UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: October 30, 2004
----------------
- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transaction period from__________to__________
COMMISSION FILE NUMBER 0-20664
BOOKS-A-MILLION, INC.
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 63-0798460
-------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
402 INDUSTRIAL LANE, BIRMINGHAM, ALABAMA 35211
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(205) 942-3737
--------------
(Registrant's phone number including area code)
NONE
----
(Former name, former address and former fiscal year,
if changed since last period)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's common stock,
as of the latest practicable date: Shares of common stock, par value $.01 per
share, outstanding as of December 8, 2004 were 16,357,845 shares.
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (UNAUDITED):
Condensed Consolidated Balance Sheets ................................ 3
Condensed Consolidated Statements of Operations ...................... 4
Condensed Consolidated Statements of Cash Flows ...................... 5
Notes to Condensed Consolidated Financial Statements ................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 19
Item 4. Controls and Procedures .......................................... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...... 21
Item 3. Defaults Upon Senior Securities .................................. 21
Item 4. Submission of Matters to a Vote of Security-Holders .............. 21
Item 5. Other Information ................................................ 21
Item 6. Exhibits and Reports on Form 8-K ................................. 21
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
AS OF OCTOBER 30, 2004 AS OF JANUARY 31, 2004
---------------------- ----------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 4,662 $ 5,348
Accounts receivable, net .................................................. 10,161 7,271
Related party accounts receivable, net .................................... 130 351
Inventories ............................................................... 228,495 211,591
Prepayments and other ..................................................... 6,824 5,890
Deferred income taxes ..................................................... 4,314 4,446
------- -------
TOTAL CURRENT ASSETS .................................................. 254,586 234,897
------- -------
PROPERTY AND EQUIPMENT:
Gross property and equipment .............................................. 164,361 166,466
Less accumulated depreciation and amortization ............................ 121,635 117,289
------- -------
NET PROPERTY AND EQUIPMENT .............................................. 42,726 49,177
------- -------
OTHER ASSETS ................................................................. 2,408 1,605
------- -------
TOTAL ASSETS .......................................................... $ 299,720 $ 285,679
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................................... $ 97,953 $ 87,984
Related party accounts payable ............................................ 11,661 8,777
Accrued expenses .......................................................... 31,501 30,189
Accrued income taxes ...................................................... -- 3,527
Current portion of long-term debt ......................................... 9,220 --
------- -------
TOTAL CURRENT LIABILITIES ............................................. 150,335 130,477
------- -------
LONG-TERM DEBT ............................................................... 18,700 20,640
DEFERRED INCOME TAXES ........................................................ 1,750 1,805
OTHER LONG-TERM LIABILITIES .................................................. 821 1,507
------- -------
TOTAL NON-CURRENT LIABILITIES ......................................... 21,271 23,952
------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares outstanding.......................................... -- --
Common stock, $.01 par value, 30,000,000
shares authorized, 18,950,006 and 18,465,387 shares issued at
October 30, 2004 and January 31, 2004, respectively ....................... 190 185
Additional paid-in capital ................................................ 73,833 71,799
Less treasury stock, at cost (2,568,789 and 2,010,050 shares at October 30,
2004 and January 31, 2004, respectively) .................................. (9,181) (5,271)
Deferred compensation ..................................................... (421) (284)
Accumulated other comprehensive loss, net of tax .......................... (414) (707)
Retained earnings ......................................................... 64,107 65,528
------- -------
TOTAL STOCKHOLDERS' EQUITY ............................................ 128,114 131,250
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................ $ 299,720 $ 285,679
======= =======
SEE ACCOMPANYING NOTES
3
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
-------------------- -----------------------
OCTOBER 30, NOVEMBER 1, OCTOBER 30, NOVEMBER 1,
2004 2003 2004 2003
------------- ------------- ------------- --------------
NET SALES .................................................. $ 104,286 $ 102,418 $ 326,091 $ 313,308
Cost of products sold (including warehouse,
distribution and store occupancy costs) (1) ............. 77,064 76,058 238,928 231,338
------- ------- ------- -------
GROSS PROFIT ............................................... 27,222 26,360 87,163 81,970
Operating, selling and administrative expenses .......... 24,792 22,748 72,566 67,831
