UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: August 2, 2003
--------------
- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transaction period from__________to__________
COMMISSION FILE NUMBER 0-20664
BOOKS-A-MILLION, INC.
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 63-0798460
-------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
402 INDUSTRIAL LANE, BIRMINGHAM, ALABAMA 35211
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(205) 942-3737
--------------
(Registrant's phone number including area code)
NONE
----
(Former name, former address and former fiscal year,
if changed since last period)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's common
stock, as of the latest practicable date: Shares of common stock, par value $.01
per share, outstanding as of September 12, 2003 were 16,281,324 shares.
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (UNAUDITED)
Condensed Consolidated Balance Sheets ......................... 3
Condensed Consolidated Statements of Operations ............... 4
Condensed Consolidated Statements of Cash Flows ............... 5
Notes to Condensed Consolidated Financial Statements .......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Item 4. Controls and Procedures ................................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ......................................... 19
Item 2. Changes in Securities ..................................... 19
Item 3. Defaults Upon Senior Securities ........................... 19
Item 4. Submission of Matters of Vote of Security-Holders ......... 19
Item 5. Other Information ......................................... 19
Item 6. Exhibits and Reports on Form 8-K .......................... 19
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
AS OF AUGUST 2, 2003 AS OF FEBRUARY 1, 2003
-------------------- ----------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 5,170 $ 4,977
Accounts receivable, net ............................. 6,343 7,799
Related party accounts receivable, net ............... 425 437
Inventories .......................................... 227,489 224,019
Prepayments and other ................................ 4,814 5,380
Deferred income taxes ................................ 5,473 6,130
--------- ---------
TOTAL CURRENT ASSETS ............................. 249,714 248,742
--------- ---------
PROPERTY AND EQUIPMENT:
Gross property and equipment ......................... 161,265 159,368
Less accumulated depreciation and amortization ....... 109,015 102,222
--------- ---------
NET PROPERTY AND EQUIPMENT ......................... 52,250 57,146
--------- ---------
OTHER ASSETS ............................................ 1,697 1,830
--------- ---------
TOTAL ASSETS ..................................... $ 303,661 $ 307,718
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................... $ 85,258 $ 99,585
Related party accounts payable ....................... 8,202 9,071
Accrued expenses ..................................... 25,010 24,790
Accrued income taxes ................................. 960 2,530
Current portion of long-term debt .................... 22,872 170
--------- ---------
TOTAL CURRENT LIABILITIES ........................ 142,302 136,146
--------- ---------
LONG-TERM DEBT .......................................... 35,018 44,942
DEFERRED INCOME TAXES ................................... 1,284 1,703
OTHER LONG-TERM LIABILITIES ............................. 1,487 2,059
--------- ---------
TOTAL NON-CURRENT LIABILITIES .................... 37,789 48,704
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares outstanding..................... -- --
Common stock, $.01 par value, 30,000,000 shares
authorized, 18,259,875 and 18,211,706 shares issued at 183 182
August 2, 2003 and February 1, 2003, respectively
Additional paid-in capital ........................... 70,943 70,849
Less treasury stock, at cost; (2,010,050 shares at
August 2, 2003 and February 1, 2003).................. (5,271) (5,271)
Accumulated other comprehensive loss, net of tax ..... (931) (1,219)
Retained earnings .................................... 58,646 58,327
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ....................... 123,570 122,868
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $ 303,661 $ 307,718
========= =========
SEE ACCOMPANYING NOTES
3
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
AUGUST 2, 2003 AUGUST 3, 2002 AUGUST 2, 2003 AUGUST 3, 2002
-------------- -------------- -------------- --------------
NET SALES ............................................... $ 113,473 $ 104,023 $ 212,318 $ 204,732
Cost of products sold (including warehouse
distribution and store occupancy costs) (1) .......... 82,575 75,971 156,386 149,211
------- ------- ------- -------
GROSS PROFIT ............................................ 30,898 28,052 55,932 55,521
Operating, selling and administrative expenses ....... 23,746 23,758 45,409 46,481
Depreciation and amortization ........................ 3,949 3,929 8,017 7,888
------- ------- ------- -------
OPERATING INCOME ........................................ 3,203 365 2,506 1,152
Interest expense, net ................................ 848 1,000 1,717 1,934
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE ............................................... 2,355 (635) 789 (782)
Income taxes provision (benefit) ..................... 895 (241) 300 (297)
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE.... 1,460 (394) 489 (485)
DISCONTINUED OPERATIONS (NOTE 10)
Loss from discontinued operations before income taxes
(including loss on disposal of $120 for the 2003 thirteen
week period and $136 for the twenty-six week period).. (160) (50) (275) (83)
Income tax benefit ................................... 61 19 105 32
------- ------- ------- -------
LOSS FROM DISCONTINUED OPERATIONS .................. (99) (31) (170) (51)
------- ------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE .................................... 1,361 (425) 319 (536)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, NET OF DEFERRED INCOME TAX BENEFIT OF $736... -- -- -- (1,201)
------- ------- ------- -------
NET INCOME (LOSS) ....................................... $ 1,361 $ (425) $ 319 $ (1,737)
======= ======= ======= =======
NET INCOME (LOSS) PER COMMON SHARE:
BASIC:
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE.......... $ 0.09 $ (0.03) $ 0.03 $ (0.03)
LOSS FROM DISCONTINUED OPERATIONS ................... (0.01) -- (0.01) --
------- ------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE ................................ 0.08 (0.03) 0.02 (0.03)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE -- -- -- (0.08)
------ ------- ------- -------
NET INCOME (LOSS) .................................... $ 0.08 $ (0.03) $ 0.02 $ (0.11)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC. 16,248 16,199 16,234 16,181
======= ======= ======= =======
DILUTED:
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE .......... $ 0.09 $ (0.03) $ 0.03 $ (0.03)
LOSS FROM DISCONTINUED OPERATIONS ................... (0.01) -- (0.01) --
------- ------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE ................................ 0.08 (0.03) 0.02 (0.03)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE. -- -- -- (0.08)
------- ------- ------- -------
NET INCOME (LOSS) .................................... $ 0.08 $ (0.03) $ 0.02 $ (0.11)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
DILUTED .............................................. 16,518 16,199 16,435 16,181
======= ======= ======= =======
(1) Inventory purchases from related parties were $6,150, $2,995, $17,656
and $13,520, respectively, for each of the periods presented above.
