accounting standard is not expected to have a material effect on the Company's
financial position, results of operations or cash flows.
In May, 2005 FASB issued SFAS No. 154 "Accounting Changes and Error
Corrections." which replaced APB Opinion No. 20, "Accounting Changes" and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements." SFAS No.
154 changes the requirements for the accounting for, and the reporting of, a
change in accounting principle. APB Opinion No. 20 previously required that
most voluntary changes in accounting principle be recognized by including in net
income of the period of the change the cumulative effect of changing to the new
accounting principle. SFAS No. 154 now requires retrospective application to
prior periods' financial statements of changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. SFAS No. 154 is effective with fiscal years
beginning after December 15, 2005. The impact of adopting this new accounting
standard on the Company's financial position, results of operations or cash
flows has not yet been determined.
FASB Staff Position No. 115-1, "The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments" ("FSP 115-1"), was issued in
November, 2005, which amends SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," SFAS No. 124, "Accounting for Certain
Investments Held by Not-for-Profit Organizations," and APB Opinion No. 18 " The
Equity Method of Accounting for Investments in Common Stock." FSP No. 115-1
addresses the determination as to when an investment is considered impaired,
whether that impairment is other than temporary, and the measurement of an
impairment loss. FSP No. 115-1 is effective with fiscal periods beginning after
December 15, 2005. The impact of adopting this new staff position on the
Company's financial position, results of operations or cash flows has not yet
been determined.
11
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
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 of merchandise to, related parties. Related party
inventory purchases increased by $4.5 million, or 14.7%, to $34.6 million in
fiscal 2006 compared to fiscal 2005 purchases of $30.1 million. The increase in
related party purchases was primarily due to increased magazine purchases versus
fiscal 2005. Related party sales transactions increased in fiscal 2006 to $1.1
million, an increase of $0.6 million as a result of increased book merchandise
sales. The Company leases certain office, retail and warehouse space from
related parties, for 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.
12
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
(Dollars In thousands, except per share amounts) 1/28/06 1/29/05
- ------------------------------------------------ ---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 37,519 $ 16,559
Accounts receivable, net of allowance for doubtful accounts of $840 and $581, respectively 9,668 6,543
Related party receivables 1,134 73
Inventories 204,789 210,270
Prepayments and other 4,340 6,911
Deferred income taxes - 1,704
---------- ----------
Total Current Assets 257,450 242,060
---------- ----------
PROPERTY AND EQUIPMENT:
Land 628 628
Buildings 6,470 6,439
Equipment 72,594 67,942
Furniture and fixtures 48,370 44,279
Leasehold improvements 73,404 71,323
Construction in process 2,072 5,353
---------- ----------
Gross Property and Equipment 203,538 195,964
Less accumulated depreciation and amortization 152,537 140,018
---------- ----------
Net Property and Equipment 51,001 55,946
---------- ----------
DEFERRED INCOME TAXES 1,662 -
---------- ----------
OTHER ASSETS:
Goodwill 1,368 1,368
Other 178 1,438
---------- ----------
Total Other Assets 1,546 2,806
---------- ----------
TOTAL ASSETS $ 311,659 $ 300,812
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade $ 98,171 $ 97,185
Related party 2,691 9,591
Accrued expenses 45,459 38,360
Accrued income taxes 1,838 1,542
Deferred income taxes 2,654 -
---------- ----------
Total Current Liabilities 150,813 146,678
---------- ----------
LONG-TERM DEBT 7,200 7,500
---------- ----------
DEFERRED INCOME TAXES - 1,415
---------- ----------
OTHER LONG-TERM LIABILITIES 8,637 10,360
---------- ----------
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 19,764,223 and 19,067,960
shares issued at January 28, 2006 and January 29, 2005, respectively 198 191
Additional paid-in capital 80,976 74,505
Treasury stock at cost (3,287,317 shares at January 28, 2006 and 2,792,869 shares at
January 29, 2005, respectively) (16,954) (11,630)
Deferred compensation (1,467) (481)
Accumulated other comprehensive loss, net of tax (7) (195)
Retained earnings 82,263 72,469
---------- ----------
Total Stockholders' Equity 145,009 134,859
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 311,659 $ 300,812
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
13
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
(In thousands, except per share data) 1/28/06 1/29/05 1/31/04
- ------------------------------------------------------------------------- ---------- ---------- ----------
52 WEEKS 52 weeks 52 weeks
<S> <C> <C> <C>
Net sales $ 503,751 $ 474,099 $ 457,234
Cost of products sold, including warehouse distribution and store occupancy costs 357,166 339,012 330,150
---------- ---------- ----------
GROSS PROFIT 146,585 135,087 127,084
Operating, selling and administrative expenses 109,160 99,207 93,974
Gain on insurance recoveries (note 10) 1,248 - -
Depreciation and amortization 15,636 17,788 18,065
---------- ---------- ----------
OPERATING PROFIT 23,037 18,092 15,045
Interest expense, net 1,441 1,874 2,909
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 21,596 16,218 12,136
Provision for income taxes 8,545 6,001 4,613
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 13,051 10,217 7,523
Discontinued operations:
(Loss) income from discontinued operations before taxes (including impairment charge) 27 (29) (641)
Income tax provision (benefit) 11 (11) (244)
---------- ---------- ----------
(Loss) Income from discontinued operations 16 (18) (397)
---------- ---------- ----------
NET INCOME $ 13,067 $ 10,199 $ 7,126
========== ========== ==========
Net income per common share:
BASIC
Income from continuing operations $ .80 $ 0.62 $ 0.46
Loss from discontinued operations -- -- (0.02)
---------- ---------- ----------
Net Income per share .80 0.62 0.44
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 16,384 16,453 16,279
========== ========== ==========
DILUTED
Income from continuing operations $ 0.77 $ 0.59 $ 0.45
Loss from discontinued operations -- -- (0.03)
---------- ---------- ----------
Net Income per share 0.77 0.59 0.42
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 16,964 17,178 16,789
========== ========== ==========
Dividends per share - declared $ 0.23 $ 0.23 --
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
14
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL TREASURY STOCK RESTRICTED OTHER TOTAL
------------- PAID-IN ---------------- STOCK RETAINED COMPREHENSIVE STOCKHOLDERS'
(In thousands) SHARES AMOUNT CAPITAL SHARES AMOUNT AMOUNT EARNINGS INCOME (LOSS) EQUITY
- ---------------------------------------- ------ ------ ------- ------ --------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 1, 2003 18,212 $ 182 $70,849 2,010 $ (5,271) $ - $58,153 $(1,219) $122,694
Net income 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 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 18,465 $ 185 $71,799 2,010 $ (5,271) $ (284) $65,279 $ (707) $131,001
------ ----- ------- ----- -------- ------- ------- ------- --------