Depreciation and amortization ........................... 3,698 3,809 11,310 11,710
------- ------- ------- -------
OPERATING INCOME (LOSS) .................................... (1,268) (197) 3,287 2,429
Interest expense, net ................................... 503 747 1,508 2,464
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (1,771) (944) 1,779 (35)
Income tax provision (benefit) .......................... (655) (362) 659 (20)
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS ................... (1,116) (582) 1,120 (15)
DISCONTINUED OPERATIONS (NOTE 9):
Loss from discontinued operations before income taxes ... (42) (275) (34) (669)
Income tax benefit ...................................... 16 102 13 248
------- ------- ------- -------
LOSS FROM DISCONTINUED OPERATIONS ..................... (26) (173) (21) (421)
------- ------- ------- -------
NET INCOME (LOSS) .......................................... $ (1,142) $ (755) $ 1,099 $ (436)
======= ======= ======= =======
NET INCOME (LOSS) PER COMMON SHARE:
BASIC:
INCOME (LOSS) FROM CONTINUING OPERATIONS ............... $ (0.07) $ (0.04) $ 0.07 $ --
LOSS FROM DISCONTINUED OPERATIONS ...................... -- (0.01) -- (0.03)
------- ------- ------- -------
NET INCOME (LOSS) ....................................... $ (0.07) $ (0.05) $ 0.07 $ (0.03)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC ... 16,578 16,278 16,507 16,249
======= ======= ======= =======
DILUTED:
INCOME (LOSS) FROM CONTINUING OPERATIONS ............... $ (0.07) $ (0.04) $ 0.06 $ --
LOSS FROM DISCONTINUED OPERATIONS ...................... -- (0.01) -- (0.03)
------- ------- ------- -------
NET INCOME (LOSS) ....................................... $ (0.07) $ (0.05) $ 0.06 $ (0.03)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED . 16,578 16,278 17,227 16,249
======= ======= ======= =======
(1) Inventory purchases from related parties were $9,741, $9,436, $26,519 and
$27,763, respectively, for each of the periods presented above.
SEE ACCOMPANYING NOTES
4
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THIRTY-NINE WEEKS ENDED
-----------------------
OCTOBER 30, 2004 NOVEMBER 1, 2003
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ 1,099 $ (436)
------- -------
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ............................................ 11,357 11,925
Deferred compensation amortization ....................................... 103 --
Loss on impairment of assets ............................................. 181 608
(Gain)/Loss on disposal of property ...................................... (15) 36
Change in deferred income taxes .......................................... 77 (240)
Tax benefit of exercise of stock options ............................... 754 --
(Increase)/Decrease in inventories ..................................... (16,904) (19,219)
Increase/(Decrease) in accounts payable ................................ 12,853 (1,713)
Changes in certain other assets and liabilities ........................ (6,341) 2,898
------- -------
Total adjustments ..................................................... 2,065 (5,705)
------- -------
Net cash provided by operating activities ............................. 3,164 (6,141)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................... (5,776) (7,568)
Proceeds from sale of equipment ............................................ 31 34
------- -------
Net cash used in investing activities ................................. (5,745) (7,534)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities ......................................... 143,420 154,070
Repayments under credit facilities ......................................... (136,140) (140,695)
Purchase of treasury stock ................................................. (3,910) --
Proceeds from exercise of stock options and issuance of
common stock under the employee stock option plan...................... 1,045 176
Payment of dividends ....................................................... (2,520) --
------- -------
Net cash provided by financing activities ............................. 1,895 13,551
------- -------
Net decrease in cash and cash equivalents ..................................... (686) (124)
Cash and cash equivalents at beginning of period .............................. 5,348 4,977
------- -------
Cash and cash equivalents at end of period .................................... $ 4,662 $ 4,853
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .......................................................... $ 1,569 $ 2,457
Income taxes, net of refunds ...................................... $ 4,408 $ 1,713
SEE ACCOMPANYING NOTES
5
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Books-A-Million, Inc. and its subsidiaries (the "Company") for the
thirteen and thirty-nine week periods ended October 30, 2004 and November
1, 2003 have been prepared in accordance with accounting principles
generally accepted in the United States ("GAAP") for interim financial
information and are presented in accordance with the requirements of Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by GAAP for complete financial
statements. These financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the fiscal year
ended January 31, 2004 included in our Fiscal 2004 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 October 30, 2004, and the results of our
operations and cash flows for the thirteen and thirty-nine week periods
ended October 30, 2004 and November 1, 2003. The Company's fiscal year 2005
begins February 1, 2004 and ends January 29, 2005, and the Company's fiscal
year 2004 begins February 3, 2003 and ends January 31, 2004.