SEE ACCOMPANYING NOTES
4
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
TWENTY-SIX WEEKS ENDED
----------------------
AUGUST 2, 2003 AUGUST 3, 2002
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................... $ 319 $ (1,737)
------- -------
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Cumulative effect of change in accounting principle ..... -- 1,201
Depreciation and amortization ........................... 8,017 7,888
Loss on disposal of property ............................ 453 --
Change in deferred income taxes ......................... 62 (431)
Increase in inventories ................................. (3,471) (13,113)
Decrease in accounts payable ............................ (15,196) (12,639)
Changes in certain other assets and liabilities ......... 624 (211)
------- -------
Total adjustments .................................... (9,511) (17,305)
------- -------
Net cash used in operating activities ................ (9,192) (19,042)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ...................................... (3,507) (4,710)
Proceeds from sale of equipment ........................... 19 16
------- -------
Net cash used in investing activities ................ (3,488) (4,694)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities ........................ 108,220 102,176
Repayments under credit facilities ........................ (95,442) (78,278)
Proceeds from sale of common stock, net ................... 95 126
------- -------
Net cash provided by financing activities ............ 12,873 24,024
------- -------
Net increase in cash and cash equivalents .................... 193 288
Cash and cash equivalents at beginning of period ............. 4,977 5,212
------- -------
Cash and cash equivalents at end of period ................... $5,170 $ 5,500
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the twenty-six week period for:
Interest ......................................... $1,770 $ 1,787
Income taxes, net of refunds ..................... $1,704 $ 1,890
SEE ACCOMPANYING NOTES
5
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Books-A-Million, Inc. and its subsidiaries (the "Company") for the
thirteen and twenty-six week periods ended August 2, 2003 and August 3,
2002, have been prepared in accordance with accounting principles generally
accepted in the United States ("GAAP") for interim financial information
and are presented in accordance with the requirements of Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial
statements. These financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, for the fiscal
year ended February 1, 2003, included in the Company's Fiscal 2003 Annual
Report on Form 10-K. In the opinion of management, the financial statements
included herein contain all adjustments (consisting only of normal
recurring adjustments except for the change in the accounting principle as
discussed in Note 7) considered necessary for a fair presentation of the
Company's financial position as of August 2, 2003, and the results of its
operations and cash flows for the thirteen and twenty-six week periods
ended August 2, 2003 and August 3, 2002. Certain prior year amounts have
been reclassified to conform to current year presentation.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates and
assumptions.
The Company has also experienced, and expects to continue to
experience, significant variability in sales and net income from quarter to
quarter. Therefore, the results of the interim periods presented herein are
not necessarily indicative of the results to be expected for any other
interim period or the full year.
Stock-Based Compensation
At August 2, 2003 and February 1, 2003, the Company had one stock
option plan. The Company accounts for the plan under the recognition and
measurement principles of Accounting Pronouncements Bulletin (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. No stock-based employee compensation cost is reflected in
net income, as all options granted under the plan had an exercise price
equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income (loss) and
net income (loss) per common share if the Company had applied the fair
value recognition provisions of Statement of Financial Accounting Standards
No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation--Transaction
and Disclosure--an Amendment of FASB Statement No. 123," to stock-based
employee compensation (in thousands except per share amounts):
For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended
---------------------------- ------------------------------
In thousands August 2, 2003 August 3, 2002 August 2, 2003 August 3, 2002
-------------- -------------- -------------- --------------
Net income (loss), as reported .......... $ 1,361 $ (425) $ 319 $ (1,737)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of tax effects............. 328 283 656 566
-------------- -------------- -------------- --------------
Pro forma net loss ...................... 1,033 (708) (337) (2,303)
Net income (loss) per common share:
Basic--as reported ...................... $ 0.08 $ (0.03) $ 0.02 $ (0.11)
Basic--pro forma ........................ $ 0.06 $ (0.04) $(0.02) $ (0.14)
Diluted--as reported .................... $ 0.08 $ (0.03) $ 0.02 $ (0.11)
Diluted--pro forma ...................... $ 0.06 $ (0.04) $(0.02) $ (0.14)
============== ============== ============== ==============
The fair value of the options granted under the Company's stock option
plan was estimated on their date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: no
dividend yield; expected volatility of 1.01% and 1.21%, respectively;
risk-free interest rates of 3.63% to 5.10% and 3.76% to 5.71%,
respectively; and expected lives of six or ten years.
2. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share ("EPS") is computed by dividing
income (loss) available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS
6
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
reflects the potential dilution that could occur if securities or other
contracts to issue common stock are exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the Company. Diluted EPS has been computed based on the
weighted average number of shares outstanding including the effect of
outstanding stock options, if dilutive, in each respective thirteen and
twenty-six week period. A reconciliation of the weighted average shares for
basic and diluted EPS is as follows:
For the Thirteen Weeks Ended
(in thousands)
----------------------------
August 2, 2003 August 3, 2002
-------------- --------------
Weighted average shares outstanding:
Basic ...................................... 16,248 16,199
Dilutive effect of stock options outstanding 270 --
------ ------
Diluted .................................... 16,518 16,199
====== ======
For the Twenty-Six Weeks Ended
(in thousands)
----------------------------
August 2, 2003 August 3, 2002
-------------- --------------
Weighted average shares outstanding:
Basic ...................................... 16,234 16,181
Dilutive effect of stock options outstanding 201 --
------ ------
Diluted .................................... 16,435 16,181
====== ======
Options outstanding to purchase 2,509,000 and 2,399,000 shares of
common stock for the thirteen and twenty-six weeks ended August 2, 2003 and
August 3, 2002, respectively, were not included in the table above as they
were anti-dilutive under the treasury stock method.
3. DERIVATIVE AND HEDGING ACTIVITIES
The Company is subject to interest rate fluctuations involving its
credit facilities and debt related to an Industrial Development Revenue
Bond (the "Bond"). However, the Company uses both fixed and variable debt
to manage this exposure. On February 9, 1998, the Company entered into an
interest rate swap agreement with a five-year term that carried a notional
principal amount of $30 million. The swap effectively fixed the interest
rate on $30.0 million of variable rate debt at 7.41% and expired February
2003. The Company entered into two separate $10 million swaps on July 24,
2002. Both expire August 2005 and effectively fix the interest rate on $20
million of variable debt at 5.13%. In addition, the Company entered into a
$7.5 million interest rate swap in May 1996 that expires in June 2005 and
effectively fixes the interest rate on the bond at 7.98%. The counter
parties to the interest rate swaps are two primary banks in the Company's
credit facility. The Company believes the credit and liquidity risk of the
counter parties failing to meet their obligation is remote as the Company
settles its interest position with the banks on a quarterly basis.
The Company's interest rate swaps that convert variable payments to
fixed payments are designated as cash flow hedges. Cash flow hedges protect
against the variability in future cash outflows of current or forecasted
debt. The changes in the fair value of these hedges are reported on the
balance sheet with a corresponding adjustment to accumulated other
comprehensive income (loss). Over time, the unrealized gains and losses
held in accumulated other comprehensive income (loss) may be realized and
reflected in the Company's Statements of Operations.
The interest rate swaps described above are classified as Other
Long-Term Liabilities in the accompanying condensed consolidated balance
sheets at their fair value of $1.5 million and $2.1 million as of August 2,
2003 and February 1, 2003, respectively. For the thirteen weeks ended
August 2, 2003 and August 3, 2002, respectively, unrealized gains or
(losses) of $225,000 (net of tax provision of $138,000) and ($230,000) (net
of tax benefit of $141,000) and in the twenty-six weeks ended August 2,
2003 and August 3, 2002, respectively, adjustments of $288,000 (net of tax
provision of $176,000) and ($109,000) (net of tax benefit of $68,000) were
recorded as unrealized gains or losses in accumulated other comprehensive
loss and are detailed in Note 4.
7
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. 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, as follows:
COMPREHENSIVE INCOME (LOSS) Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands) (in thousands)
-------------------- ----------------------
August 2, 2003 August 3, 2002 August 2, 2003 August 3, 2002
-------------- -------------- -------------- --------------
Net income (loss) ................ $ 1,361 ($ 425) $ 319 ($1,737)
Unrealized gains (losses) on
derivative instruments, net of
deferred tax provision (benefit)
for the thirteen-week periods of
$138 and ($141), respectively,
and the twenty-six week periods of
$176 and ($68), respectively ..... 225 (230) 288 (109)
-------------- -------------- -------------- --------------
Total comprehensive income
(loss) ........................... $ 1,586 ($ 655) $ 607 ($1,846)
============== ============== ============== ==============
5. 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
under certain circumstances. 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, and (c) real estate leases, under
which the Company may agree to indemnify the lessors from claims arising
from the Company's use of the property.