Net income 10,199 10,199
Unrealized gain on accounting for
derivative instruments, net of tax
provision of $285 485 485
Reclassification of unrealized loss
related to de-designation of cash flow
hedge, net of tax benefit of $16 27 27
--------
Subtotal comprehensive income 10,711
--------
Purchase of treasury stock, at cost 783 (6,359) (6,359)
Dividends paid (3,009) (3,009)
Issuance of restricted stock 48 1 363 (364) --
Amortization of deferred compensation
related to restricted stock 167 167
Issuance of stock for employee stock
purchase plan 22 46 46
Exercise of stock options 533 5 1,354 1,359
Tax benefit from exercise of
stock options 943 943
------ ----- ------- ----- -------- ------- ------- ------- --------
BALANCE, JANUARY 29, 2005 19,068 $ 191 $74,505 2,793 $(11,630) $ (481) $72,469 $ (195) $134,859
------ ----- ------- ----- -------- ------- ------- ------- --------
Net income $13,067 $13,067
Unrealized gain on accounting for
derivative instruments, net of tax
provision of $89 141 141
Reclassification of unrealized loss
related to de-designation of cash flow
hedge, net of tax benefit of $30 47 47
--------
Subtotal comprehensive income 13,255
--------
Purchase of treasury stock, at cost 494 (5,324) (5,324)
Dividends paid (3,273) (3,273)
Issuance of restricted stock 43 1 1,433 (1,434) --
Amortization of deferred compensation
related to restricted stock 448 448
Issuance of stock for employee stock
purchase plan 13 84 84
Exercise of stock options 640 6 4,341 4,347
Tax benefit from exercise of
stock options 613 613
------ ----- ------- ----- -------- ------- ------- ------- --------
BALANCE, JANUARY 28, 2006 19,764 $ 198 $80,976 3,287 $(16,954) $(1,467) $82,263 $ (7) $145,009
====== ===== ======= ===== ======== ======= ======= ======= ========
</Table>
The accompanying notes are an integral part of these consolidated statements
15
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
(In thousands) 1/28/06 1/29/05 1/31/04
- -------------- ---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,067 $ 10,199 $ 7,126
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,651 17,843 18,325
Loss on impairment of assets 215 356 1,211
(Gain) loss on sale of property and equipment (4) (29) 73
Deferred income tax provision 1,281 2,352 1,934
Tax benefit of exercise of stock options 613 943 141
Reclassification of unrealized loss from de-designation of cash flow hedge 47 27 284
Deferred compensation amortization 448 167 -
(Increase) decrease in assets:
Accounts receivable (2,673) 728 528
Related party receivables (1,061) 278 86
Inventories 5,481 1,321 12,428
Prepayments and other 2,571 (1,021) (510)
Noncurrent assets (excluding amortization) 1,176 (533) -
Increase (decrease) in liabilities:
Accounts payable 986 9,201 (11,601)
Related party payables (6,900) 814 (294)
Accrued income taxes 296 (1,832) 803
Accrued expenses 5,519 6,379 4,144
---------- ---------- ----------
Total adjustments 23,646 36,994 27,552
---------- ---------- ----------
Net cash provided by operating activities 36,713 47,193 34,678
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,297) (14,923) (10,402)
Proceeds from sale of property and equipment 11 44 39
---------- ---------- ----------
Net cash used in investing activities (11,286) (14,879) (10,363)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 189,120 171,400 192,490
Repayments under credit facilities (189,420) (184,540) (216,790)
Proceeds from exercise of stock options and issuance of common stock under employee
stock purchase plan 4,430 1,405 528
Purchase of treasury stock (5,324) (6,359) -
Payment of dividends (3,273) (3,009) -
Repayments of other debt - - (172)
---------- ---------- ----------
Net cash used in financing activities (4,467) (21,103) (23,944)
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 20,960 11,211 371
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 16,559 5,348 4,977
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 37,519 $ 16,559 $ 5,348
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,607 $ 2,036 $ 3,133
========== ========== ==========
Income taxes, net of refunds $ 6,787 $ 1,650 $ 1,694
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
16
<PAGE>
BOOKS-A-MILLION
2006 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 205 bookstores in 19 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's business segments, see Note 8.
Fiscal Year
The Company operates on a 52 or 53-week year, with the fiscal year ending on
the Saturday closest to January 31. Fiscal years 2006, 2005 and 2004 were all
52-week periods.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires that management make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from the sale of merchandise at the time the
merchandise is sold and the customer takes delivery. 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 as a percentage of sales activity. The 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.
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 cost of products sold upon the
sale of the related inventory.
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
valued by applying a calculated cost to retail ratio to the retail value of
inventories.
The Company currently utilizes the last-in, first-out (LIFO) method of
accounting for inventories. The cumulative difference between replacement and
current cost of inventory over stated LIFO value is $1.5 million as of January
28, 2006 and $1.1 million as of January 29, 2005. The estimated replacement cost
of inventory is the current FIFO value of $206.3 million.
17
<PAGE>
BOOKS-A-MILLION
2006 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 28, January 29,
(In thousands) 2006 2005
- -------------- ------------ ------------
<S> <C> <C>
Inventories (at FIFO) $ 206,314 $ 211,375
LIFO reserve (1,525) (1,105)
----------- -----------
Net inventories $ 204,789 $ 210,270
=========== ===========
</TABLE>
Property and Equipment
Property and equipment are recorded at cost. Depreciation of 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 five 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 asset's 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.
Other Long-Lived Assets
The Company's other long-lived assets consist of property and equipment which
includes leasehold improvements. At January 28, 2006, the Company had $51.0
million of property and equipment, net of accumulated depreciation, accounting
for approximately 16.4% of the Company's total assets. The Company reviews its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." The Company
evaluates long-lived assets for impairment at the individual store level, which
is the lowest level at which individual cash flows can be identified. When
evaluating long-lived assets for potential impairment, the Company will first
compare the carrying amount of the assets to the individual store's estimated
future undiscounted cash flows. If the estimated future cash flows are less than
the carrying amount of the assets, an impairment loss calculation is prepared.
The impairment loss calculation compares the carrying amount of the assets to
the individual store's fair value based on its estimated discounted future cash
flows. If required, an impairment loss is recorded for that portion of the
asset's carrying value in excess of fair value. Impairment losses totaled $0.2
million, $0.3 million and $1.0 million in fiscal 2006, 2005 and 2004,
respectively, and were recorded in selling, general administrative costs. For
all years presented, the impairment losses related to the retail trade business
segment.