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
At October 30, 2004 and January 31, 2004, we had one stock option plan.
We account for the plan under the recognition and measurement principles of
Accounting Pronouncements Bulletin (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. No stock-based
employee compensation cost for this stock option 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.
For the thirty-nine weeks ended October 30, 2004, the Company has recorded
$103,000 of compensation expense related to restricted stock issued under
the executive compensation plan. The following table illustrates the effect
on net income (loss) and net income (loss) per common share if the Company
had applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based
Compensation--Transition 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 Thirty-Nine Weeks Ended
In thousands October 30, 2004 November 1, 2003 October 30, 2004 November 1, 2003
---------------- ---------------- ---------------- ----------------
Net income (loss), as reported .... $ (1,142) $ (755) $ 1,099 $ (436)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of tax
effects ....................... 341 328 1,023 984
-------- -------- -------- -------
Pro forma net income (loss) ....... (1,483) (1,083) 76 (1,420)
Net income (loss) per common share:
Basic--as reported ................ $ (0.07) $ (0.05) $ 0.07 $ (0.03)
Basic--pro forma .................. $ (0.09) $ (0.07) $ 0.00 $ (0.09)
Diluted--as reported .............. $ (0.07) $ (0.05) $ 0.06 $ (0.03)
Diluted--pro forma ................ $ (0.09) $ (0.07) $ 0.00 $ (0.09)
======== ======== ======== =======
The fair value of the options granted under our stock option plan was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions for the thirty-nine week
periods ended October 30, 2004 and November 1, 2003: no dividend yield;
expected volatility of 1.06% and 1.01%, respectively; risk-free interest
rates of 3.87% to 4.90% and 3.63% to 5.10%, respectively; and expected
lives of six or ten years.
6
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. NET INCOME PER SHARE
Basic net income per share ("EPS") is computed by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if 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 thirty-nine
week period. A reconciliation of the weighted average shares for basic and
diluted EPS is as follows:
For the Thirteen Weeks Ended
(in thousands)
----------------------------
October 30, 2004 November 1, 2003
---------------- ----------------
Weighted average shares outstanding:
Basic.......................................... 16,578 16,278
Dilutive effect of stock options and
restricted stock outstanding................... - -
------ ------
Diluted........................................ 16,578 16,278
====== ======
For the Thirty-Nine Weeks Ended
(in thousands)
----------------------------
October 30, 2004 November 1, 2003
---------------- ----------------
Weighted average shares outstanding:
Basic.......................................... 16,507 16,249
Dilutive effect of stock options and
restricted stock outstanding................... 720 -
------ ------
Diluted........................................ 17,227 16,249
====== ======
Options outstanding to purchase 796,000 and 2,129,000 shares of common
stock as of October 30, 2004 and November 1, 2003, respectively, were not
included in the tables above as they were anti-dilutive under the treasury
stock method. Options are excluded from the dilutive calculation in periods
with a net loss because options would be anti-dilutive by definition.