The nature and terms of these types of indemnities vary. The events or
circumstances that would require the Company to perform under these
indemnities are transaction and circumstance specific. Generally, a maximum
obligation is not explicitly stated and therefore the overall maximum
amount of the obligations cannot be reasonably estimated. Historically, the
Company has not incurred significant costs related to performance under
these types of indemnities. No liabilities have been recorded for these
obligations on the Company's balance sheet at August 2, 2003 and February
2, 2003.
6. INVENTORIES
As of February 2, 2003, the Company changed from the first-in,
first-out (FIFO) method of accounting for inventories to the last-in,
first-out (LIFO) method. Management believes this change is preferable in
that it achieves a more appropriate matching of revenues and expenses. The
impact of this accounting change was to increase "Costs of Products Sold"
in the consolidated statements of operations by $0.1 million and $0.3
million for the thirteen and twenty-six weeks ended August 2, 2003. This
resulted in an after-tax decrease to net income of $0.1 million or a
decrease in net income per diluted share of $0.01, for the thirteen weeks
ended August 2, 2003, and an after-tax decrease to net income of $0.2
million or a decrease in net income per diluted share of $0.01, for the
twenty-six weeks ended August 2, 2003. The cumulative effect of a change in
accounting principle from the FIFO method to LIFO method is not
determinable. Accordingly, such change has been accounted for
prospectively. In addition, pro forma amounts of retroactively applying the
change cannot be reasonably estimated and have not been disclosed.
8
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Inventories were:
(In thousands) August 2, 2003 February 1, 2003
-------------- ---------------
Inventories (at FIFO) $ 227,818 $ 224,019
LIFO reserve (329) -
-------------- ---------------
Net inventories $ 227,489 $ 224,019
============== ===============
7. 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 related inventory.
The impact of the adoption of EITF No. 02-16 is reflected as a cumulative
effect of a change in accounting principle as of February 3, 2002 of
approximately $1.2 million (net of income tax benefit of $736,000), or
$0.07 per diluted share increase to net loss. Prior to fiscal 2003, the
Company recognized these vendor allowances over the period covered by the
vendor arrangement.
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 predominately supplies
merchandise to the Company's retail stores. The electronic commerce trade
segment is a strategic business segment that transacts business over the
internet and is managed separately due to divergent technology and
marketing requirements.
The accounting policies of the segments are substantially the same as
those described in the Company's Fiscal 2003 Annual Report on Form 10-K.
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.
9
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEGMENT INFORMATION (IN THOUSANDS) Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------- ------------------------
August 2, 2003 August 3, 2002 August 2, 2003 August 3, 2002
-------------- -------------- -------------- --------------
NET SALES .........................
Retail Trade ................. $ 111,948 $ 102,872 $ 209,487 $ 201,997
Electronic Commerce Trade .... 6,289 5,272 11,496 11,142
Intersegment Sales Elimination (4,764) (4,121) (8,665) (8,407)
---------- ---------- ---------- ----------
Total Sales .............. $ 113,473 $ 104,023 $ 212,318 $ 204,732
========== ========== ========== ==========
OPERATING INCOME (LOSS)
Retail Trade ................. $ 3,606 $ 510 $ 3,097 1,512
Electronic Commerce Trade .... (461) (153) (697) (396)
Intersegment Elimination of
Certain Costs ................ 58 8 106 36
---------- ---------- ---------- ----------
Total Operating Income ....... $ 3,203 $ 365 $ 2,506 $ 1,152
========== ========== ========== ==========
As of August 2, As of February 1,
2003 2003
--------------- -----------------
ASSETS
Retail Trade ................. $ 302,437 $ 306,542
Electronic Commerce Trade .... 1,788 1,752
Intersegment Asset Elimination (564) (576)
---------- ----------
Total Assets ............. $ 303,661 $ 307,718
========== ==========
10
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RECENT ACCOUNTING PRONOUNCEMENTS
FIN No. 46, "Consolidation of Variable Interest Entities", was issued
in January 2003. This interpretation requires consolidation of variable
interest entities ("VIE") (also formerly referred to as "special purpose
entities") if certain conditions are met. The interpretation applies
immediately to VIE's created after January 31, 2003, and to interests
obtained in VIE's after January 31, 2003. Beginning after June 15, 2003,
the interpretation applies also to VIE's created or interests obtained in
VIE's before Janaury 31, 2003. The Company is currently evaluating the
impact of adopting this statement on its financial position, results of
operations or cash flows.
10. DISCONTINUED OPERATIONS
Discontinued operations represent the closure of the Company's only
stores in a North Carolina and a Georgia market. These stores had sales of
$416,000 and $631,000 and pretax operating losses of $160,000 and $50,000
for the thirteen-week periods ended August 2, 2003 and August 3, 2002,
respectively. For the twenty-six weeks ended August 2, 2003 and August 3,
2002, these stores had sales of $1,004,000 and $1,233,000 and pretax
operating losses of $275,000 and $83,000. Included in the loss on
discontinued operations are closing costs of $120,000 and $136,000 for the
thirteen and twenty-six week periods ended August 2, 2003.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This document contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to, the competitive environment in the book retail industry
in general and in the Company's specific market areas; inflation; economic
conditions in general and in the Company's specific market areas; the number of
store openings and closings; the profitability of certain product lines, capital
expenditures and future liquidity; liability and other claims asserted against
the Company; uncertainties related to the Internet and the Company's Internet
initiatives; and other factors referenced herein. In addition, such
forward-looking statements are necessarily dependent upon the assumptions,
estimates and dates that may be incorrect or imprecise and involve known and
unknown risks, uncertainties and other factors. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized. Given these uncertainties, shareholders
and prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
GENERAL
The Company was founded in 1917 and currently operates 203 retail
bookstores, including 162 superstores, concentrated in the southeastern United
States.