Goodwill
At January 28, 2006, the Company had $1.4 million of goodwill, accounting for
approximately 0.4% of the Company's total assets. SFAS No. 142, "Goodwill and
Other Intangible Assets," requires that goodwill and other unamortizable
intangible assets no longer be amortized, but instead be tested for impairment
at least annually or earlier if there are impairment indicators. The Company
performs a two-step process for impairment testing of goodwill as required by
SFAS No. 142. The first step of this test, used to identify potential
impairment, compares the estimated fair value of a reporting unit with its
carrying amount. The second step (if necessary) measures the amount of the
impairment. The Company completed its annual impairment test on the goodwill
during the fourth quarter of fiscal 2006 and deemed that no impairment charge
was necessary. The Company has noted no subsequent indicators of impairment.
Changes in market conditions, among other factors, could have a material impact
on these estimates.
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
a discontinued operation 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 7 for discontinued operations disclosures.
18
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
Store Opening Costs
Non-capital expenditures incurred in preparation for opening new retail stores
are expensed as incurred.
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 net book value of abandoned fixtures and leasehold improvements, lease
termination payments, costs to transfer inventory and usable fixtures and other
costs of vacating the leased location. Such costs are primarily expensed as
incurred and are included in selling, general and administrative costs. During
fiscal 2006, 2005 and 2004, the Company recognized store closing costs of
$40,000, $55,000 and $219,000, respectively.
In November 2004, the Emerging Issues Task Force ("EITF") issued EITF No. 03-13,
"Applying the Conditions in Paragraph 42 of FASB No. 144 in Determining Whether
to Report Discontinued Operations." EITF No. 03-13 addresses how an ongoing
entity should evaluate whether the operations and cash flows of a disposed
component have been or will be eliminated from the ongoing operations of the
entity and the types of continuing involvement that constitute significant
continuing involvement in the operations of the disposed component. EITF No.
03-13 became effective with the fiscal year beginning January 30, 2005. Prior to
the effective date of EITF No. 03-13, the Company was already reporting certain
closed stores as discontinued operations (see footnote 7). Therefore, adopting
this new guidance did not impact the Company's financial position, results of
operations or cash flows.
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 $3,578,000, $3,207,000 and $2,995,000 for
fiscal years 2006, 2005 and 2004, 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.
Accounts Receivable and Allowance for Doubtful Accounts
Receivables represent customer, landlord and other receivables due within one
year and are net of any allowance for doubtful accounts. Net receivables were
$10,802,000 and $6,616,000 for January 28, 2006 and January 29, 2005,
respectively. Trade accounts receivable are stated at the amount the Company
expects to collect and do not bear interest. The collectability of trade
receivable balances is regularly evaluated based on a combination of factors
such as customer credit-worthiness, past transaction history with the customer,
current economic industry trends and changes in customer payment patterns. If it
is determined that a customer will be unable to fully meet its financial
obligation, such as the case of a bankruptcy filing or other material events
impacting its business, a specific reserve for doubtful accounts is recorded to
reduce the related receivable to the amount expected to be recovered.
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, using the treasury
stock method, 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:
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2006 Annual Report
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
(In thousands) 1/28/06 1/29/05 1/31/04
- -------------- ------- ------- -------
<S> <C> <C> <C>
Weighted average shares outstanding:
Basic 16,384 16,453 16,279
Dilutive effect of stock options outstanding 580 725 510
------ ------ ------
Diluted 16,964 17,178 16,789
====== ====== ======
</TABLE>
Weighted options outstanding of 94,000, 157,000 and 801,000 for the years ended
January 28, 2006, January 29, 2005 and January 31, 2004, respectively, were not
included in the table above as they were anti-dilutive in those periods.
The Board of Directors discontinued a stock repurchase program in March of 2004
that was originally authorized in fiscal 2000. This program authorized the
expenditure of $6.0 million to repurchase Company outstanding shares. The
Company repurchased 2,010,000 shares at a cost of $5,271,000 under this program.
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. Under this plan, the Company has repurchased 1,221,000 and 783,000 shares
at a cost of $10,639,000 and $6,359,000 as of fiscal 2006 and fiscal 2005,
respectively.
Additionally, in June 2005 the Company commenced a modified "Dutch Auction"
tender offer (the "Tender Offer") to purchase up to 4,000,000 shares of its
outstanding common stock at a price per share of not less than $8.75 nor in
excess of $10.00 per share, for an aggregate purchase price of up to $40.0
million. Pursuant to the Tender Offer, the Company purchased 56,406 shares of
common stock at a purchase price of $10.00 per share, plus expenses for
completing the Tender Offer, for a total cost of $1,044,000.
Disclosure of Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities are reflected in the accompanying financial statements at cost,
which approximates fair value because of the short-term maturity of these
instruments. Investments are reflected in the accompanying financial statements
at current market value. Based on the borrowing rates currently available to the
Company for bank loans with similar terms and maturities at January 28, 2006 and
January 29, 2005, the Company's debt approximates fair value.
Stock-Based Compensation
On June 1, 2005, the stockholders of the Company approved the adoption of the
Books-A-Million, Inc. 2005 Incentive Award Plan. The Company's board of
directors had previously approved this plan subject to stockholder approval. An
aggregate of 300,000 shares of common stock may be issued pursuant to awards
granted under the Plan. On June 29, 2005, the Company granted 77,100 shares of
restricted stock to the Company's officers and key employees pursuant to the
terms of the Plan. Additionally, the Company granted 3,333 shares of restricted
stock to a Director that joined the Company's Board of Directors in August 2005.
The compensation expense related to these grants is being expensed over the
vesting period for the individual grants. For fiscal 2006, the Company has
recorded $224,000 of stock-based compensation expense for the restricted stock
grants.
The Company has one stock option plan that provides for the issuance of options
to employees and members of the board of directors. Upon the approval of the
2005 Incentive Award Plan by our stockholders at the Company's annual meeting,
the Company determined that there will be no additional awards made under the
Company's stock option plan. The Company accounts for the plan under the
recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based employee compensation cost for this plan 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:
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BOOKS-A-MILLION
2006 Annual Report
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------
(In thousands, except per share amounts) 1/28/06 1/29/05 1/31/04
- ---------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net income, as reported $13,067 $10,199 $7,126
Deduct: Total stock-based employee compensation expense determined under fair value
based method for all awards, net of tax effects 541 1,139 1,346
Pro forma net income $12,526 $ 9,060 $5,780
Net income per common share:
Basic - as reported $ 0.80 $ 0.62 $ 0.44
Basic - pro forma $ 0.76 $ 0.55 $ 0.36
Diluted - as reported $ 0.77 $ 0.59 $ 0.42
Diluted - pro forma $ 0.74 $ 0.53 $ 0.34
</TABLE>
The fair value of the options granted under the Company's stock option plan
during fiscal 2005 and 2004 was estimated on their date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: $0.03 per quarter dividend yield for fiscal 2005 only; expected
stock price volatility rate of 44% and 106%, respectively; risk free interest
rates of 3.45% to 4.31% and 3.87% to 4.90%, respectively; and expected lives of
six or ten years. No options were granted in fiscal year 2006. Stock-based
compensation expense reflected in the above table for fiscal 2006 relates to the
fair value of options granted in prior years that would be expensed over their
vesting period.
