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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.
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BOOKS-A-MILLION, INC. AND SUBSIDIARIES
10-K INDEX
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
2
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.
3
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.
4
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
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
6
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
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
8
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
- 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
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
11
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.
12
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.
13
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
14
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.
15
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:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
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
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.
16
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.
17
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).
18
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
20
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
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
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
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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
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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)
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
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SCHEDULE II.
BOOKS-A-MILLION, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 2004, JANUARY 29, 2005 AND JANUARY 28, 2006
CHARGED/
BALANCE AT (CREDITED) (DEDUCTIONS)/
BEGINNING TO COSTS RECOVERIES BALANCE AT
OF YEAR AND EXPENSES NET END OF YEAR
---------- ------------ ------------- ------------
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
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