3. DERIVATIVE AND HEDGING ACTIVITIES
We are subject to interest rate fluctuations involving our credit
facilities and debt related to an Industrial Development Revenue Bond (the
"Bond"). However, we use fixed interest rate hedges to manage this
exposure. We entered into two separate $10 million swaps on July 24, 2002.
Both expire in August 2005 and effectively fix the interest rate on an
aggregate of $20 million of variable credit facility debt at 5.00% per
year. In addition, we entered into a $7.5 million interest rate swap in May
1996 that expires in June 2006 and effectively fixes the interest rate on
the Bond at 8.48% per year. The counter parties to the interest rate swaps
are two primary banks in our credit facility. We believe the credit and
liquidity risks of the counter parties failing to meet their obligation are
remote as we settle our interest position with the banks on a quarterly
basis.
Our hedges are generally designated as cash flow hedges because they
are interest rate swaps that convert variable payments to fixed payments.
Cash flow hedges protect against the variability in future cash outflows of
current or forecasted debt and related interest expense. The changes in the
fair value of these hedges are reported on the balance sheet with a
corresponding adjustment to accumulated other comprehensive income or in
earnings, depending on the type of hedging relationship. Over time, amounts
held in accumulated other comprehensive income will be reclassified to
earnings when the hedge transaction affects earnings.
Our 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 $821,000 and $1.5
million as of
7
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
October 30, 2004 and January 31, 2004, respectively. For the thirteen weeks
ended October 30, 2004 and November 1, 2003, adjustment gains (losses) of
$72,000 (net of tax provision of $42,000) and ($53,000) (net of tax benefit
of $33,000), respectively, and in the thirty-nine weeks ended October 30,
2004 and November 1, 2003, adjustment gains of $298,000 (net of tax
provision of $175,000) and $234,000 (net of tax provision of $144,000),
respectively, were recorded in accumulated other comprehensive income and
are detailed in Note 4. During the fourth quarter of fiscal 2004, one
interest rate swap no longer qualified for hedge accounting under SFAS No.
133; as a result, we de-designated the hedge. A pre-tax gain of $213,000
was recorded in operating, selling and administrative expenses during the
first thirty-nine weeks of fiscal 2005 related to the de-designated hedge.
4. COMPREHENSIVE INCOME
Comprehensive income is net income or loss, plus certain other items
that are recorded directly to stockholders' equity. The only such items
currently applicable to us are the unrealized gains (losses) on the hedges
explained in Note 3, as follows:
COMPREHENSIVE INCOME Thirteen Weeks Ended Thirty-Nine Weeks Ended
(in thousands) (in thousands)
-------------------- -----------------------
October 30, 2004 November 1, 2003 October 30, 2004 November 1, 2003
---------------- ---------------- ---------------- ----------------
Net income (loss)...................... $(1,142) $(755) $1,099 $(436)
Unrealized gains (losses) on hedges,
net of deferred tax provision
(benefit) for the thirteen-week
periods of $42 and ($33), respectively,
and the thirty-nine week periods of
$175 and $144, respectively............ 72 (53) 298 234
------- ----- ------ -----
Total comprehensive income (loss)...... $(1,070) $(808) $1,397 $(202)
======= ===== ====== =====
5. COMMITMENTS AND CONTINGENCIES
We are a party to various legal proceedings incidental to our business.
In the opinion of management, after consultation with legal counsel, the
ultimate liability, if any, with respect to those proceedings is not
presently expected to materially affect our financial position, results of
operations or cash flows.
From time to time, we enter into certain types of agreements that
require us to indemnify parties against third party claims under certain
circumstances. Generally these agreements relate to: (a) agreements with
vendors and suppliers under which we may provide customary indemnification
to our vendors and suppliers in respect of actions they take at our request
or otherwise on our behalf, (b) agreements with vendors who publish books
or manufacture merchandise specifically for us to indemnify the vendors
against trademark and copyright infringement claims concerning the books
published or merchandise manufactured on behalf of us, (c) real estate
leases, under which we may agree to indemnify the lessors from claims
arising from our use of the property, and (d) agreements with our
directors, officers and employees, under which we may agree to indemnify
such persons for liabilities arising out of their relationship with us. We
have Directors and Officers Liability Insurance, which, subject to the
policy's conditions, provides coverage for indemnification amounts payable
by us with respect to our 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 us to perform under these indemnities are
transaction and circumstance specific. Generally, our maximum liability
under such indemnities is not explicitly stated, and therefore the overall
maximum amount of our obligations cannot be reasonably estimated.