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. At January 28, 2006 and January 29, 2005, liabilities related to
derivatives were classified as other long-term liabilities of $61,000 and
$543,000, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) is net income or loss, plus certain other items that
are recorded directly to stockholders' equity. The only such items currently
applicable to the Company are the unrealized gains (losses) on the derivative
instruments explained in Note 3.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (revised 2004, "Share-Based Payment") SFAS No. 123R, "Accounting for
Stock-Based Compensation," is a revision of SFAS No. 123 and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R
requires all share-based payments to employees including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. SFAS No. 123R is effective at the beginning of the first annual period
beginning after June 15, 2005. Under ABP Opinion No. 25, no stock-based
compensation cost had been reflected in the net income of the Company for grants
of stock options to employees. Beginning in fiscal 2007, the Company will
recognize compensation expense in its financial statements based on the fair
value of all share-based payments to employees. The impact of adopting this new
accounting standard will be to reduce net income by approximately $400,000, net
of taxes, or $0.02 per diluted shares in fiscal 2007.
In November 2004 FASB issued SFAS No. 151 , "Inventory Costs," which amends ARB
No. 43, Chapter 4 "Inventory Pricing." SFAS No. 151 clarifies the accounting for
inventory costs related to abnormal amounts of idle facility expense, freight,
handling costs, and wasted material. This Statement requires that those items be
recognized as current period charges regardless of whether they meet the
criteria of "so abnormal." SFAS No. 151 is effective with fiscal years
beginning after June 15, 2005. The impact of adopting this new accounting
standard on the Company's financial position, results of operations or cash
flows has not yet been determined.
In December 2004 FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets,"
which amends APB Opinion No. 29, "Accounting For Nonmonetary Transactions," to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS No. 153 is effective in the
first fiscal period beginning after June 15, 2005. The adoption of this new
accounting standard is not expected to have a material effect on the Company's
financial position, results of operations or cash flows.
In May 2005 FASB issued SFAS No. 154 "Accounting Changes and Error Corrections.
which replaced APB Opinion No. 20 "Accounting Changes" and SFAS No. 3 "Reporting
Accounting Changes in Interim Financial Statements." SFAS No. 154 changes the
requirements for the accounting for, and the reporting of, a change in
accounting principle. APB Opinion No. 20 previously required that most
voluntary changes in accounting principle be recognized by including in net
income of the period of the change the cumulative effect of changing to the new
accounting principle. SFAS No. 154 now requires retrospective application to
prior periods' financial statements of changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. SFAS No. 154 is effective with fiscal years
beginning after December 15, 2005. The impact of adopting this new accounting
standard on the Company's financial position, results of operations or cash
flows has not yet been determined.
FASB Staff Position No. 115-1, "The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments" ("FSP 115-1"), was issued in
November, 2005, which amends SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," SFAS No. 124, "Accounting for Certain
Investments Held by Not-for-Profit Organizations," and APB Opinion No. 18 "The
Equity Method of Accounting for Investments in Common Stock." FSP No. 115-1
addresses the determination as to when an investment is considered impaired,
whether that impairment is other than temporary, and the measurement of an
impairment loss. FSP No. 115-1 is effective with fiscal periods beginning after
December 15, 2005. The impact of adopting this new staff position on the
Company's financial position, results of operations or cash flows has not yet
been determined.
Prior Year Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
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2006 Annual Report
2. INCOME TAXES
A summary of the components of the income tax provision is as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------
1/28/06 1/29/05 1/31/04
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 6,495 $ 4,000 $ 2,916
State 899 102 25
-------- -------- --------
$ 7,394 $ 4,102 $ 2,941
-------- -------- --------
Deferred:
Federal $ 1,000 $ 1,681 $ 1,558
State 162 207 (131)
-------- -------- --------
1,162 1,888 1,427
-------- -------- --------
Provision for income taxes $ 8,556 $ 5,990 $ 4,368
======== ======== ========
</TABLE>
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------
1/28/06 1/29/05 1/31/04
------- ------- -------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 34.0%
State income tax provision 3.5% 0.9% 0.2%
Nondeductible meals and entertainment expense 0.3% 0.5% 0.6%
Other 0.8% 0.6% 3.2%
---- ---- ----
Effective income tax rate 39.6% 37.0% 38.0%
==== ==== ====
</TABLE>
Temporary differences (in thousands) which created deferred tax assets
(liabilities) at January 28, 2006 and January 29, 2005, are as follows:
<TABLE>
<CAPTION>
AS OF 1/28/06 As of 1/29/05
----------------------- ------------------------
CURRENT NONCURRENT Current Noncurrent
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Depreciation $ -- $ (1,612) $ -- $ (5,429)
Accruals 2,247 -- 1,325 --
Interest rate swap 4 -- 123 --
Inventory (4,371) -- (85) --
State net operating loss carry forwards -- 398 -- 903
Deferred Rent 571 3,061 1,963 3,300
-------- -------- -------- --------
Prepaids (1,464) -- (1,866) --
-------- -------- -------- --------
Other 359 (185) 244 (189)
-------- -------- -------- --------
Deferred tax asset (liability) $ (2,654) $ 1,662 $ 1,704 $ (1,415)
======== ======== ======== ========
</TABLE>
At January 28, 2006, the Company had state net operating loss carry forwards of
approximately $9,859,000 that expire beginning in 2006 through 2024.
A valuation allowance for net deferred income tax assets has been recorded for
$139,000 related to deferred taxes for a wholly-owned subsidiary. There are no
other valuation allowances as the realization of the balance of the recorded
deferred tax assets is considered more likely than not.
3. DEBT AND LINES OF CREDIT
The Company's current credit facility allows for unsecured borrowings up to $100
million for which no principal payments are due until the facility expires in
July 2007. Availability under the facility is reduced by outstanding letters of
credit issued thereunder. Interest on borrowings under the credit facility 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 contains financial and non-financial covenants, the most restrictive of
which is the maintenance of a minimum fixed charge coverage ratio. As of January
28, 2006 and January 29, 2005 there were no outstanding borrowings under this
credit facility and the face amount of letters of credit issued under the credit
facility were $3.0 million and $2.6 million, respectively. The maximum and
average outstanding borrowings under the credit facility (excluding letters of
credit issued thereunder) during fiscal 2006 were $23.7 million and $ 10.0
million, respectively.