The Company's growth strategy is focused on opening superstores in new and
existing market areas, particularly in the Southeast. In addition to opening new
stores, management intends to continue its practice of reviewing the
profitability trends and prospects of existing stores and closing or relocating
under-performing stores or converting stores to different formats.
Comparable store sales are determined each fiscal quarter during the year
based on all stores that have been open at least 12 full months as of the first
day of the fiscal quarter. Any stores closed during a fiscal quarter are
excluded from comparable store sales as of the first day of the quarter in which
they close.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data expressed as a
percentage of net sales for the periods presented.
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
August 2, 2003 August 3, 2002 August 2, 2003 August 3, 2002
-------------- -------------- -------------- --------------
Net sales ............................ 100.0% 100.0% 100.0% 100.0%
Gross profit ......................... 27.2% 27.0% 26.3% 27.1%
Operating, selling and administrative
expenses......................... 20.9% 22.8% 21.3% 22.7%
Depreciation and amortization ........ 3.5% 3.8% 3.8% 3.9%
----- ----- ----- -----
Operating income (loss) .............. 2.8% 0.4% 1.2% 0.5%
Interest expense, net ................ 0.7% 1.0% 0.8% 0.9%
----- ----- ----- -----
Income (Loss) from continuing
operations before income taxes
and cumulative effect of a change
in accounting principle.......... 2.1% (0.6)% 0.4% (0.4)%
Income taxes benefit ................. 0.9% (0.3)% 0.1% (0.1)%
----- ----- ----- -----
Income (Loss) from continuing
operations before cumulative
effect of a change in accounting
principle........................ 1.2% (0.3)% 0.3% (0.3)%
Loss from discontinued operations .... -- (0.1)% (0.1)% --
----- ----- ----- -----
Income (Loss) before cumulative effect
of a change in accounting
principle........................ 1.2% (0.4)% 0.2% (0.3)%
Cumulative effect of change in
accounting principle............. -- -- -- (0.6)%
----- ----- ----- -----
Net income (loss) .................... 1.2% (0.4)% 0.2% (0.9)%
===== ===== ===== =====
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net sales increased 9.1% to $113.5 million in the thirteen weeks ended
August 2, 2003, from $104.0 million in the thirteen weeks ended August 3, 2002.
Net sales increased 3.7% to $212.3 million in the twenty-six weeks ended August
2, 2003, from $204.7 million in the twenty-six weeks ended August 3, 2002.
Comparable store sales in the thirteen weeks ended August 2, 2003 increased 6.0%
when compared with the same thirteen week period for the prior year. The
increase in comparable store sales for the thirteen weeks was due to higher
sales in the book, collector and cafe departments. The book sales increase was
primarily driven by Harry Potter sales and related traffic. The increase in
collector sales was primarily related to Yu-Gi-Oh sales. The cafe department
sales increase was led by the Company's new cold beverage product line of
frappes as well as store traffic. Comparable store sales increased 1.7% for the
twenty-six weeks ended August 2, 2003 due to higher sales in the collector and
cafe departments. The collector sales increase was due to Yu-Gi-Oh sales and the
cafe sales increase was due to sales of the Company's new cold beverage product
line of frappes as well as increased store traffic. During the thirteen weeks
ended August 2, 2003, the Company closed two superstores and closed two
newsstands.
Net sales for the retail trade segment increased $9.0 million, or 8.8%, to
$111.9 million in the thirteen weeks ended August 2, 2003 from $102.9 million in
the same period last year. The increase in sales was primarily due to higher
comparable store sales, which increased 6.0% for the thirteen weeks. Net sales
for the retail trade segment increased $7.5 million, to $209.5 million for the
twenty-six weeks ended August 2, 2003, due to the improved sales during the
second quarter. Net sales for the electronic commerce segment increased $1.0
million, or 19.3%, to $6.3 million in the thirteen weeks ended August 2, 2003
related to Harry Potter sales. For the twenty-six weeks ended August 2, 2003,
net sales for the electronic commerce segment increased $0.4 million, to $11.5
million from $11.1 million in the same period last year.
Gross profit increased 10.1% to $30.9 million in the thirteen weeks ended
August 2, 2003 when compared with $28.1 million in the same thirteen week period
for the prior year. For the twenty-six weeks ended August 2, 2003, gross profit
increased 0.7% to $55.9 million from $55.5 million in the same period last year.
