UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: July 30, 2005
-------------
- 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 of (IRS Employer Identification No.)
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 by check mark whether the registrant is a shell company (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 October 17, 2005 were 16,517,430 shares.
EXPLANATORY NOTE:
This amendment No. 1 on Form 10-Q/A to Books-A-Million, Inc.'s (the
"Company") quarterly report on Form 10-Q for the quarterly period ended July 30,
2005, initially filed with the Securities and Exchange Commission ("SEC") on
October 20, 2005 ("Original Filing"), is being filed to insert the following
language on the cover page, which was inadvertently omitted from the Company's
Original Filing:
"Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes ________ No ____X____"
Other than the inclusion on the cover page of the language set forth above,
the information contained in this Form 10-Q/A is unchanged from the Company's
Original Filing.
2
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (UNAUDITED)
Condensed Consolidated Balance Sheets .............................. 4
Condensed Consolidated Statements of Operations .................... 5
Condensed Consolidated Statement of Changes in Stockholder's Equity 6
Condensed Consolidated Statements of Cash Flows .................... 7
Notes to Condensed Consolidated Financial Statements ............... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..... 21
Item 4. Controls and Procedures ........................................ 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .... 25
Item 3. Defaults Upon Senior Securities ................................ 25
Item 4. Submission of Matters to a Vote of Security-Holders ............ 26
Item 5. Other Information .............................................. 26
Item 6. Exhibits ....................................................... 26
3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
AS OF JULY 30, 2005 AS OF JANUARY 29, 2005
(UNAUDITED)
------------------------- -------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 7,143 $ 16,559
Accounts receivable, net ............................. 6,955 6,543
Related party accounts receivable, net ............... 168 73
Inventories .......................................... 209,742 210,270
Prepayments and other ................................ 6,599 6,911
Deferred income taxes ................................ 5,561 1,704
------- -------
TOTAL CURRENT ASSETS .............................. 236,168 242,060
------- -------
PROPERTY AND EQUIPMENT:
Gross property and equipment ......................... 198,308 195,964
Less accumulated depreciation and amortization ....... (145,336) (140,018)
------- -------
NET PROPERTY AND EQUIPMENT ........................ 52,972 55,946
------- -------
OTHER ASSETS
Other assets ......................................... 3,127 2,806
------- -------
TOTAL ASSETS ..................................... $ 292,267 $ 300,812
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................... $ 95,678 $ 99,035
Related party accounts payable ....................... 5,238 7,741
Accrued expenses ..................................... 32,436 38,360
Accrued income taxes ................................. -- 1,542
------- -------
TOTAL CURRENT LIABILITIES ......................... 133,352 146,678
------- -------
LONG-TERM DEBT .......................................... 7,500 7,500
DEFERRED INCOME TAXES ................................... 3,756 1,415
OTHER LONG-TERM LIABILITIES ............................. 12,080 10,360
------- -------
TOTAL NON-CURRENT LIABILITIES .................... 23,336 19,275
------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares outstanding..................... -- --
Common stock, $.01 par value, 30,000,000 shares
authorized, 19,400,361 and 19,067,960 shares issued at
July 30, 2005 and January 29, 2005, respectively...... 194 191
Additional paid-in capital ........................... 77,235 74,505
Less treasury stock, at cost (2,992,846 and 2,792,869
shares at July 30, 2005 and January 29, 2005,
respectively)......................................... (14,301) (11,630)
Deferred compensation ................................ (1,073) (481)
Accumulated other comprehensive loss, net of tax ..... (85) (195)
Retained earnings .................................... 73,609 72,469
------- -------
TOTAL STOCKHOLDERS' EQUITY ....................... 135,579 134,859
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $ 292,267 $ 300,812
======= =======
SEE ACCOMPANYING NOTES
4
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
JULY 30, 2005 JULY 31, 2004 JULY 30, 2005 JULY 31, 2004
------------- ------------- ------------- -------------
NET SALES ............................................ $ 122,418 $ 113,494 $ 235,422 $ 221,407
Cost of products sold (including warehouse
distribution and store occupancy costs) ........... 88,327 82,474 169,669 160,199
------- ------- ------- -------
GROSS PROFIT ......................................... 34,091 31,020 65,753 61,208
Operating, selling and administrative expenses .... 26,810 24,622 52,406 47,692
Depreciation and amortization ..................... 4,088 4,313 8,026 8,936
------- ------- ------- -------
OPERATING INCOME ..................................... 3,193 2,085 5,321 4,580
Interest expense, net ............................. 415 487 799 1,005
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2,778 1,598 4,522 3,575
Income taxes provision ............................ 1,069 571 1,732 1,323
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS .................... 1,709 1,027 2,790 2,252
DISCONTINUED OPERATIONS (NOTE 10)
Loss from discontinued operations before income taxes (13) (60) (47) (56)
Income tax benefit ................................ 5 22 18 21
------- ------- ------- -------
LOSS FROM DISCONTINUED OPERATIONS ............... (8) (38) (29) (35)
------- ------- ------- -------
NET INCOME ........................................... $ 1,701 $ 989 $ 2,761 $ 2,217
======= ======= ======= =======
NET INCOME PER COMMON SHARE:
BASIC:
INCOME FROM CONTINUING OPERATIONS ................ $ 0.10 $ 0.06 $ 0.17 $ 0.13
LOSS FROM DISCONTINUED OPERATIONS ................ -- -- -- --
------- ------- ------- -------
NET INCOME ........................................ $ 0.10 $ 0.06 $ 0.17 $ 0.13
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
BASIC.......................................... 16,299 16,497 16,250 16,471
======= ======= ======= =======
DILUTED:
INCOME FROM CONTINUING OPERATIONS ................ $ 0.10 $ 0.06 $ 0.16 $ 0.13
LOSS FROM DISCONTINUED OPERATIONS ................ -- -- -- --
------- ------- ------- -------
NET INCOME ........................................ $ 0.10 $ 0.06 $ 0.16 $ 0.13
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
DILUTED........................................ 16,884 17,225 16,862 17,220
======= ======= ======= =======
DIVIDENDS PER SHARE - DECLARED ....................... $ 0.05 $ -- $ 0.10 $ --
======= ======= ======= =======
SEE ACCOMPANYING NOTES
5
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Accumulated
Additional Unvested Other Total
Common Stock Paid-In Treasury Stock Restricted Stock Retained Comprehensive Stockholders'
(in thousands) Shares Amount Capital Shares Amount Shares Amount Earnings Income (Loss) Equity
--------------------------------------------------------------------------------------------------------------
BALANCE JANUARY
29, 2005.......... 19,068 $191 $74,505 2,793 $(11,630) - $(481) $72,469 $(195) $134,859
Net income........ 2,761 2,761
Unrealized gain
on accounting for
derivative
instruments, net
of tax provision
of $71............ 110 110
-------
Subtotal
comprehensive
income............ 2,871
-------
Purchase of
treasury stock.... 200 (2,671) (2,671)
Dividends paid.... (1,621) (1,621)
Issuance of
restricted stock.. 40 775 (775) -
Amortization of
deferred
compensation
related to
restricted stock.. 183 183
Issuance of stock
for employee
stock purchase
plan.............. 13 71 71
Exercise of stock
options.......... 279 3 1,627 1,630
Tax benefit from
exercise of stock
options.......... 257 257
--------------------------------------------------------------------------------------------------------------
BALANCE JULY 30,
2005 19,400 $194 $77,235 2,993 $(14,301) - $(1,073) $73,609 $(85) $135,579
==============================================================================================================
6
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
TWENTY-SIX WEEKS ENDED
----------------------
JULY 30, 2005 JULY 31, 2004
---------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 2,761 $ 2,217
------ -----
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ..................................... 8,036 8,975
Deferred (compensation) amortization .............................. (592) 63
Loss on impairment of assets ...................................... -- 3