The Company is subject to interest rate fluctuations on borrowings under its
credit facility. To manage this exposure, the Company has used interest rate
swaps in the past to fix the interest rate on variable debt. The Company entered
into two separate $10.0 million swaps on
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BOOKS-A-MILLION
2006 Annual Report
July 24, 2002. Both expired in August 2005 and, prior to the payoff of the debt,
effectively fixed the interest rate on $20.0 million of variable debt at 5.13%.
The counter parties to the interest rate swaps were two of the Company's primary
banks. The Company did not replace the swaps at expiration.
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 28, 2006 and January 29,
2005, there was $7.2 million and $7.5 million of borrowings outstanding,
respectively, under these arrangements, which bear interest at variable rates.
The net book value of the collateral property securing the Bond was $5,283,000
as of January 28, 2006. The Bond has a maturity date of December 1, 2019, with a
purchase provision obligating the Company to repurchase the Bond on May 30,
2007, 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 8.73%. The
swap was entered into in May 1996 and will expire in May 2006. The Company does
not intend to enter into a new swap to manage the exposure to interest rate
fluctuations on the Bond.
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 and related interest expense. The changes in the fair value of
these hedges are reported on the balance sheet with a corresponding adjustment
to accumulated other comprehensive income (loss) or in earnings, depending on
the type of hedging relationship. Over time, the 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 consolidated balance sheets at
their fair value of $61,000 and $543,000 as of January 28, 2006 and January 29,
2005, respectively. For the fiscal years ending January 28, 2006, January 29,
2005 and January 31 2004, adjustments of $141,000, $485,000, and $228,000 were
recorded as unrealized gains in accumulated other comprehensive income (loss),
after tax. During the fourth quarter of fiscal 2005, one of the $10 million
interest rate swaps no longer qualified for hedge accounting under SFAS No. 133.
Therefore, the Company de-designated the hedge resulting in an expense of
$27,000 in fiscal 2005. Previously, in the fourth quarter of fiscal 2004, the
other $10 million interest rate swap no longer qualified for hedge accounting
under SFAS No. 133 and the Company de-designated that hedge resulting in an
expense of $284,000 in fiscal 2004.
4. LEASES
The Company leases the premises for its retail bookstores under operating
leases, which expire in various years through the year 2017. Many of these
leases contain renewal options and require the Company to pay executory costs
(such as property taxes, maintenance, and insurance). In addition to fixed
minimum rentals, some of the Company's leases require contingent rentals based
on a percentage of sales. The Company also has minimal operating leases for
equipment and trailer trucks.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of January 28, 2006 are as follows (in
thousands):
<TABLE>
<CAPTION>
FUTURE MINIMUM
FISCAL YEAR RENT
- ---------------- --------------
<S> <C>
2007 $ 30,916
2008 27,343
2009 22,083
2010 17,028
2011 13,404
Subsequent years 27,732
--------
Total $138,506
========
</TABLE>
Rental expense for all operating leases consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
1/28/06 1/29/05 1/31/04
-------- -------- --------
<S> <C> <C> <C>
Minimum rentals $ 30,944 $ 28,332 $ 28,194
Contingent rentals 249 466 684
-------- -------- --------
Total $ 31,193 $ 28,798 $ 28,878
======== ======== ========
</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 six months of service and who are at least 21 years of age,
and permit participants to contribute from 1% to 15% of compensation and
participants over 50 years of age are allowed to make catch-up contributions.
Limits to contributions by employees are established by the Internal Revenue
Code.
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BOOKS-A-MILLION
2006 Annual Report
Company matching and supplemental contributions are made at management's
discretion. Company matching contributions were 70%, 70% and 75% for fiscal
2006, fiscal 2005 and fiscal 2004, respectively. The employer contributions are
made on employee contributions up to a maximum of 6% of the employee's salary.
The expense under this plan was $806,000, $675,000 and $467,000 in fiscal 2006,
2005 and 2004, respectively.
2005 Incentive Award Plan
On June 1, 2005, the stockholders of the Company approved the adoption of the
Books-A-Million, Inc. 2005 Incentive Award Plan. An aggregate of 300,000 shares
of common stock may be issued pursuant to awards granted under the Plan. On June
29, 2005, the Company granted 77,100 shares of restricted stock to the Company's
officers and key employees pursuant to the terms of the Plan. Additionally, the
Company granted 3,333 shares of restricted stock to a Director that joined the
Company's Board of Directors in August 2005. The compensation expense related to
these grants is being expensed over the vesting period for the individual
grants. For Fiscal 2006, the Company has recorded $224,000 of stock-based
compensation expense for the restricted stock grants.
Stock Option Plan
The Company has one stock option plan for grants to executive officers,
directors, and key employees. Upon the approval of the 2005 Incentive Award Plan
by the Company's stockholders at the Company's annual meeting, the Company
closed this plan to further issuance of option grants. Options previously issued
are still valid and subject to the vesting schedule. 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 the three-year
period beginning on the date of the grant and expire on the tenth anniversary of
the date of the grant. All stock options have exercise prices equal to the fair
market value of the common stock on the date of grant. A summary of the status
of the Company's stock option plan is as follows (shares in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------
JANUARY 28, 2006 January 29, 2005 January 31, 2004
------------------ ------------------ ------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,506 $ 5.19 2,296 $ 5.22 2,576 $ 4.90
Granted 0 N/A 35 8.64 266 6.45
Exercised (640) 6.82 (533) 2.54 (177) 2.51
Forfeited (52) 7.13 (292) 10.65 (369) 5.24
----- -------- ----- -------- ----- --------
Outstanding at end of year 814 $ 3.77 1,506 $ 5.19 2,296 $ 5.22
----- -------- ----- -------- ----- --------
Exercisable at end of year 566 $ 3.30 949 $ 5.71 1,525 $ 5.52
----- -------- ----- -------- ----- --------
Weighted average fair value of options granted N/A $ 8.64 $ 5.87
======== ======== ========
</TABLE>
During fiscal years 2006, 2005 and 2004, the Company recognized tax benefits
related to the exercise of stock options in the amount of $613,000, $943,000 and
$141,000, 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 28, 2006 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
Weighted
Number Average Number
Outstanding at Remaining Weighted Exercisable at Weighted
Range of January 28, Contractual Average January 28, Average
Exercise Price 2006 Life (Years) Exercise Price 2006 Exercise Price
- -------------- -------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.38 - $ 2.37 367 6.08 $2.08 271 $1.98
$2.39 - $ 7.69 422 7.01 $4.91 271 $4.06
$7.90 - $11.13 25 8.92 $9.59 24 $9.61
--- ---
Totals 814 6.65 $3.77 566 $3.30
=== ==== ===== === =====
</TABLE>
The Company previously established separate option plans for its subsidiaries,
however options were never granted under these plans. During fiscal 2006 the
separate subsidiary option plans were dissolved and closed.
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, 258,902 shares have been
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BOOKS-A-MILLION
2006 Annual Report
purchased as of January 28, 2006.