Gross profit as a percentage of net sales for the thirteen weeks ended August 2,
2003 was 27.2% versus 27.0% in the same period last year. Gross profit as a
percentage of net sales for the twenty-six weeks ended August 2, 2003 was 26.3%
versus 27.1% in the same period last year. The increase in gross profit stated
as a percent of net sales for the thirteen week period was primarily due to
lower occupancy costs as a percentage of net sales, which was the result of
higher comparable store sales while occupancy costs are relatively fixed. The
decrease in gross profit stated as a percent to sales for the twenty-six week
period was primarily due to higher occupancy costs as a percentage of net sales
and increased promotional sales activity. Additionally, as of February 2, 2003,
the Company changed from the first-in first-out (FIFO) method of accounting for
inventories to the last-in last-out (LIFO) method. The impact of this accounting
change was to decrease gross profit in the consolidated statements of operations
by $0.1 million and $0.3 million for the thirteen and twenty-six week periods
ended August 2, 2003. Refer to Note 6 in the notes to the condensed consolidated
financial statements for additional information related to this change.
Operating, selling and administrative expenses were $23.7 million in the
thirteen week period ended August 2, 2003 compared to $23.8 million in the same
period last year. For the twenty-six weeks ended August 2, 2003, operating,
selling and administrative expenses decreased to $45.4 million from $46.5
million in the same period last year. Operating, selling and administrative
expenses as a percentage of net sales for the thirteen weeks ended August 2,
2003 decreased to 20.9% from 22.8% in the same period last year. Operating,
selling and administrative expenses as a percentage of net sales for the
twenty-six weeks ended August 2, 2003 decreased to 21.3% from 22.7% in the same
period last year. The decrease in operating, selling and administrative expenses
stated as a percent to sales was primarily due to strong expense controls in
both corporate and store selling expenses. Additionally, store advertising
expenses were lower than last year due to less promotions than normal.
Depreciation and amortization was $3.9 million in each of the thirteen week
periods ended August 2, 2003 and August 3, 2002, and in the twenty-six week
period ended August 2, 2003 depreciation and amortization increased 1.6% to $8.0
million from $7.9 million in the same period last year. The increase in
depreciation and amortization was due to the increased number of superstores
operated by the Company combined with capital improvements made to existing
stores during fiscal 2003 and fiscal 2004.
Consolidated operating profit was $3.2 million for the thirteen weeks ended
August 2, 2003, compared to $0.4 million in the same period last year. For the
twenty-six weeks ended August 2, 2003, consolidated operating profit was $2.5
million versus $1.2 million last year. Operating profit for the retail trade
segment increased $3.1 million for the thirteen weeks ended August 2, 2003 and
$1.6 million for the twenty-six week period ended August 2, 2003. The increase
in operating profit was due to strong profit growth in the second quarter driven
primarily by the stronger comparable store sales. The operating loss for the
electronic commerce segment was $0.5 million for the thirteen weeks ended August
2, 2003 versus an operating loss of $0.2 million in the same period last year.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The slight increase in losses was due to more promotional discounting related to
Harry Potter. For the twenty-six week period, the operating loss for the
electronic commerce segment was $0.7 million compared to $0.4 million last year
due to the promotional discounting during the second quarter.
Interest expense was $848,000 in the thirteen weeks ended August 2, 2003
versus $1.0 million in the same period last year and $1.7 million in the
twenty-six weeks ended August 2, 2003 versus $1.9 million in the same period
last year. The decrease was due to lower average interest rates compared with
last year.
Discontinued operations represent the closure of the Company's only stores
in a North Carolina and a Georgia market. These stores had sales of $416,000 and
$631,000 and pretax operating losses of $160,000 and $50,000 for the
thirteen-week periods ended August 2, 2003 and August 3, 2002, respectively. For
the twenty-six weeks ended August 2, 2003 and August 3, 2002, these stores had
sales of $1,004,000 and $1,233,000 and pretax operating losses of $275,000 and
$83,000. Included in the loss on discontinued operations are closing costs of
$120,000 and $136,000 for the thirteen and twenty-six week periods ended August
2, 2003.
Effective February 3, 2002, the Company adopted Emerging Issues Task Force
("EITF") No. 02-16, Accounting by a Customer (including a reseller) for Certain
Consideration Received from a Vendor, which addresses the accounting for vendor
allowances. The adoption of this accounting principle resulted in a cumulative
after-tax increase to net loss of $1.2 million, or $0.07 per diluted share, for
the twenty-six weeks ended August 3, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from operations,
including credit terms from vendors, and borrowings under its credit facility.
The Company has an unsecured revolving credit facility that allows borrowings up
to $100 million, for which no principal repayments are due until the facility
expires in July 2005. The credit facility has certain financial and
non-financial covenants. The most restrictive financial covenant is the
maintenance of a minimum fixed charge ratio. As of August 2, 2003 and February
1, 2003, $50.3 million and $37.4 million, respectively, were outstanding under
this credit facility. The Company expects that the current portion of long-term
debt will be repaid by the end of the current fiscal year with cash flows from
the holiday selling season. The maximum and average outstanding balances during
the thirteen weeks ended August 2, 2003 were $77.6 million and $68.7 million,
respectively, compared to $71.2 million and $64.6 million, respectively for the
same period in the prior year. The maximum and average outstanding balances
during the twenty-six weeks ended August 2, 2003 were $77.6 million and $66.5
million, respectively, compared to $71.2 million and $61.7 million, respectively
for the same period in the prior year. The outstanding borrowings as of August
2, 2003 had interest rates ranging from 1.95% to 4.25%. Additionally, as of
August 2, 2003 and February 1, 2003, the Company has outstanding borrowings
under an industrial revenue bond totaling $7.5 million, which is secured by
certain property.