(Gain)/Loss on disposal of property ............................... 1 (12)
Change in deferred income taxes ................................... (1,516) (233)
Increase in inventories ......................................... 528 731
Increase (Decrease) in accounts payable ......................... (5,860) (660)
Changes in certain other assets and liabilities ................. (5,623) (3,544)
------ -----
Total adjustments .............................................. (5,026) 5,323
------ -----
Net cash provided by (used in) operating activities ............ (2,265) 7,540
------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (5,341) (5,387)
Proceeds from sale of equipment ..................................... 6 13
------ -----
Net cash used in investing activities .......................... (5,335) (5,374)
------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities .................................. 97,860 95,120
Repayments under credit facilities .................................. (97,860) (97,060)
Purchase of treasury stock .......................................... (2,671) (548)
Proceeds from sale of common stock, net ............................. 2,476 415
Payment of dividends ................................................ (1,621) --
------ -----
Net cash used in financing activities .......................... (1,816) (2,073)
------ -----
Net increase (decrease) in cash and cash equivalents ................... (9,416) 93
Cash and cash equivalents at beginning of period ....................... 16,559 5,348
------ -----
Cash and cash equivalents at end of period ............................. $ 7,143 $ 5,441
====== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the twenty-six week period for:
Interest ................................................... $ 832 $ 1,013
Income taxes, net of refunds ............................... $ 4,761 $ 4,241
SEE ACCOMPANYING NOTES
7
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of
Books-A-Million, Inc. and its subsidiaries (the "Company") for the thirteen and
twenty-six week periods ended July 30, 2005 and July 31, 2004 have been prepared
in accordance with accounting principles generally accepted in the United States
of America ("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 January 29, 2005 included in our Fiscal 2005 Annual
Report on Form 10-K. In the opinion of management, the financial statements
included herein contain all adjustments considered necessary for a fair
presentation of our financial position as of July 30, 2005, and the results of
its operations and cash flows for the thirteen and twenty-six week periods ended
July 30, 2005 and July 31, 2004. 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.
We have also experienced, and expect 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
The Company has a stock option plan that provides for the issuance of
options to employees and members of the board of directors. With the approval of
the 2005 Incentive Award Plan by our stockholders at the Company's annual
meeting, there will be no additional awards made under the Company's stock
option plan. The Company accounts for the plan under the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations. No
stock-based employee compensation cost for this plan is reflected in net income,
as all options granted under the plan had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and net income per common share if the
Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 148 ("SFAS 148") "Accounting for Stock-Based
Compensation--Transaction and Disclosure--an Amendment of FASB Statement No.
123," to stock-based employee compensation (in thousands except per share
amounts):
For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended
---------------------------- ------------------------------
In thousands July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
------------- ------------- ------------- -------------
Net income, as reported.............. $ 1,701 $ 989 $ 2,761 $ 2,217
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for all
awards, net of tax effects....... 138 341 276 682
-------- ------- -------- --------
Pro forma net income................. $ 1,563 $ 648 $ 2,485 $ 1,535
Net income per common share:
Basic--as reported................... $ 0.10 $ 0.06 $ 0.17 $ 0.13
Basic--pro forma..................... $ 0.10 $ 0.04 $ 0.15 $ 0.09
Diluted--as reported................. $ 0.10 $ 0.06 $ 0.16 $ 0.13
Diluted--pro forma................... $ 0.09 $ 0.04 $ 0.15 $ 0.09
======== ======= ======== ========
There were no new grants of stock options in fiscal 2006. Stock-based
compensation expense in the above table for fiscal 2006 relates to options
granted in prior years that would be expensed over their vesting period. The
fair value of the options granted under the Company's stock option plan for
fiscal 2005 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: $0.03 per
quarter dividend yield; expected stock price volatility rate of .44; risk-free
interest rates of 3.45% to 4.31%; and expected lives of six or ten years.
8
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On June 1, 2005, the stockholders of the Company approved the adoption of
the Books-A-Million, Inc. 2005 Incentive Award Plan. The Company's board of
directors had previously approved this plan subject to stockholder approval. An
aggregate of 300,000 shares of common stock may be issued pursuant to awards
granted under the Plan. On June 29, 2005 the Company granted 77,100 shares of
restricted stock to the Company's officers and key employees pursuant to the
terms of the Plan. The compensation expense related to these grants is being
expensed over the vesting period for the individual grants. In fiscal 2006, the
Company has recorded $103,314 of stock-based compensation expense for the
restricted stock grants. Additionally, the Company granted 3,333 shares to a
Director that joined the Company's Board of Directors in August 2005. The
expense related to the Director's grant will be expensed over the vesting period
of the grant starting in the third quarter.
2. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share ("EPS") is computed by dividing income
(loss) available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock are
exercised or converted into common stock 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 and restricted stock, 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)
--------------
July 30, 2005 July 31, 2004
------------- -------------
Weighted average shares outstanding:
Basic........................................... 16,299 16,497
Dilutive effect of stock options and restricted
stock outstanding............................ 585 728
------ ------
Diluted......................................... 16,884 17,225
====== ======
For the Twenty-Six Weeks Ended
------------------------------
(in thousands)
--------------
July 30, 2005 July 31,2004
------------- ------------
Weighted average shares outstanding:
Basic........................................... 16,250 16,471
Dilutive effect of stock options and restricted
stock outstanding........................... 612 749
------ ------
Diluted......................................... 16,862 17,220
====== ======
Options outstanding to purchase 150,000 and 796,000 shares of common stock
as of July 30, 2005 and July 31, 2004, respectively, were not included in the
table above as they were anti-dilutive under the treasury stock method.
3. RELATED PARTY TRANSACTIONS
Charles C. Anderson, a former director of the Company, Terry C. Anderson, a
director of the Company, and Clyde B. Anderson, a director and officer 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
paragraphs.
The Company purchases a substantial portion of its magazines as well as
certain of their seasonal music and newspapers from Anderson Media Corporation
("Anderson Media"), an affiliate through common ownership. During the twenty-six
weeks ended July 30, 2005 and July 31, 2004, purchases of these items from
Anderson Media totaled $12,939,000 and $12,383,000, respectively. The Company
purchases certain of its collectibles and books from Anderson Press, Inc.
("Anderson Press"), an affiliate through common ownership. During the twenty-
9
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
six weeks ended July 30, 2005 and July 31, 2004, such purchases from Anderson
Press totaled $657,000 and $224,000, respectively. The Company purchases certain
of its greeting cards and gift products from C.R. Gibson, Inc., an affiliate
through common ownership. The purchases of these products during the twenty-six
weeks ended July 30, 2005 and July 31, 2004 were $134,000 and $230,000,
respectively. The Company purchases certain magazine subscriptions from
Magazines.com, an affiliate through common ownership. During the twenty-six
weeks ended July 30, 2005 and July 31, 2004, purchases of these items were
$27,000 and $37,000, respectively. The Company purchases content for publication
from Publication Marketing Corporation, an affiliate through common ownership.