Executive Incentive Plan
The Company maintains an Executive Incentive Plan (the "Incentive Plan"). The
Incentive Plan provides for awards to certain executive officers of either cash
or shares of restricted stock. The Company has always issued awards in the form
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 for a
particular performance period vest on the third anniversary of the last day of
such performance period if the recipient remains employed by the Company on such
vesting date. 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 periods ended January 28, 2006, January 29, 2005, and
January 31, 2004 totaled $592,000 (50,824 shares), $364,000 (39,116 shares) and
$284,000 (45,528 shares), respectively.
Executives' Deferred Compensation Plan
During fiscal 2006, the Board adopted the Books-A-Million, Inc. Executives'
Deferred Compensation Plan (the "Executives' Deferred Compensation Plan"). The
Executives' Deferred Compensation Plan provides a select group of management or
highly compensated employees of the Company and certain of its subsidiaries (the
"Participants") with the opportunity to defer the receipt of certain cash
compensation. Each Participant may elect to defer under the Executives'
Deferred Compensation Plan a portion of his or her cash compensation that may
otherwise be payable in a calendar year. A Participant's compensation deferrals
are credited to the Participant's bookkeeping account (the "Account") maintained
under the Executives' Deferred Compensation Plan. Each Participant's Account is
credited with a deemed rate of interest and/or earnings or losses depending upon
the investment performance of the deemed investment option.
With certain exceptions, a Participant's Account will be paid after the earlier
of: (1) a fixed payment date, as elected by the Participant (if any); or (2) the
Participant's separation from service with Company or its subsidiaries.
Participants may generally elect that payments be made in a single sum or
installments in the year specified by the Participant or upon their separation
from service with the Company. Additionally, a Participant may elect to receive
payment upon a Change of Control, as defined in, and to the extent permitted by,
Section 409A of the Internal Revenue Code of 1986, as amended.
Directors' Deferred Compensation Plan
During fiscal 2006, the Board adopted the Books-A-Million, Inc. Directors'
Deferred Compensation Plan (the "Directors' Deferred Compensation Plan"). The
Directors' Deferred Compensation Plan provides the Non-Employee Directors with
the opportunity to defer the receipt of certain amounts payable for serving as a
member of the Board (the "Fees"). A Non-Employee Director's Fee deferrals are
credited to the Non-Employee Director's bookkeeping account (the "Account")
maintained under the Directors' Deferred Compensation Plan. Each participating
Non-Employee Director's Account is credited with a deemed rate of interest
and/or earnings or losses depending upon the investment performance of the
deemed investment option.
With certain exceptions, a participating Non-Employee Director's Account will be
paid after the earlier of: (1) a fixed payment date, as elected by the
participating Non-Employee Director (if any); or (2) the participating
Non-Employee Director's separation from service on the Board. The participating
Non-Employee Director may generally elect that payments be made in a single sum
or installments in the year specified by the participating Non-Employee Director
or upon the Non-Employee Director's separation from service on the Board.
Additionally, a participating Non-Employee Director may elect to receive payment
upon a Change of Control, as defined in, and to the extent permitted by, Section
409A of the Internal Revenue Code of 1986, as amended.
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
seasonal music and newspapers from Anderson Media Corporation ("Anderson
Media"), an affiliate through common ownership. During fiscal 2006, 2005 and
2004, purchases of these items from Anderson Media totaled $30,746,000,
$27,405,000 and $28,160,000, respectively. The Company purchases certain of its
collectibles, gifts and books from Anderson Press, Inc. ("Anderson Press"), an
affiliate through common ownership. During fiscal 2006, 2005 and 2004, such
purchases from Anderson Press totaled $1,272,000, $1,122,000 and $853,000,
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 2006, 2005 and 2004 were $223,000, $371,000
and $265,000, respectively. The Company purchases certain magazine subscriptions
from Magazines.com, an affiliate through common ownership. During fiscal 2006,
2005 and 2004, purchases of these items were $71,000, $78,000 and $89,000,
respectively. The Company purchases content for publication from Publication
Marketing Corporation, an affiliate through common ownership. During fiscal
2006, 2005 and 2004, purchases of these items were $71,000, $72,000 and $72,000,
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 $2,113,000, $1,075,000 and
$910,000 for fiscal 2006, 2005 and 2004, respectively. These amounts paid to
Anco Far East primarily included the actual cost of the product, as well as fees
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 $148,000, $75,000 and
$77,000, respectively. The Company purchased certain store fixtures from K&A
Crylics, an affiliate through common ownership. In fiscal 2006 these purchases
were $64,000. Prior to fiscal 2006, K&A Crylics was not a related party.
The Company sold books to Anderson Media in the amounts of $1,017,000, $115,000
and $383,000 in fiscal 2006, 2005 and 2004, respectively. During fiscal 2006,
2005 and 2004, the Company provided $11,000, $296,000, and $226,000,
respectively, of Internet services to Magazines.com. The Company provided
internet services to American Promotional Events of $77,000, $68,000 and $50,000
in fiscal 2006, 2005 and 2004, 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
former member of the Board of Directors. The initial lease expired on January
31, 2006, and a short-term extension was signed through June 30, 2006. During
fiscal 2006, 2005 and 2004, 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 2006, 2005 and 2004, the Company paid A&A a total of $445,000,
$441,000, and $446,000, respectively, in connection with such leases. There were
no future minimum rental payments on any of the four leases at January 28, 2006.
The Company subleases certain property to Hibbett Sporting Goods, Inc.
("Hibbett"), a sporting goods 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 2006, 2005 and 2004, the Company received $191,000
each year in rent payments from Hibbett.
25
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
The Company incurred expenses related to professional services from A&A and
Charles C. Anderson, a former member of the Board of Directors, which amounted
to $25,000 in fiscal 2006, $22,000 in fiscal 2005, and $0 in fiscal 2004. 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 costs and a portion of
the fixed costs of operating the plane. The total amounts received from
affiliated companies for use of the plane in fiscal 2006, 2005 and 2004 were
$146,000, $110,000 and $270,000, respectively. The Company also occasionally
rents a plane from A&A at rates that cover all of the variable costs and a
portion of the fixed costs of operating the plane. The amounts paid to A&A for
plane rental were $70,000, $92,000 and $44,000 for fiscal 2006, 2005 and 2004,
respectively.
7. INCOME OR (LOSS) FROM DISCONTINUED OPERATIONS
Discontinued operations represent the results for the closed stores for the
years presented due to the fiscal 2006 closure of two retail stores in markets
located in Tennessee and West Virginia, the fiscal 2005 closure of two retail
stores in markets located in Florida and Mississippi and 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. For fiscal 2006, 2005 and 2004 the closed
stores had sales of $689,000, $2,503,000 and $5,382,000, and pretax operating
income (loss) of $27,000, $(29,000) and $(641,000) , respectively. Included in
the loss on discontinued operations are impairment losses of $0, $14,000 and
$228,000 for fiscal 2006, 2005 and 2004, respectively. Also, included in the
loss on discontinued operations are store closing costs of $20,000, $50,000, and
$64,000 for fiscal 2006, 2005 and 2004, respectively.