Financial Position
Inventory balances at August 2, 2003 compared to February 1, 2003 increased
due to seasonal fluctuation in inventory. Inventory levels are lowest at
February 1, 2003 due to large post holiday returns. Accounts payable at August
2, 2003 compared to February 1, 2003 decreased due to timing of inventory
purchases and vendor payments.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 August 2, 2003 (in thousands):
PAYMENTS DUE UNDER CONTRACTUAL OBLIGATIONS
Total FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 Thereafter
--------- --------- --------- --------- --------- --------- ---------
Notes payable ...... $ 50 $ 50 $ -- $ -- $ -- $ -- $ --
Short-term debt -
revolving
credit facility (1).. 22,822 22,822 -- -- -- -- --
Long-term debt -
revolving
credit facility..... 27,518 -- -- 27,518 -- -- --
Long-term debt
-industrial
revenue bond........ 7,500 -- -- 7,500 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Subtotal of debt ... 57,890 22,872 -- 35,018 -- -- --
Operating leases ... 127,079 14,482 26,814 24,086 18,848 15,325 27,524
--------- --------- --------- --------- --------- --------- ---------
Total of obligations $ 184,969 $ 37,354 $ 26,814 $ 59,104 $ 18,848 $ 15,325 $ 27,524
========= ========= ========= ========= ========= ========= =========
(1) These payments are not required in fiscal 2004, but are anticipated due
to normal seasonal fluctuations in cash flows due to the holiday selling season
during the second half of fiscal 2004.
Guarantees
From time to time, the Company enters into certain types of agreements that
contingently require the Company to indemnify parties against third party
claims. Generally these agreements relate to: (a) agreements with vendors and
suppliers, under which the Company may provide customary indemnification to its
vendors and suppliers in respect of actions they take at the Company's request
or otherwise on its behalf, (b) agreements with vendors who publish books or
manufacture merchandise specifically for the Company to indemnify the vendors
against trademark and copyright infringement claims concerning the books
published or merchandise manufactured on behalf of the Company and (c) real
estate leases, under which the Company may agree to indemnify the lessors from
claims arising from the Company's use of the property.
The nature and terms of these types of indemnities vary. The events or
circumstances that would require the Company to perform under these indemnities
are transaction and circumstance specific. Generally, a maximum obligation is
not explicitly stated and and therefore the overall maximum amount of the
obligations cannot be reasonably estimated. Historically, the Company has not
incurred significant costs related to performance under these types of
indemnities. No liabilities have been recorded for these obligations on the
Company's balance sheet at August 2, 2003.
Cash Flows
Operating activities used cash of $9.2 million and $19.0 million in the
twenty-six week periods ended August 2, 2003 and August 3, 2002, respectively,
and included the following effects:
o Cash used for inventories in the twenty-six week periods ended
August 2, 2003 and August 3, 2002 was $3.5 million and $13.1 million,
respectively. The smaller usage in the current period was due to
higher sales versus last year.
o Cash used by accounts payable in the twenty-six week periods ended
August 2, 2003 and August 3, 2002 was $15.2 million and $12.6 million,
respectively.
o Depreciation and amortization expenses were $8.1 million and $8.0
million in the twenty-six week periods ended August 2, 2003 and
August 3, 2002, respectively.
Cash flows used in investing activities reflected a $3.5 million and $4.7
million net use of cash for the twenty-six week periods ended August 2, 2003 and
August 3, 2002, respectively. Cash was used primarily to fund capital
expenditures for new store openings, renovation and improvements to existing
stores, warehouse distribution purposes and investments in management
information systems.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financing activities provided cash of $12.9 million and $24.0 million in
the twenty-six week periods ended August 2, 2003 and August 3, 2002,
respectively, principally from net borrowings under the revolving credit
facility.
OUTLOOK
For fiscal 2004, the Company currently expects to open approximately four
new stores, relocate or remodel approximately 20 to 25 stores and close
approximately six stores. The Company's capital expenditures totaled $3.5
million in the twenty-six week period ended August 2, 2003. These expenditures
were primarily used for new store openings, renovation and improvements to
existing stores and investment in management information systems. Management
estimates that capital expenditures for the remainder of fiscal 2004 will be
approximately $7.1 million and that such amounts will be used primarily for new
stores, renovation and improvements to existing stores, and investments in
management information systems. 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
the remainder of fiscal 2004 and all of fiscal 2005.
RELATED PARTY ACTIVITIES
Certain stockholders and directors (including certain officers) of the
Company have controlling ownership interests in other entities with which the
Company conducts business. Significant transactions between the Company and
these various other entities ("related parties") are summarized in the following
paragraph.
The Company purchases a portion of its inventories for resale from related
parties; such net purchases were $17.7 million in the twenty-six weeks ended
August 2, 2003, and $13.5 million in the twenty-six weeks ended August 3, 2002.