During the twenty-six weeks ended July 30, 2005 and July 31, 2004, purchases of
these items were $29,000 and $24,000, respectively. The Company utilizes import
sourcing and consolidation services from Anco Far East Importers, LTD ("Anco Far
East"), an affiliate through common ownership. The total paid to Anco Far East
was $1,398,000 and $322,000 during the twenty-six weeks ended July 30, 2005 and
July 31, 2004, respectively. These amounts paid to Anco Far East primarily
included the actual cost of the product as well as fees for sourcing and
consolidation services. All costs other than the sourcing and consolidation
service fees were passed through from other vendors. Anco Far East fees, net of
the passed-through costs, were $98,000 and $23,000 during the twenty-six weeks
ended July 30, 2005 and July 31, 2004, respectively.
The Company sold books to (received returns from) Anderson Media in the
amounts of $6,000 and ($31,000) during the twenty-six weeks ended July 30, 2005
and July 31, 2004, respectively. During the twenty-six weeks ended July 30, 2005
and July 31, 2004, the Company provided $8,000 and $47,000, respectively, of
internet services to Magazines.com. The Company provided internet services to
American Promotional Events, an affiliate through common ownership, of $64,000
and $54,000 during the twenty-six weeks ended July 30, 2005 and July 31, 2004,
respectively.
The Company leases its principal executive offices from a trust,
beneficiaries of which are the grandchildren of Mr. Charles C. Anderson, a
former member of the Board of Directors. The lease extends to January 31, 2006.
During the twenty-six weeks ended July 30, 2005 and July 31, 2004, the Company
paid rent of $69,000 in each period to the trust under this lease. Anderson &
Anderson LLC ("A&A"), an affiliate through common ownership, also leases three
buildings to the Company. During the twenty-six weeks ended July 30, 2005 and
July 31, 2004, the Company paid A&A a total of $222,000 and $220,000,
respectively, in connection with such leases. Total minimum future rental
payments under all of these leases are $69,000 at July 30, 2005. The Company
subleases certain property to Hibbett Sporting Goods, Inc. ("Hibbett"), a
sporting goods retailer in the southeastern United States. The Company's
Executive Chairman, Clyde B. Anderson, is a member of Hibbett's board of
directors. During the twenty-six weeks ended July 30, 2005 and July 31, 2004,
the Company received $95,000 in rent payments from Hibbett.
The Company shares ownership of a plane, which the Company uses in the
operation of its business, with an affiliated company. The Company rents the
plane to affiliated companies at rates that cover all of the variable cost, and
a portion of the fixed cost of the plane. The total amounts received from
affiliated companies for use of the plane during the twenty-six weeks ended July
30, 2005 and July 31, 2004, were $157,000 and $130,000, respectively. The
Company also occasionally rents a plane from A&A as well. The amounts paid to
A&A for plane rental were $31,000 and $15,000 for the twenty-six weeks ended
July 30, 2005 and July 31, 2004, respectively.
4. 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 fixed interest rate hedges to manage this
exposure. The Company entered into two separate $10 million interest rate swaps
on July 24, 2002. Both expired in August 2005 and effectively fixed the interest
rate on $20 million of variable credit facility debt at 5.13% (the "Credit
Facility Hedges"). The Company has not replaced the Credit Facility Hedges. In
addition, the Company entered into a $7.5 million interest rate swap in May 1996
that expires in June 2006 and effectively fixed the interest rate on the Bond at
8.73% (the "Bond Hedge"). The counter party to the Bond Hedge is a primary bank
in the Company's credit facility. The Company believes the credit and liquidity
risk of the counter party failing to meet its obligation under the Bond Hedge is
remote.
10
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Bond Hedge is a cash flow hedge, and until the fourth quarter of fiscal
2004 and the fourth quarter of fiscal 2005, respectively, the Credit Facility
hedges were cash flow hedges. Cash flow hedges protect against the variability
in future cash outflows of current or forecasted debt and related interest
expense. The changes in the fair value of these hedges are reported on the
balance sheet with a corresponding adjustment to accumulated other comprehensive
income (loss) or in earnings, depending on the type of hedging relationship.
Over time, amounts held in accumulated other comprehensive income (loss) will be
reclassified to earnings if the hedge transaction becomes ineffective.
The Company's interest rate swaps described above are reported as a
liability classified in other long-term liabilities in the accompanying
condensed consolidated balance sheets at their fair value of $213,000 and
$543,000 as of July 30, 2005 and January 29, 2005, respectively. For the
thirteen weeks ended July 30, 2005 and July 31, 2004, respectively, adjustment
gains of $58,000 (net of tax provision of $34,000) and $131,000 (net of tax
provision of $77,000), respectively, and in the twenty-six weeks ended July 30,
2005 and July 31, 2004, adjustment gains of $110,000 (net of tax provision of
$71,000) and $226,000 (net of tax provision of $133,000), respectively, were
recorded as unrealized gains in accumulated other comprehensive income (loss)
and are detailed in Note 5. During the fourth quarter of fiscal 2004, one of the
Credit Facility Hedges no longer qualified for hedge accounting under SFAS No.
133; as a result, the Company de-designated the hedge. In addition, in the
fourth quarter of fiscal 2005, the other Credit Facility Hedge no longer
qualified for hedge accounting under SFAS No. 133, and the Company de-designated
that hedge at that time. For the thirteen weeks ended July 30, 2005 and July 31,
2004, pre-tax gains of $62,000 and $105,000, respectively were recorded in
earnings related to the de-designated hedges. For the twenty-six weeks ended
July 30, 2005 and July 31, 2004, pre-tax gains of $147,000 and $179,000,
respectively, were recorded in earnings related to the de-designated hedges.
5. COMPREHENSIVE INCOME
Comprehensive income is net income 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 hedges
explained in Note 4, as follows:
COMPREHENSIVE INCOME (LOSS) Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands) (in thousands)
---------------------- -------------------------
July 31, 2005 July 31, 2004 July 31, 2005 July 31, 2004
------------- ------------- ------------- -------------
Net Income......................... $1,701 $989 $2,761 $2,217
Unrealized gains (losses) on
hedges, net of deferred tax
provision (benefit) for the
thirteen-week periods of $34 and
$77, respectively, and the
twenty-six week periods of $71
and $133, respectively............. 58 131 110 226
------ ------ ------ ------
Total comprehensive income......... $1,759 $1,120 $2,871 $2,443
====== ====== ====== ======
11
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. 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 to indemnify
vendors against trademark and copyright infringement claims concerning books
published or merchandise manufactured specifically for or on behalf of the
Company, (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, and (d)
agreements with the Company's directors, officers and employees, under which the
Company may agree to indemnify such persons for liabilities arising out of their
relationship with the Company. The Company has directors and officers liability
insurance, which, subject to the policy's conditions, provides coverage for
indemnification amounts payable by the Company with respect to its directors and
officers up to specified limits and subject to certain deductibles.