8. 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 supplies merchandise predominantly 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) 1/28/06 1/29/05 1/31/04
- ---------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
Retail Trade $ 496,609 $ 465,732 $ 451,075
Electronic Commerce Trade 27,605 26,656 25,451
Intersegment Sales Elimination (20,463) (18,289) (19,292)
---------- ---------- ----------
Net Sales $ 503,751 $ 474,099 $ 457,234
Operating Profit
Retail Trade $ 22,431 $ 16,908 $ 14,171
Electronic Commerce Trade 1,027 909 332
Intersegment Elimination of Certain Costs (421) 275 542
---------- ---------- ----------
Total Operating Profit $ 23,037 $ 18,092 $ 15,045
========== ========== ==========
Assets
Retail Trade $ 310,447 $ 299,703
Electronic Commerce Trade 1,286 1,372
Intersegment Sales Elimination (74) (263)
---------- ----------
Total Assets $ 311,659 $ 300,812
========== ==========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to its business.
In the opinion of management, after consultation with legal counsel, the
ultimate liability, if any, with respect to those proceedings is not presently
expected to materially affect the financial position, 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 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.
26
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
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 28, 2006 and January 29, 2005, as such
liabilities are considered de minimis.
The Company is subject to potential ongoing sales and use tax audits, income tax
audits and other tax issues for both its retail and internet segments. It is
the policy of the Company to estimate any potential tax contingency liabilities
based on various factors such as ongoing state and federal tax audits,
historical results of audits at the state or federal level and specific tax
issues. Accruals for potential tax contingencies are recorded by the Company
when they are deemed to have a probable likelihood of a liability and the
liability can be reasonably estimated.
10. GAIN ON INSURANCE RECOVERIES
In fiscal 2006 the Company recognized an insurance gain of $754,000, net of
taxes, related to insurance recoveries for hurricane damage suffered at three
stores in the third quarter of fiscal 2005. The insurance recovery amounts were
finalized with the insurance company during the third quarter of fiscal 2006,
therefore the gain was recorded in the current fiscal year.
11. CASH DIVIDEND
On March 15, 2006, the Board of Directors declared a quarterly dividend of $0.08
per share to be paid on April 12, 2006 to stockholders of record at the close
of business on March 29, 2006. The Company intends to pay quarterly dividends in
the future, subject to Board approval.
12. SUMMARY OF QUARTERLY RESULTS (unaudited)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 28, 2006
---------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
(In thousands, except per share amounts) QUARTER QUARTER QUARTER QUARTER YEAR
- ---------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $112,866 $122,277 $107,515 $161,093 $503,751
Gross profit 31,611 34,054 28,117 52,803 146,585
Operating profit (loss) 2,105 3,182 (1,019) 18,769 23,037
Net income (loss) 1,060 1,701 (873) 11,179 13,067
Net income (loss) per share - basic 0.07 0.10 (0.05) 0.68 0.80
Net income (loss) per share - diluted 0.06 0.10 (0.05) 0.66 0.77
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended January 29, 2005
---------------------------------------------------------
First Second Third Fourth Total
(In thousands, except per share amounts) Quarter Quarter Quarter Quarter Year
- ---------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $107,792 $113,370 $103,945 $148,992 $474,099
Gross profit 30,155 30,993 27,787 46,152 135,087
Operating profit (loss) 2,484 2,079 (1,329) 14,858 18,092
Net income (loss) 1,228 989 (1,172) 9,154 10,199
Net income (loss) per share - basic 0.07 0.06 (0.07) 0.56 0.62
Net income (loss) per share - diluted(1) 0.07 0.06 (0.07) 0.54 0.59
</TABLE>
(1) The sum of quarterly per share amounts are different from the annual per
share amounts because of differences in the weighted average number of
common and common equivalent shares used in the quarterly and annual
computations.
27
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
REPORT OF GRANT THORNTON, LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON
FINANCIAL STATEMENTS
Board of Directors and
Shareholders of Books-A-Million, Inc.
We have audited the accompanying balance sheet of Books-A-Million, Inc. as of
January 28, 2006 and the related statements of income, changes in stockholders'
equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with the standards of 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Books-A-Million, Inc. as of
January 28, 2006, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule II for the year ended
January 28, 2006 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of
Books-A-Million, Inc.'s internal control over financial reporting as of January
28, 2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated March 22, 2006 expressed an unqualified opinion on
management's assessment of, and the effective operation of, internal control
over financial reporting.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
March 22, 2006
28
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
REPORT OF GRANT THORNTON, LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Board of Directors and
Shareholders of Books-A-Million, Inc.
We have audited management's assessment, included in the accompanying
Management's Report on Internal Controls Over Financial Reporting, that
Books-A-Million, Inc. maintained effective internal control over financial
reporting as of January 28, 2006, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Books-A-Million, Inc.'s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion
on management's assessment and an opinion on the effectiveness of the company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Books-A-Million, Inc. maintained
effective internal control over financial reporting as of January 28, 2006, is
fairly stated, in all material respects, based on the Internal Control -
Integrated Framework issued by the COSO. Also in our opinion, Books-A-Million,
Inc. maintained, in all material respects, effective internal control over
financial reporting as of January 28, 2006, based on criteria established in
Internal Control - Integrated Framework issued by the COSO.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the balance sheet of
Books-A-Million, Inc. as of January 28, 2006, and the related statements of
income, stockholders' equity, and cash flows for the year then ended and our
report dated March 22, 2006 expressed an unqualified opinion on those financial
statements.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
March 22, 2006
29
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
BOOKS-A-MILLION, INC.
BIRMINGHAM, ALABAMA
We have audited the accompanying consolidated balance sheets of Books-A-Million,
Inc. and subsidiaries (the "Company") as of January 29, 2005 and January 31,
2004 and the related consolidated statements of income, stockholders' equity,
and cash flows for the fiscal years then ended. 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 of 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. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 subsidiaries as of January 29, 2005 and January 31, 2004, and the
results of their operations and their cash flows for the fiscal years then
ended, 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, 2003, the Company changed its method of accounting for inventories.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
April 25, 2005 (April 12, 2006 as to Note 7)
30
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
DIRECTORS AND CORPORATE OFFICERS
BOARD OF DIRECTORS
CLYDE B. ANDERSON
Executive Chairman of the Board
TERRY C. ANDERSON
Chief Executive Officer and President,
American Promotional Events, Inc.