Historically, we have not incurred significant costs related to performance
under these types of indemnities. No liabilities have been recorded for
these obligations on our balance sheet at October 30, 2004 and January 31,
2004 as such liabilities are considered de minimis.
8
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. INVENTORIES
Inventories were:
(In thousands) October 30, 2004 January 31, 2004
---------------- ----------------
Inventories (at FIFO) $ 229,598 $ 212,251
LIFO reserve (1,103) (660)
------------ ------------
Net inventories $ 228,495 $ 211,591
============ ============
7. BUSINESS SEGMENTS
We have 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 our
distribution center operations, which predominately supplies merchandise to
our 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 our Fiscal 2004 Annual Report on Form 10-K. We evaluate
performance of the segments based on profit and loss from operations before
interest and income taxes. Certain intersegment cost allocations have been
made based upon consolidated and segment revenues.
9
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
NET SALES October 30, 2004 November 1, 2003 October 30, 2004 November 1, 2003
---------------- ---------------- ---------------- ----------------
Retail/Wholesale Trade ............. $ 102,178 $ 100,668 $ 320,080 $ 308,727
Electronic Commerce Trade .......... 6,571 6,789 19,246 18,285
Intersegment Sales Elimination ..... (4,463) (5,039) (13,235) (13,704)
--------- ---------- ---------- ----------
Net Sales ..................... $ 104,286 $ 102,418 $ 326,091 $ 313,308
========= ========== ========== ==========
OPERATING INCOME (LOSS)
Retail/Wholesale Trade ............. $ (1,725) $ (641) $ 2,270 $ 1,836
Electronic Commerce Trade .......... 408 403 660 402
Intersegment Elimination ........... 49 41 357 191
--------- ---------- ---------- ----------
Total Operating Income (Loss) .. $ (1,268) $ (197) $ 3,287 $ 2,429
========= ========== ========== ==========
As of As of
ASSETS October 30, 2004 January 31, 2004
---------------- ----------------
Retail/Wholesale Trade .............. $ 298,858 $ 284,718
Electronic Commerce Trade ........... 1,189 1,527
Intersegment Elimination ............ (327) (566)
---------- ----------
Total Assets ................... $ 299,720 $ 285,679
========== ==========
10
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB No.
123" ("SFAS 148"). SFAS 148 amends SFAS 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
disclosure provisions of this statement are effective for financial statements
for fiscal years ending after December 15, 2002 and are included herein. We have
not adopted the fair value method of recording stock options under SFAS No. 123.
The FASB has now determined that stock-based compensation should be recognized
as a cost in the financial statements and that such cost be measured according
to the fair value of the stock options. The FASB has not as yet determined the
methodology for calculating fair value and plans to issue an accounting
standard. We will continue to monitor communications on this subject from the
FASB in order to determine the impact on our financial position, results of
operations or cash flows.
FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" ("FIN 46"), was issued in January 2003. This interpretation requires
consolidation of variable interest entities ("VIE"), also formerly referred to
as "special purpose entities," if certain conditions are met. The interpretation
applies immediately to VIE's created after January 31, 2003 and to interests
obtained in VIE's after January 31, 2003. Beginning after June 15, 2003, the
interpretation also applies to VIE's created or interests obtained in VIE's
before January 31, 2003. In December 2003, the FASB issued FASB Interpretation
No. 46R, "Consolidation of Variable Interest Entities--An Interpretation of ARB
51" (revised December 2003) ("FIN 46R"), which includes significant amendments
to previously issued FIN No. 46. Among other provisions, FIN 46R includes
revised transition dates for public entities. We adopted the provisions of FIN
46R effective in the first quarter of fiscal 2005. The adoption of this
interpretation did not have an effect on our financial position, results of
operations or cash flows.