The nature and terms of these types of indemnities vary. The events or
circumstances that would require the Company to perform under these indemnities
are transaction and circumstance specific. Generally, the Company's maximum
liability under such indemnities is not explicitly stated, and, therefore, the
overall maximum amount of the Company's 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 July 30, 2005
and January 29, 2005 as such liabilities are considered de minimis.
7. INVENTORIES
Inventories were:
(In thousands) July 30, 2005 January 29, 2005
--------------- ------------------
Inventories (at FIFO) $ 211,122 $ 211,375
LIFO reserve (1,380) (1,105)
----------- -----------
Net inventories $ 209,742 $ 210,270
=========== ===========
12
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 predominantly supplies
merchandise to the Company's retail stores. The electronic commerce trade
segment is a strategic business segment that transacts business over the
internet and is managed separately due to divergent technology and marketing
requirements.
The accounting policies of the segments are substantially the same as those
described in the Company's Fiscal 2005 Annual Report on Form 10-K. The Company
evaluates performance of the segments based on net income from operations before
interest and income taxes. Certain intersegment cost allocations have been made
based upon consolidated and segment revenues.
Segment Information (in thousands) Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
------------------ ----------------- ------------------ ------------------
NET SALES
Retail Trade ................. $ 120,410 $ 111,505 $ 232,222 $ 217,504
Electronic Commerce Trade .... 6,661 6,377 13,180 12,675
Intersegment Sales Elimination (4,653) (4,388) (9,980) (8,772)
------- ------- ------- -------
Net Sales ............... $ 122,418 $ 113,494 $ 235,422 $ 221,407
======= ======= ======= =======
OPERATING INCOME
Retail Trade ................. $ 3,177 $ 1,742 $ 5,251 $ 4,019
Electronic Commerce Trade .... 180 167 172 252
Intersegment Elimination of
Certain Costs............... (164) 176 (102) 309
------- ------- ------- -------
Total Operating Income .. $ 3,193 $ 2,085 $ 5,321 $ 4,580
======= ======= ======= =======
As of As of
July 30, 2005 January 29, 2005
------------------ ------------------
ASSETS
Retail Trade.................. $ 291,276 $ 299,703
Electronic Commerce Trade..... 1,146 1,372
Intersegment Asset Elimination (155) (263)
------- -------
Total Assets............. $ 292,267 $ 300,812
======= =======
13
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123R (revised 2004, "Share-Based Payment"). SFAS No. 123R is a revision
of SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes ABP
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R
requires all share-based payments to employees and directors, including grants
of employee stock options, to be recognized in the financial statements based on
their fair values. SFAS No. 123R is effective at the beginning of the first
annual period beginning after June 15, 2005 (as modified by the SEC on April 14,
2005). Under ABP Opinion No. 25, no stock-based compensation cost has been
reflected in the net income of the Company for grants of stock options to
employees. Beginning in fiscal 2007, the Company will recognize compensation
expense in its financial statements based on the fair value of all share-based
payments to employees. The impact of adopting this new accounting standard on
the Company's financial position, results of operations or cash flows has not
yet been determined.
In November 2004, the Emerging Issues Task Force ("EITF") issued EITF No.
03-13 "Applying the Conditions in Paragraph 42 of FASB No. 144 in Determining
Whether to Report Discontinued Operations." EITF No. 03-13 addresses how an
ongoing entity should evaluate whether the operations and cash flows of a
disposed component have been or will be eliminated from the ongoing operations
of the entity and the types of continuing involvement that constitute
significant continuing involvement in the operations of the disposed component.
EITF No. 03-13 is effective with the fiscal year beginning January 30, 2005. The
adoption of this EITF did not have a material effect on the Company's financial
position, results of operations or cash flows.
FASB Interpretation (FIN) No. 46 "Consolidation of Variable Interest
Entities" ("FIN 46") was issued in January 2003. This interpretation requires
consolidation of variable interest entities ("VIE"), formerly referred to as
"special purpose entities," if certain, conditions are met. The interpretation
applied 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 applied also to VIE's created or interest obtained in VIE's
before January 31, 2003. In December 2003, the FASB issued FASB Interpretation
No. 46R, "Consolidation of Variable Interest Entities - An Interpretation of ARB
51," (revised December 2003) ("FIN 46R), which includes significant amendments
to previously issued FIN No. 46. Among other provisions, FIN 46R includes
revised transition dates for public entities. The Company adopted the provisions
of FIN 46R in the first quarter of fiscal 2005. The adoption of this
interpretation did not have a material effect on the Company's financial
position, results of operations or cash flows.
10. DISCONTINUED OPERATIONS
Discontinued operations represent closure in fiscal 2005 of two retail
stores in markets in Florida and Mississippi and the closure in fiscal 2006 of
one retail store in a Tennessee market where the Company does not expect another
of its existing stores to absorb the closed store's customers. For the thirteen
week periods ended July 30, 2005 and July 31, 2004, these stores had net sales
of $0 and $571,000, respectively, and pretax operating losses of $13,000 and
$60,000, respectively. For the twenty-six week periods ended July 30, 2005 and
July 31, 2004, these stores had net sales of $109,000 and $1,173,000,
respectively, and pretax operating income losses of $47,000 and $56,000,
respectively. Also included in the loss on discontinued operations are store
closing costs of $4,000 and $20,000 for the thirteen and twenty-six weeks ended
July 30, 2005, respectively. Expenses relating to store closings when the store
is not classified as a discontinued operation are reported in operating, selling
and administrative expenses. If the store is closed and another store is in the
same market and the cash flows are expected to be materially recovered, the
store is not considered a discontinued operation.
14
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 our actual
results, performance and achievements, 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: a restatement of our quarterly or annual financial statements as a
result of a material weakness in internal control over financial reporting; the
competitive environment in the book retail industry in general and in our
specific market areas; inflation; economic conditions in general and in our
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 us; uncertainties related
to the Internet and our 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, stockholders and prospective investors are cautioned not to place
undue reliance on such forward-looking statements. We disclaim 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
We were founded in 1917 and as of July 30, 2005 we operate 207 retail
bookstores, including 172 superstores, concentrated in the southeastern United
States.
Our 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.
INTERNAL CONTROL OVER FINANCIAL REPORTING
In September 2005, during the course of its effort to implement Section 404
of the Sarbanes Oxley Act, management identified certain control deficiencies.
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. The
material weakness identified consists 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 (iii) inadequate
independent verification of expense invoice payment supporting documentation.
Please see "Controls and Procedures" herein.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth statement of operations data expressed as a
percentage of net sales for the periods presented.