RONALD G. BRUNO
President,
Bruno Capital Management Corporation
ALBERT C. JOHNSON
Independent Financial Consultant and Retired Partner, Arthur Andersen LLP
DR. J. BARRY MASON,
Dean, Culverhouse College of Commerce
The University of Alabama
WILLIAM H. ROGERS, JR.
Executive Vice President,
SunTrust Banks, Inc.
CORPORATE OFFICERS
CLYDE B. ANDERSON
Executive Chairman of the Board
SANDRA B. COCHRAN
President, Chief Executive Officer and Secretary
TERRANCE G. FINLEY
President, Books-A-Million, Inc. Merchandising Group
RICHARD S. WALLINGTON
Chief Financial Officer
31
<PAGE>
BOOKS-A-MILLION
2006 Annual Report
CORPORATE INFORMATION
CORPORATE OFFICE
Books-A-Million, Inc.
402 Industrial Lane
Birmingham, Alabama 35211
(205) 942-3737
TRANSFER AGENT
Wells Fargo Shareowner Services
(800) 468-9716
STOCKHOLDER INQUIRIES ADDRESS:
161 North Concord Exchange
South St. Paul, Minnesota 55075
E-Mail address: stocktransfer@wellsfargo.com
Wells Fargo Stock Transfer Website:
www.wellsfargo.com/com/shareowner_services/index
CERTIFICATES FOR TRANSFER AND ADDRESS CHANGES TO:
Shareowner Services
Post Office Box 64854
St Paul, Minnesota 55164-0854
Fax: (651) 450-4033
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Grant Thornton LLP
Atlanta, Georgia
FORM 10-K AND INVESTOR CONTACT
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 2006, 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 28, 2006 and January
29, 2005.
<TABLE>
<CAPTION>
DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
- ------------- ------ ----- ---------
<S> <C> <C> <C>
JANUARY 2006 $11.55 $8.76 $0.08
OCTOBER 2005 10.29 8.16 0.05
JULY 2005 10.26 7.47 0.05
APRIL 2005 9.82 7.25 0.05
January 2005 10.29 8.02 0.05
October 2004 8.52 6.18 0.03
July 2004 7.74 5.15 0.15
April 2004 6.49 5.11 0.00
</TABLE>
The closing price on April 10, 2006 was $11.62. As of that date Books-A-Million,
Inc., had approximately 7,800 stockholders based on the number of individual
participants represented by security position listings. Cash dividends were
declared and paid for the first time starting with the second quarter of fiscal
2005.
ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders will be held on June 8, 2006, at 10:00 a.m.
central time, at The Harbert Center, 2019 Fourth Avenue North, Birmingham,
Alabama 35203. Stockholders of record as of April 10, 2006, are invited to
attend this meeting.
32
<PAGE>
BOOKS-A-MILLION
402 INDUSTRIAL LANE
BIRMINGHAM, ALABAMA 35211
WWW.BOOKSAMILLIONINC.COM
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>3
<FILENAME>g00783exv23w1.txt
<DESCRIPTION>EX-23.1 CONSENT OF GRANT THORNTON LLP
<TEXT>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 22, 2006, accompanying the financial
statements and schedule and on internal control over financial reporting
included in the Annual Report of Books-A-Million, Inc. on Form 10-K for the year
ended January 28, 2006. We hereby consent to the incorporation by reference of
said reports in the Registration Statements of Books-A-Million, Inc. on Forms
S-8 (File No. 33-72812, File No. 33-86980, File No. 333-126008, File No.
333-116831, File No. 333-84822 File No. 333-34384 and File No. 333-58619).
/s/ GRANT THORNTON LLP
Atlanta, Georgia
March 22, 2006
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>4
<FILENAME>g00783exv23w2.txt
<DESCRIPTION>EX-23.2 CONSENT OF DELOITTE & TOUCHE LLP
<TEXT>
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No.
33-72812, 33-86980, 333-126008, 333-116831, 333-84822, 333-34384 and 333-58619
of Books-A-Million, Inc. (the "Company") on Form S-8 of our report dated April
25, 2005 (April 12, 2006 as to Note 7)(which report expresses an unqualified
opinion and includes an explanatory paragraph relating to the adoption of new
accounting principles as described in Note 1 to the consolidated financial
statements), incorporated by reference in this Annual Report on Form 10-K for
the year ended January 28, 2006, and of our report on the financial statement
schedule, dated April 25, 2005, appearing in this Annual Report on Form 10-K for
the year ended January 28, 2006.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
April 12, 2006
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>5
<FILENAME>g00783exv31w1.txt
<DESCRIPTION>EX-31.1 SECTION 302 CERTIFICATION OF THE 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 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 13, 2006
/s/ Clyde B. Anderson
-------------------------------------
Clyde B. Anderson
Executive Chairman of the Board
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>6
<FILENAME>g00783exv31w2.txt
<DESCRIPTION>EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
<TEXT>
<PAGE>
Exhibit 31.2
CERTIFICATIONS
I, Richard S. Wallington, certify that:
1. I have reviewed this annual report on Form 10-K of Books-A-Million, Inc.;
2. Based on my knowledge, this 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 13, 2006
/s/ Richard S. Wallington
-------------------------------------
Richard S. Wallington
Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.3
<SEQUENCE>7
<FILENAME>g00783exv31w3.txt
<DESCRIPTION>EX-31.3 SECTION 302 CERTIFICATION OF THE PRESIDENT AND CEO
<TEXT>
<PAGE>
Exhibit 31.3
CERTIFICATIONS
I, Sandra B. Cochran, certify that:
1. I have reviewed this annual report on Form 10-K 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 13, 2006
/s/ Sandra B. Cochran
-------------------------------------
Sandra B. Cochran
President and Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>8
<FILENAME>g00783exv32w1.txt
<DESCRIPTION>EX-32.1 SECTION 906 CERTIFICATION OF THE 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 of the Company for
the fiscal year ended January 28, 2006 (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 13, 2006 /s/ Clyde B. Anderson
-------------------------------------
Clyde B. Anderson
Executive Chairman of the Board
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>9
<FILENAME>g00783exv32w2.txt
<DESCRIPTION>EX-32.2 SECTION 906 CERTIFICATION OF THE CFO
<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 of the Company for
the fiscal year ended January 28, 2006 (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 13, 2006 /s/ Richard S. Wallington
-------------------------------------
Richard S. Wallington
Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.3
<SEQUENCE>10
<FILENAME>g00783exv32w3.txt
<DESCRIPTION>EX-32.3 SECTION 906 CERTIFICATION OF THE PRESIDENT AND CEO
<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 of the Company for
the fiscal year ended January 28, 2006 (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 13, 2006 /s/ Sandra B. Cochran
-------------------------------------
Sandra B. Cochran
President and Chief Executive Officer
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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