9. DISCONTINUED OPERATIONS
Discontinued operations represent the closure in fiscal 2005 of two
retail stores in Alabama and Florida and in fiscal 2004 of four retail stores in
markets located in Georgia (two stores), Louisiana and North Carolina where we
do not expect another of our existing stores to absorb the closed store's
customers and cash flows. The Florida retail store closed in fiscal 2005 was
substantially destroyed by a hurricane in September 2004 and not reopened.
Information regarding discontinued operations is as follows (in thousands):
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
October 30, 2004 November 1, 2003 October 30, 2004 November 1, 2003
---------------- ---------------- ---------------- ---------------
Sales............................. $ 179 $ 649 $ 954 $ 3,081
Pretax operating losses........... 42 275 34 669
Impairment losses (included above
in pretax operating loss amounts). - - - 118
Store closing costs (included
above in pretax operating loss
amounts).......................... - 10 - 35
11
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. DEBT AND LINES OF CREDIT
We have an unsecured revolving credit facility that allows borrowings
up to $100 million. Our current credit facility was extended two years to
July 2007 by our bank group during the second quarter of fiscal 2005. No
principal repayments are due until the facility expires in July 2007.
11. STOCKHOLDERS' EQUITY
In March 2004, the Board of Directors authorized a common stock
repurchase program for up to 1.6 million shares, or 10% of the outstanding
stock. During the thirty-nine weeks ended October 30, 2004, 558,739 shares
were repurchased under this program.
During the thirty-nine weeks ended October 30, 2004, we have paid
dividends of $2,520,000. During the thirteen weeks ended October 30, 2004,
the Board of Directors approved a dividend of $0.03 per share to
stockholders of record at the close of business November 30, 2004, payable
on December 14, 2004. The Company expects to pay quarterly cash dividends
in the future subject to Board approval.
12
ITEM 2. 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 or 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, 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, shareholders and prospective investors are cautioned not to place
undue reliance on such forward-looking statements. We disclaim any obligation 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 currently operate 203 retail bookstores,
including 165 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, our management intends to continue its practice of reviewing the
profitability trends and prospects of existing stores and closing or relocating
under-performing stores or converting stores to different formats.
Comparable store sales are determined each fiscal quarter during the
year based on all stores that have been open at least 12 full months as of the
first day of the fiscal quarter. Any stores closed during a fiscal quarter are
excluded from comparable store sales as of the first day of the quarter in which
they close.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data expressed as a
percentage of net sales for the periods presented:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
October 30, 2004 November 1, 2003 October 30, 2004 November 1, 2003
---------------- ---------------- ---------------- ----------------
Net sales................................... 100.0% 100.0% 100.0% 100.0%
Gross profit................................ 26.1% 25.7% 26.7% 26.2%
Operating, selling and administrative
expenses.................................... 23.8% 22.2% 22.2% 21.7%
Depreciation and amortization............... 3.5% 3.7% 3.5% 3.7%
----- ----- ----- -----
Operating income (loss)..................... (1.2)% (0.2)% 1.0% 0.8%
Interest expense, net....................... 0.5% 0.7% 0.5% 0.8%
----- ----- ----- -----
Income (loss) from continuing operations
before income taxes......................... (1.7)% (0.9)% 0.5% 0.0%
Income tax provision........................ (0.6)% (0.4)% 0.2% 0.0%
----- ----- ----- -----
Income (loss) from continuing operations.... (1.1)% (0.5)% 0.3% 0.0%
Loss from discontinued operations........... - (0.2)% - (0.1)%
----- ----- ----- -----
Net income (loss)........................... (1.1)% (0.7)% 0.3% (0.1)%
===== ===== ===== =====
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net sales increased $1.9 million, or 1.8%, to $104.3 million in the
thirteen weeks ended October 30, 2004, from $102.4 million in the thirteen weeks
ended November 1, 2003. Net sales increased $12.8 million, or 4.1%, to $326.1
million in the thirty-nine weeks ended October 30, 2004, from $313.3 million in
the thirty-nine weeks ended November 1, 2003. Comparable store sales in the
thirteen weeks ended October 30, 2004 increased 0.6% when compared with the same
thirteen week period for the prior year due to higher sales in the book, gifts
and cafe departments. Comparable store sales increased 2.4% for the thirty-nine
weeks ended October 30, 2004 due to higher sales in the book and cafe
departments. The book sales increase was primarily driven by the improving
economy, as well as strong sales in categories such as Humor, Inspirational,
Adventure Games, Teen and Social Science. The cafe department sales increase was
led by our new cold beverage product line of frappes as well as increased store
traffic. During the thirteen weeks ended October 30, 2004, we opened two
superstores and closed one superstore due to substantial hurricane damage.