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
------------- ------------- ------------- -------------
Net sales ........................... 100.0% 100.0% 100.0% 100.0%
Gross profit ........................ 27.8% 27.3% 27.9% 27.6%
Operating, selling and administrative
expenses............................. 21.9% 21.7% 22.3% 21.5%
Depreciation and amortization ....... 3.3% 3.8% 3.4% 4.0%
----- ----- ----- -----
Operating income .................... 2.6% 1.8% 2.2% 2.1%
Interest expense, net ............... 0.3% 0.4% 0.3% 0.5%
----- ----- ----- -----
Income from continuing operations
before income taxes.................. 2.3% 1.4% 1.9% 1.6%
Income taxes provision .............. 0.9% 0.5% 0.7% 0.6%
----- ----- ----- -----
Income from continuing operations ... 1.4% 0.9% 1.2% 1.0%
----- ----- ----- -----
Net income .......................... 1.4% 0.9% 1.2% 1.0%
===== ===== ===== =====
Net sales increased $8.9 million, or 7.9%, to $122.4 million in the
thirteen weeks ended July 30, 2005, from $113.5 million in the thirteen weeks
ended July 31, 2004. Net sales increased $14.0 million, or 6.3%, to $235.4
million in the twenty-six weeks ended July 30, 2005, from $221.4 million in the
twenty-six weeks ended July 31, 2004. Comparable store sales in the thirteen
weeks ended July 30, 2005 increased 4.4% when compared with the same thirteen
week period for the prior year. Comparable store sales increased 4.0% for the
twenty-six weeks ended July 30. The increase in comparable store sales for the
thirteen and twenty-six week periods was primarily due to higher sales in the
book department. The book sales increase was primarily driven by the release of
Harry Potter and the Half Blood Prince, as well as strong sales in categories
such as Children's, History, Teen Fiction, Cooking, Humor and Inspirational.
The following table sets forth net sales data for the thirteen weeks
and the twenty-six weeks ended July 30, 2005 and July 31, 2004:
Segment Information (in thousands)
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 30, 2005 July 31, 2004 $ Change % Change July 30, 2005 July 31, 2004 $ Change % Change
------------- ------------- -------- -------- ------------- ------------- -------- --------
NET SALES
Retail Trade ...... $ 120,410 $ 111,505 $ 8,905 8.0% $ 232,222 $ 217,504 $ 14,718 6.8%
Electronic Commerce
Trade ......... 6,661 6,377 284 4.5% 13,180 12,675 505 4.0%
Intersegment Sales
Elimination.... (4,653) (4,388) (265) (6.0%) (9,980) (8,772) (1,208) (13.8%)
------- ------- ----- ------- ------- ------
Net Sales $ 122,418 $ 113,494 $ 8,924 7.9% $ 235,422 $ 221,407 $ 14,015 6.3%
======= ======= ===== ======= ======= ======
The increase in net sales for the retail trade segment was primarily due to
higher comparable store sales for the thirteen and twenty-six week periods. The
increase in net sales for the electronic commerce segment was primarily due to
higher bestseller title order volume, including Harry Potter and the Half Blood
Prince.
Gross profit increased $3.1 million, or 9.9%, to $34.1 million in the
thirteen weeks ended July 30, 2005 when compared with $31.0 million in the same
thirteen week period for the prior year. For the twenty-six weeks ended July 30,
2005, gross profit increased $4.6 million, or 7.4%, to $65.8 million from $61.2
million in the same period last year. Gross profit as a percentage of net sales
for the thirteen weeks ended July 30, 2005 was 27.8% versus 27.3% in the same
period last year. Gross profit as a percentage of sales for the twenty-six weeks
ended July 30, 2005 was 27.9% versus 27.6% in the same period last year. The
increase in gross profit as a percent of net sales for the thirteen and
twenty-six week periods was partially due to increased sales of proprietary and
import product which have a higher gross profit margin.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating, selling and administrative expenses were $26.8 million in the
thirteen week period ended July 30, 2005 compared to $24.6 million in the same
period last year. Operating, selling and administrative expenses as a percentage
of net sales for the thirteen weeks ended July 30, 2005 increased to 21.9 % from
21.7% in the same period last year. The increase in operating, selling and
administrative expenses stated as a percent to sales for the thirteen-week
period was primarily due to costs incurred for increased staffing for internal
audit and outside professional fees, both related to Sarbanes-Oxley Act
compliance work. For the twenty-six weeks ended July 30, 2005, operating,
selling and administrative expenses were $52.4 million compared to $47.7 million
in the same period last year. Operating, selling and administrative expenses as
a percentage of net sales for the twenty-six weeks ended July 30, 2005 increased
to 22.3% from 21.5% in the same period last year. The increase in operating,
selling and administrative expenses for the twenty-six week period was primarily
due to higher store selling costs due to increased staffing to improve customer
service, new store costs incurred for four stores opened in the first six
months of fiscal 2006 compared to one new store opened in the first six months
of fiscal 2005 and increased costs incurred for increased staffing for internal
audit and outside professional fees, both related to Sarbanes-Oxley Act
compliance work.
Depreciation and amortization was $4.1 million in the thirteen week period
ended July 30, 2005 compared to $4.3 million in the same period last year. In
the twenty-six week period ended July 30, 2005 depreciation and amortization
decreased 10.2% to $8.0 million from $8.9 million in the same period last year.
Decrease in depreciation and amortization expense was due to the impact of
certain assets becoming fully depreciated during the prior year.
The following table sets forth operating income data for the thirteen weeks
and the twenty-six weeks ended July 30, 2005 and July 31, 2004:
Segment Information (in thousands)
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 30, 2005 July 31, 2004 $ Change % Change July 30, 2005 July 31, 2004 $ Change % Change
------------- ------------- -------- -------- ------------- ------------- -------- --------
OPERATING INCOME
Retail Trade............ $ 3,177 $ 1,742 $ 1,435 82.4% $ 5,251 $ 4,019 $ 1,232 30.7%
Electronic Commerce
Trade............... 180 167 13 7.8% 172 252 (80) (31.7%)
Intersegment Elimination
of Certain Costs.... (164) 176 (340) (193.2%) (102) 309 (411) (133.0%)
----- ----- ----- ----- ----- -----
Total Operating Income.. $ 3,193 $ 2,085 $ 1,108 53.1% $ 5,321 $ 4,580 $ 741 16.2%
===== ===== ===== ===== ===== ====
The increase in operating income for the retail trade segment for the
thirteen and twenty-six week periods was due to strong profit growth driven by
stronger comparable store sales. Operating income for the electronic commerce
segment was relatively flat with last year for the thirteen and twenty-six week
periods even though revenue increased due to strong price competition in the
electronic commerce market, which put pressure on gross margins.
Interest expense was $0.4 million in the thirteen weeks ended July 30, 2005
versus $0.5 million in the same period last year and $0.8 million in the
twenty-six weeks ended July 30, 2005 versus $1.0 million in the same period last
year. The decrease was primarily due to lower average debt balances compared
with the prior year.
Discontinued operations represent the closure in fiscal 2005 of two retail
stores in markets in Florida and Mississippi and the closure in fiscal 2006 of
one retail store in a Tennessee market where the Company does not expect another
of its existing stores to absorb the closed store's customers. For the thirteen
week periods ended July 30, 2005 and July 31, 2004, these stores had net sales
of $0 and $571,000, respectively, and pretax operating losses of $13,000 and
$60,000, respectively. For the twenty-six week periods ended July 30, 2005 and
July 31, 2004, these stores had net sales of $109,000 and $1,173,000,
respectively, and pretax operating income losses of $47,000 and $56,000,
respectively. Also included in the loss on discontinued operations are store
closing costs of $4,000 and $20,000 for the thirteen and twenty-six weeks ended
July 30, 2005, respectively. Expenses relating to store closings when the store
is not classified as a discontinued operation are reported in operating, selling
and administrative expenses. If the store is closed and another store is in the
same market and the cash flows are expected to be materially recovered, the
store is not considered a discontinued operation.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from operations,
including credit terms from vendors, and borrowings under its credit facility.