This difference in net purchases is primarily due to timing of magazine
purchases and returns. The Company sells a portion of its inventories to related
parties; such sales amounted to $0.3 million and $(0.1) million in the
twenty-six weeks ended August 2, 2003 and August 3, 2002, respectively.
Management believes the terms of these related party transactions are
substantially equivalent to those available from unrelated parties and,
therefore, have no significant impact on gross profit.
The Company also leases certain office, warehouse and retail store space
from related parties. Rental expense under these leases was approximately
$290,900 and $295,100 in the twenty-six weeks ended August 2, 2003 and August 3,
2002, respectively. Total minimum future rental payments under these leases
aggregate $354,000 at August 2, 2003.
16
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate fluctuations involving its credit
facilities. The average amount of debt outstanding under the Company's credit
facilities was $65.9 million during fiscal 2003. However, the Company utilizes
both fixed and variable debt to manage this exposure. The Company entered into
two separate $10 million swaps on July 24, 2002. Both expire August 2005 and
effectively fix the interest rate on $20 million of variable debt at 5.13%.
Also, on May 14, 1996, the Company entered into an interest rate swap agreement,
with a ten- year term, which carries a notional principal amount of $7.5
million. The swap effectively fixes the interest rate on $7.5 million of
variable rate debt at 7.98%. The swap agreement expires on June 7, 2006. The
counter parties to the interest rate swaps are parties to the Company's
revolving credit facilities. The Company believes the credit and liquidity risk
of the counter parties failing to meet their obligations is remote as the
Company settles its interest position with the banks on a quarterly basis.
To illustrate the sensitivity of the results of operations to changes in
interest rates on its debt, the Company estimates that a 66% increase in LIBOR
rates would increase interest expense by approximately $88,000 for the thirteen
weeks ended August 2, 2003. Likewise, a 66% decrease in LIBOR rates would
decrease interest expense by $88,000 for the thirteen weeks ended August 2,
2003. This hypothetical change in LIBOR rates was calculated based on the
fluctuation in LIBOR in 2002, which was the maximum LIBOR fluctuation in the
last ten years. The estimates do not consider the effect of the potential
termination of the interest rate swaps associated with the debt will have on
interest expense.
17
CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), the Company carried out an evaluation,
under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and the Company's Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the fiscal quarter
covered by this report. Based on the foregoing, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective at the reasonable assurance level. There
has been no change in the Company's internal controls over financial reporting
during the Company's most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company's internal controls over
financial reporting.
18
II - OTHER INFORMATION
ITEM 1: Legal Proceedings
The Company is a party to various legal proceedings incidental
to its business. In the opinion of management, after
consultation with legal counsel, the ultimate liability, if
any, with respect to those proceedings is not presently
expected to materially affect the financial position, results
of operations or cash flows of the Company.
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matters of Vote of Security Holders
None
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 3i Certificate of Incorporation of Books-A-Million,
Inc. (incorporated herein by reference to Exhibit 3.1 in the
Company's Registration Statement on Form S-1 (Capital
Registration No. 33-52256)
Exhibit 3ii By-Laws of Books-A-Million, Inc. (incorporated
herein by reference to Exhibit 3.2 in the Company's
Registration Statement on Form S-1 (Capital Registration No.
33-52256))
Exhibit 31.1 Certification of Clyde B. Anderson, 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.
Exhibit 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.
Exhibit 32.1 Certification of Clyde B. Anderson, 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.
Exhibit 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.
(B) Reports on Form 8-K
The Company filed two current reports on Form 8-K during the
second quarter of fiscal 2004 as follows:
Current report on 8-K, filed with the Securities and Exchange
Commisssion on August 22, 2003, with respect to the second
quarter ended August 2, 2003 earnings announcement.
Current report on 8-K, filed with the Securities and Exchange
Commisssion on August 8, 2003, with respect to the temporary
suspension of trading under registrant's employee benefit
plans.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
BOOKS-A-MILLION, INC.
Date: September 15, 2003 by:/s/ Clyde B. Anderson
---------------------
Clyde B. Anderson
Chief Executive Officer
Date: September 15, 2003 by:/s/ Richard S. Wallington
-------------------------
Richard S. Wallington
Chief Financial Officer
20
Exhibit 31.1
CERTIFICATIONS
I, Clyde B. Anderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 quarterly 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 quarter 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: September 15, 2003 /s/ Clyde B. Anderson
-----------------------
Clyde B. Anderson
Chief Executive Officer
21
Exhibit 31.2
CERTIFICATIONS
I, Richard S. Wallington, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 quarterly 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 quarter 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: September 15, 2003 /s/ Richard S. Wallington
---------------------------
Richard S. Wallington
Chief Financial Officer
22
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. ss. 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 Quarterly Report on Form 10-Q of the Company for the
quarterly period ended August 2, 2003 (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: September 15, 2003 /s/ Clyde B. Anderson
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Clyde B. Anderson
Chief Executive Officer
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Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. ss. 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 Quarterly Report on Form 10-Q of the Company for the
quarterly period ended August 2, 2003 (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: September 15, 2003 /s/ Richard S. Wallington
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Richard S. Wallington
Chief Financial Officer
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