Net sales for the retail trade segment increased $1.5 million, or 1.5%,
to $102.2 million in the thirteen weeks ended October 30, 2004 from $100.7
million in the same period last year. Net sales for the retail trade segment
increased $11.4 million, or 3.7%, to $320.1 million in the thirty-nine weeks
ended October 30, 2004 primarily due to higher comparable store sales. Net sales
for the electronic commerce segment were down slightly versus last year at $6.6
million for the thirteen weeks ended October 30, 2004 compared to $6.8 million
in the same period last year. For the thirty-nine weeks ended October 30, 2004,
net sales for the electronic commerce segment increased $1.0 million, or 5.3%,
to $19.3 million from $18.3 million in the same period last year, related
primarily to higher business to business order volume and increased search
engine marketing which increased traffic on our website.
Gross profit increased $0.8 million, or 3.3%, to $27.2 million in the
thirteen weeks ended October 30, 2004 when compared with $26.4 million in the
same thirteen week period for the prior year. For the thirty-nine weeks ended
October 30, 2004, gross profit increased $5.2 million, or 6.3%, to $87.2 million
from $82.0 million in the same period last year. Gross profit as a percentage of
net sales for the thirteen weeks ended October 30, 2004 was 26.1% versus 25.7%
in the same period last year. The increase in gross profit as a percent of net
sales for the thirteen week period was primarily due to less promotional
discounting and improved margins due to increased sales of proprietary products
versus last year. Gross profit as a percentage of sales for the thirty-nine
weeks ended October 30, 2004 was 26.7% versus 26.2% in the same period last
year. The increase in gross profit as a percent of net sales for the thirty-nine
week period was due to lower promotional discounting as well as lower occupancy
and warehouse distribution costs as a percentage of sales due to higher sales.
Operating, selling and administrative expenses were $24.8 million in
the thirteen week period ended October 30, 2004 compared to $22.7 million in the
same period last year. For the thirty-nine weeks ended October 30, 2004,
operating, selling and administrative expenses were $72.6 million compared to
$67.8 million in the same period last year. Operating, selling and
administrative expenses as a percentage of net sales for the thirteen weeks
ended October 30, 2004 increased to 23.8% from 22.2% in the same period last
year. Operating, selling and administrative expenses as a percentage of net
sales for the thirty-nine weeks ended October 30, 2004 increased to 22.2% from
21.7% in the same period last year. The increase as a percentage of sales for
the thirteen and thirty-nine week periods was partially due to casualty losses
from damages incurred from four hurricanes, increased costs related to
Sarbanes-Oxley compliance and costs incurred for new store openings and
relocations. Also, store selling costs were higher as a percentage of sales
during the thirteen weeks ended October 30, 2004 due to relatively flat
comparable sales.
Depreciation and amortization was $3.7 million in the thirteen week
period ended October 30, 2004 compared to $3.8 million in the same period last
year. In the thirty-nine week period ended October 30, 2004 depreciation and
amortization decreased 3.4% to $11.3 million from $11.7 million in the same
period last year.