The Company has an unsecured revolving credit facility that allows borrowings up
to $100 million, for which no principal repayments are due until the facility
expires in July 2007. The credit facility has certain financial and
non-financial covenants, the most restrictive of which is the maintenance of a
minimum fixed charge coverage ratio. The Company is in compliance with all of
the covenants, including the minimum fixed charge coverage ratio, as of July 30,
2005. As of July 30, 2005 and January 29, 2005, there were no outstanding
borrowings under this credit facility. The maximum and average outstanding
balances during the thirteen weeks ended July 30, 2005 were $23.7 million and
$14.6 million, respectively, compared to $34.4 million and $24.8 million,
respectively, for the same period in the prior year. The maximum and average
outstanding balances during the twenty-six weeks ended July 30, 2005 were $23.7
million and $12.0 million, respectively, compared to $34.4 million and $25.3
million, respectively, for the same period in the prior year. The decrease in
the maximum and average outstanding balances from the prior year was due to the
pay down of debt during fiscal 2005 with cash provided by operating activities.
The outstanding borrowings as of July 30, 2005 had interest rates ranging from
3.89% to 5.11%.
Additionally, as of July 30, 2005 and January 29, 2005, the Company has
outstanding borrowings under the Bond, an industrial revenue bond totaling $7.5
million which is secured by certain property. The Bond has a maturity date of
December 1, 2019, with a purchase provision obligating the Company to repurchase
the Bond on May 30, 2007, unless extended by the bondholder. Such an extension
may be renewed annually by the bondholder, at the Company's request, to a date
not more than five years from the renewal date.
Financial Position
Inventory balances at July 30, 2005 compared to January 29, 2005 decreased
slightly due to improved inventory management. Accrued expenses at July 30, 2005
compared to January 29, 2005 decreased due to lower capital expenditure accruals
and payment of fiscal 2005 management bonuses in the first quarter of fiscal
2006. Annual bonuses are normally paid in the first quarter of the year
following the year the bonus was earned.
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 July 30, 2005 (in thousands):
PAYMENTS DUE UNDER CONTRACTUAL OBLIGATIONS
Total FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 Thereafter
----- ------- ------- ------- ------- ------- ----------
Long-term debt-revolving
credit facility (1)...... $ - - - - - - -
Long-term debt
-industrial
revenue bond (2)......... 7,500 - - 7,500 - - -
--------- -------- -------- -------- -------- -------- --------
Subtotal of debt......... 7,500 - - 7,500 - - -
Operating leases......... 115,002 14,389 24,053 20,482 15,868 11,279 28,931
--------- -------- -------- -------- -------- -------- --------
Total of obligations..... $ 122,502 $ 14,389 $ 24,053 $ 27,982 $ 15,868 $ 11,279 $ 28,931
========= ======== ======== ======== ======== ======== ========
(1) Revolving credit facility expires in July 2007. There were no outstanding
borrowings under the facility on July 30, 2005 .
(2) The Bond has a maturity date of December 1, 2019, with a purchase provision
obligating the Company to repurchase the Bond on May 30, 2007, unless extended
by the bondholder. Such an extension may be renewed annually by the bondholder,
at the Company's request, to a date not more than five years from the renewal
date.
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 to
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
indemnify the vendors against trademark and copyright infringement claims
concerning the books published or merchandise manufactured specifically for or
on behalf of the Company, (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, and (d) agreements with the Company's directors, officers and
employees, under which the Company may agree to indemnify such persons for
liabilities arising out of their relationship with the Company. The Company has
Directors and Officers Liability Insurance, which, subject to the policy's
conditions, provides coverage for indemnification amounts payable by the Company
with respect to its directors and officers up to specified limits and subject to
certain deductibles.
The nature and terms of these types of indemnities vary. The events or
circumstances that would require the Company to perform under these indemnities
are transaction and circumstance specific. Generally, the Company's maximum
liability under such indemnities is not explicitly stated, and therefore the
overall maximum amount of the Company's 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 July 30, 2005
and January 29, 2005 as such liabilities are considered de minimis.
Cash Flows
Operating activities provided (used) cash of ($2.3) million and $7.5
million in the twenty-six week periods ended July 30, 2005 and July 31, 2004,
respectively, and included the following effects:
o Cash provided by inventories in the twenty-six week periods ended July
30, 2005 and July 31, 2004 was $0.5 million and $0.7 million,
respectively.
o Cash used for accounts payable in the twenty-six week periods ended
July 30, 2005 and July 31, 2004 was $5.9 million and ($0.7) million,
respectively. This change was due to the timing of payments for
purchases from vendors in the first six months of fiscal 2006.
o Depreciation and amortization expenses were $8.0 million and $9.0
million, respectively in the twenty-six week periods ended July 30,
2005 and July 31, 2004. Decrease in depreciation and amortization
expense was due to the impact of certain assets becoming fully
depreciated during the prior year.
Cash flows used in investing activities reflected a $5.3 million and $5.4
million net use of cash for the twenty-six week periods ended July 30, 2005 and
July 31, 2004, respectively. Cash was used primarily to fund capital
expenditures for new stores, store relocations, renovation and improvements to
existing stores, and investments in management information systems.
Financing activities used cash of $1.8 million and $2.1 million in the
twenty-six week periods ended July 30, 2005 and July 31, 2004, respectively. The
cash used in the twenty-six weeks ended July 30, 2005 was primarily used for the
purchase of treasury stock and for the payment of dividends. This was partially
offset by cash generated by the exercise of employee stock options. Cash used in
the prior year's twenty-six week period was principally for net repayments for
the revolving credit facility.
On June 23, 2005, the Company commenced a modified "Dutch Auction" tender
offer (the "Tender Offer") to purchase up to 4,000,000 shares of its outstanding
common stock at a price per share of not less than $8.75 nor in excess of $10.00
per share, for an aggregate purchase price of up to $40.0 million. Pursuant to
the Tender Offer, the Company purchased 56,406 shares of common stock at a
purchase price of $10.00 per share, for a total cost of $564,060.
OUTLOOK
During the twenty-six weeks ended July 30, 2005, the Company opened four
stores, relocated one store, remodeled thirteen stores and closed three stores.
For the remainder of fiscal 2006, the Company expects to open three to five
stores, complete remodels on approximately five to ten stores, and close one to
two stores. The Company's capital expenditures totaled $5.3 million in the
twenty-six week period ended July 30, 2005. Management estimates that capital
expenditures for the remainder of fiscal 2006 will be approximately $10.7
million and that such amounts will be used primarily for opening new stores,
relocating and remodeling existing stores, upgrading and expanding warehouse
distribution facilities, and investing in management information systems.
Management believes that existing cash on hand 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 2006 and
for all of fiscal 2007.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RELATED PARTY ACTIVITIES
Charles C. Anderson, a former director of the Company, Terry C. Anderson, a
director of the Company, and Clyde B. Anderson, a director and officer 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
paragraphs.
The Company purchases a substantial portion of its magazines as well as
certain of their seasonal music and newspapers from Anderson Media Corporation
("Anderson Media"), an affiliate through common ownership. During the twenty-six
weeks ended July 30, 2005 and July 31, 2004, purchases of these items from
Anderson Media totaled $12,939,000 and $12,383,000, respectively. The Company
purchases certain of its collectibles and books from Anderson Press, Inc.
("Anderson Press"), an affiliate through common ownership. During the twenty-six
weeks ended July 30, 2005 and July 31, 2004, such purchases from Anderson Press
totaled $657,000 and $224,000, respectively. The Company purchases certain of
its greeting cards and gift products from C.R. Gibson, Inc., an affiliate
through common ownership. The purchases of these products during the twenty-six
weeks ended July 30, 2005 and July 31, 2004 were $134,000 and $230,000,
respectively. The Company purchases certain magazine subscriptions from
Magazines.com, an affiliate through common ownership. During the twenty-six
weeks ended July 30, 2005 and July 31, 2004, purchases of these items were
$27,000 and $37,000, respectively. The Company purchases content for publication
from Publication Marketing Corporation, an affiliate through common ownership.
During the twenty- six weeks ended July 30, 2005 and July 31, 2004, purchases of
these items were $29,000 and $24,000, respectively. The Company utilizes import
sourcing and consolidation services from Anco Far East Importers, LTD ("Anco Far
East"), an affiliate through common ownership. The total paid to Anco Far East
was $1,398,000 and $322,000 during the twenty-six weeks ended July 30, 2005 and
July 31, 2004, respectively. These amounts paid to Anco Far East primarily
included the actual cost of the product as well as fees for sourcing and
consolidation services. All costs other than the sourcing and consolidation
service fees were passed through from other vendors. Anco Far East fees, net of
the passed-through costs, were $98,000 and $23,000 during the twenty-six weeks
ended July 30, 2005 and July 31, 2004, respectively.
The Company sold books to (received returns from) Anderson Media in the
amounts of $6,000 and ($31,000) during the twenty-six weeks ended July 30, 2005
and July 31, 2004, respectively. During the twenty-six weeks ended July 30, 2005
and July 31, 2004, the Company provided $8,000 and $47,000, respectively, of
internet services to Magazines.com. The Company provided internet services to
American Promotional Events, an affiliate through common ownership, of $64,000
and $54,000 during the twenty-six weeks ended July 30, 2005 and July 31, 2004,
respectively.
The Company leases its principal executive offices from a trust,
beneficiaries of which are the grandchildren of Mr. Charles C. Anderson, a
former member of the Board of Directors. The lease extends to January 31, 2006.
During the twenty-six weeks ended July 30, 2005 and July 31, 2004, the Company
paid rent of $69,000 in each period to the trust under this lease. Anderson &
Anderson LLC ("A&A"), an affiliate through common ownership, also leases three
buildings to the Company. During the twenty-six weeks ended July 30, 2005 and
July 31, 2004, the Company paid A&A a total of $222,000 and $220,000,
respectively, in connection with such leases. Total minimum future rental
payments under all of these leases are $69,000 at July 30, 2005. The Company
subleases certain property to Hibbett Sporting Goods, Inc. ("Hibbett"), a
sporting goods retailer in the southeastern United States. The Company's
Executive Chairman, Clyde B. Anderson, is a member of Hibbett's board of
directors. During the twenty-six weeks ended July 30, 2005 and July 31, 2004,
the Company received $95,000 in rent payments from Hibbett.
The Company shares ownership of a plane, which the Company uses in the
operation of its business, with an affiliated company. The Company rents the
plane to affiliated companies at rates that cover all of the variable cost, and
a portion of the fixed cost of the plane. The total amounts received from
affiliated companies for use of the plane during the twenty-six weeks ended July
30, 2005 and July 31, 2004, was $157,000 and $130,000, respectively. The Company
also occasionally rents a plane from A&A as well. The amounts paid to A&A for
plane rental were $31,000 and $15,000 for the twenty-six weeks ended July 30,
2005 and July 31, 2004, respectively.
20
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 fixed interest rate hedges to manage this
exposure. The Company entered into the Credit Facility Hedges, both of which
expired in August 2005. The Credit Facility Hedges effectively fixed the
interest rate on $20 million of variable credit facility debt at 5.13% . The
Company has not replaced the Credit Facility Hedges. In addition, the Company
entered into the Bond Hedge that expires in June 2006 and effectively fixes the
interest rate on the Bond at 8.73%. The counter party to the Bond Hedge is a
primary bank in the Company's credit facility. The Company believes the credit
and liquidity risk of the counter party failing to meet its obligation under the
Bond Hedge is remote.
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 have increased interest expense by approximately $82,000 for the
thirteen weeks ended July 30, 2005. Likewise, a 66% decrease in LIBOR rates
would have decreased interest expense by $82,000 for the thirteen weeks ended
July 31, 2004. This hypothetical change in LIBOR rates was calculated based on
the fluctuation in LIBOR in 2002, which was the maximum LIBOR fluctuation in the
last ten years. The estimates do not consider the effect of the potential
termination of the interest rate swaps associated with the debt will have on
interest expense.
21
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. 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. 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.
In September 2005, during the course of its effort to implement Section 404
of the Sarbanes Oxley Act, management identified certain control deficiencies.
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. The Public
Company Accounting Oversight Board's Auditing Standard No. 2 defines a
significant deficiency as a control deficiency, or combination of control
deficiencies, that adversely affects the company's ability to initiate,
authorize, record, process, or report external financial data reliably in
accordance with generally accepted accounting principles such that there is more
than a remote likelihood that a misstatement of the company's annual or interim
financial statements that is more than inconsequential will not be prevented or
detected and defines a material weakness as a significant deficiency, or
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. As a result of this material
weakness, our chief executive officer and chief financial officer concluded
that, as of September 13, 2005, the date this report was originally due to be
filed, and the date of the filing of this report, our disclosure controls and
procedures were not effective at the reasonable assurance level.
The material weakness identified consists 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 (iii) inadequate
independent verification of expense invoice payment supporting documentation.
Inadequate controls over the data used to perform cost of goods sold
calculations. Because we do not accumulate product cost data at the item level,
we calculate cost of goods sold and determine 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 is received at the warehouse, the discount
percentage established for each vendor is used to calculate the expected cost of
the merchandise and a warehouse receipt is generated. The warehouse receipt is
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.
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, information used in the item master file, which is within the warehouse
system, to calculate cost of receipts and returns is generated based on a
standard discount percentage at the vendor level, which may not match the
discount percentage on each product line that we purchase from or return to that
vendor. Calculations done at the vendor discount level can cause 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 are reviewed to ensure
the vendor is paid the proper amount. However, the cumulative effect of
discrepancies under the tolerance levels could have an impact on inventory
shrinkage. The cost charged for product on returns is based on the vendor
discount reflected in the system and is not reconciled until after the vendor
issues credit for the return. A delay in vendor processing of returns, which
could increase unresolved return disputes, could also impact inventory shrinkage
results.
In addition, because of the lack of item level cost detail for products, 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. We
22
have determined that the sample size used historically may have not been large
enough to allow us to adequately calculate cost of goods sold on a quarterly
basis.
Due to the risk that discrepancies can arise that could affect our vendor
payment and return cost calculations which could impact our cost of goods sold,
we are adding item level cost data to the item master file. This will provide
accurate item level cost information for merchandise receipts and publisher
returns. We expect to complete this change to add item level detail by April 29,
2006, the end of the first quarter of fiscal 2007, which will enable us to use
item level data to calculate cost of goods sold.
To mitigate the risk of error in the cost of goods sold calculation until
the enhancements to the item master file are in place, during the second quarter
of fiscal 2006 we performed a reconciliation of inventory balances per the
financial records to the physical inventory per the perpetual inventory system
for the warehouse. This reconciliation process involved a detailed review of
activity posted to the financial records since the last physical inventory at
the warehouse in the fourth quarter of fiscal 2005 and compares the financial
inventory balances to the physical totals per the perpetual inventory system.
The shrinkage calculated during the reconciliation completed as of the second
quarter of fiscal 2006 was insignificant. The reconciliation process to the
physical inventory per the perpetual system will also be completed as of the end
of the third quarter of fiscal 2006, and a full physical inventory at the
warehouse will be taken and reconciled to the financial records at year end.
Also, the sample size of invoices reviewed for verifying the cost of goods sold
percentages by product line will be expanded until the new system for
calculating the cost of goods sold at the item level discount is in place.
The additions to and maintenance of item level discount percentages on 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 the risk of miscalculating the credits for returns
significantly. 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 state
that neither the director nor the manager are 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 have been revoked. Also, starting with the
October, 2005 monthly closing process, a senior accounting manager outside of
the accounts payable function will reconcile the accounts payable detail
activity to the general ledger each month. Management believes that this
significant deficiency will be remediated by 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 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.
We have 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. These new policies and
procedures were implemented on October 14, 2005. By the end of the third quarter
of fiscal 2006 the policies and procedures will also define supporting
documentation required to be provided with expense invoices for approval by
management.
To mitigate the risk of misstatement of expense activity during the second
quarter of fiscal 2006, we completed a subsequent review of invoices processed
for approximately sixty days after the end of the quarter. This process did not
identify any significant changes to the amounts originally accrued for the
second quarter closing. To provide additional controls for the review of expense
activity for the third quarter we will reconcile the vendor statements for
significant expense vendors to financial records prior to December 13, 2005.
23
Although we continue to implement remediation efforts, a material weakness
indicates that there is more than a remote likelihood that a material
misstatement of our financial statements will not be prevented or detected in a
future period. In addition, we cannot assure you that we will not in the future
identify additional material weaknesses or significant deficiencies in our
internal control over financial reporting. The efforts we have taken and
continue to take 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. As a result, additional
changes are expected to be made to our internal control over financial
reporting. There have been no other material changes during the current quarter
in our disclosure controls and procedures, or our internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect, our disclosure controls and procedures or our internal
control over financial reporting.
24
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: Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Securities
In March 2004, the Board of Directors authorized a new common stock
repurchase program for up to 10% of the outstanding stock, or 1,646,624 shares.
The following table shows common stock repurchases under the program during
fiscal 2006:
Maximum Number of
Total Number of Shares that May Yet
Total Number Shares Purchased as Be Purchased Under
of Shares Average Price Paid Part of Publicly the Program at End
Period Purchased per Share Announced Program of Period
------ --------- --------- ----------------- ---------
1/30/2005 to 2/26/2005 74,001 $9.4833 74,001 789,805
2/27/2005 to 3/2/2005 17,040 $9.0282 17,040 772,765
3/3/2005 to 3/30/2005 52,530 $9.4552 52,530 720,235
------- ------- ------- -------
Total 143,571 $9.4193 143,571 720,235
======= ======= ======= =======
No purchases were made during the second quarter of fiscal 2006 under the
repurchase program previously announced in March 2004. However, on June 23,
2005, the Company commenced a modified "Dutch Auction" tender offer (the "Tender
Offer") to purchase up to 4,000,000 shares of its outstanding common stock at a
price per share of not less than $8.75 nor in excess of $10.00 per share, for an
aggregate purchase price of up to $40.0 million. Pursuant to the Tender Offer,
the Company purchased 56,406 shares of common stock at a purchase price of
$10.00 per share, for a total cost of $564,060.
ITEM 3: Defaults Upon Senior Securities
None
25
ITEM 4: Submission of Matters to a Vote of Security-Holders
o Date of Meeting - June 1, 2005
o Annual Meeting
o Name of each director elected at meeting: Terry C. Anderson
o Name of each director whose term in office as director continued after the
meeting:
o Clyde B. Anderson
o Ronald G. Bruno
o J. Barry Mason
o William H. Rogers, Jr.
o Other matters voted on at Annual Meeting
i) To approve the 2005 Incentive Award Plan, which provides for
the grant of incentive stock options, restricted stock, stock
appreciation rights, performance shares, performance stock
units, dividend equivalents, stock payments and deferred stock
for members of the Board, employees and consultants of the
Company
Result of votes:
NUMBER OF VOTES NUMBER OF VOTES NUMBER OF VOTES
ELECTION OF CAST FOR CAST AGAINST ABSTAINING
-------- ------------ ----------
Terry C. Anderson 14,256,733 1,599,105 0
Item i) above 9,800,888 2,306,364 220,229
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, 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.
Exhibit 31.2 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.
Exhibit 31.3 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, 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.
26
Exhibit 32.2 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.
Exhibit 32.3 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.
27
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: October 25, 2005 by:/s/ Clyde B. Anderson
---------------------
Clyde B. Anderson
Executive Chairman of the Board
Date: October 25, 2005 by:/s/ Sandra B. Cochran
---------------------
Sandra B. Cochran
President and Chief Executive Officer
Date: October 25, 2005 by:/s/ Richard S. Wallington
-------------------------
Richard S. Wallington
Chief Financial Officer
28
Exhibit 31.1
CERTIFICATIONS
I, Clyde B. Anderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Books-A-Million,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by 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 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 (the registrants fourth fiscal quarter in
the case of an annual report) 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 the 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: October 25, 2005 _/s/ Clyde B. Anderson
-----------------------
Clyde B. Anderson
Executive Chairman of the Board
29
Exhibit 31.2
CERTIFICATIONS
I, Sandra B. Cochran, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Books-A-Million,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by 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 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 (the registrants fourth fiscal quarter in
the case of an annual report) 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 the 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: October 25, 2005 _/s/ Sandra B. Cochran
----------------------
Sandra B. Cochran
President and Chief Executive Officer
30
Exhibit 31.3
CERTIFICATIONS
I, Richard S. Wallington, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Books-A-Million,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by 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 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 (the registrants fourth fiscal quarter in
the case of an annual report) 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 the 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: October 25, 2005 _/s/ Richard S. Wallington
---------------------------
Richard S. Wallington
Chief Financial Officer
31
Exhibit 32.1
CERTIFICATION OF EXECUTIVE CHAIRMAN OF THE BOARD
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/A of the Company for
the quarterly period ended July 30, 2005 (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: October 25, 2005 /s/ Clyde B. Anderson
-----------------------
Clyde B. Anderson
Executive Chairman of the Board
32
Exhibit 32.2
CERTIFICATION OF PRESIDENT AND 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/A of the Company for
the quarterly period ended July 30, 2005 (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: October 25, 2005 /s/ Sandra B. Cochran
----------------------
Sandra B. Cochran
President and Chief Executive Officer
33
Exhibit 32.3
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/A of the Company for
the quarterly period ended July 30, 2005 (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: October 25, 2005 /s/ Richard S. Wallington
-------------------------
Richard S. Wallington
Chief Financial Officer
34