Consolidated operating loss was $1.3 million for the thirteen weeks
ended October 30, 2004, compared to $0.2 million in the same period last year.
For the thirty-nine weeks ended October 30, 2004, consolidated operating income
was $3.3 million compared to $2.4 million in the same period last year.
Operating loss for the retail trade segment increased $1.1 million for the
thirteen weeks ended October 30, 2004, and operating income increased $0.4
million for the thirty-nine weeks ended October 30, 2004. The increase in
operating loss for the thirteen week period was due to relatively flat
comparable store sales and lost sales for 35 stores closed temporarily during
the quarter due to hurricane activity. Three of the stores were unable to reopen
during the thirteen weeks ended October 30, 2004 due to the degree of damage
sustained. The increase in operating income for the thirty-nine week period was
due to strong profit growth driven by stronger comparable store sales. The
operating profit for the electronic commerce segment increased $0.3 million for
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
the thirty-nine week period ended October 30, 2004 compared to the same period
last year. The increase in profit was due to higher sales in the business to
business category and improved sales due to increased search engine marketing
which increased traffic on our website.
Interest expense was $503,000 in the thirteen weeks ended October 30,
2004 versus $747,000 in the same period last year and $1.5 million in the
thirty-nine weeks ended October 30, 2004 versus $2.5 million in the same period
last year. The decrease was primarily due to lower average debt balances
compared with the prior year due to higher earnings, improved inventory
management and better accounts payable leveraging.
Discontinued operations represent the closure in fiscal 2005 of two
retail stores in Alabama and Florida and in fiscal 2004 of four retail stores in
markets located in Georgia (two stores), Louisiana and North Carolina where we
do not expect another of our existing stores to absorb the closed store's
customers and cash flows. The Florida retail store closed in fiscal 2005 was
substantially destroyed by a hurricane in September 2004 and not reopened.
Information regarding discontinued operations is as follows (in thousands):
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
October 30, 2004 November 1, 2003 October 30, 2004 November 1, 2003
---------------- ---------------- ---------------- ---------------
Sales............................. $ 179 $ 649 $ 954 $ 3,081
Pretax operating losses........... 42 275 34 669
Impairment losses (included above
in pretax operating loss amounts). - - - 118
Store closing costs (included
above in pretax operating loss
amounts).......................... - 10 - 35
OUTLOOK
For the thirty-nine weeks ended October 30, 2004, we have opened three
stores, closed two stores, relocated three stores and remodeled 24 stores. For
the remainder of fiscal 2005, we expect to open five stores, complete remodels
on approximately eight to ten stores, and close one to three stores. Our capital
expenditures totaled $5.8 million in the thirty-nine week period ended October
30, 2004. Management estimates that capital expenditures for the remainder of
fiscal 2005 will be approximately $6.0 million and that such amounts will be
used primarily for new stores and relocations, renovation and improvements to
existing stores, upgrades and expansion of warehouse distribution facilities,
and investments in management information systems. Management believes that
existing cash balances and net cash from operating activities, together with
borrowings under our credit facilities, will be adequate to finance our planned
capital expenditures and to meet our working capital requirements for the
remainder of fiscal 2005.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Operating activities provided (used) cash of $3.2 million and ($6.1)
million in the thirty-nine week periods ended October 30, 2004 and November 1,
2003, respectively, and included the following effects:
o Cash used for inventories in the thirty-nine week periods ended October
30, 2004 and November 1, 2003 was $16.9 million and $19.2 million,
respectively. The smaller usage in the current period was primarily due
to higher sales and improved inventory management versus last year.
o Cash provided (used) for accounts payable in the thirty-nine week
periods ended October 30, 2004 and November 1, 2003 was $12.9 million
and ($1.7) million, respectively. This change was due to improved
leveraging of accounts payable with vendors in the first thirty-nine
weeks of fiscal 2005.
o Depreciation and amortization expenses were $11.4 million and $11.9
million in the thirty-nine week periods ended October 30, 2004 and
November 1, 2003, respectively.
Cash flows used in investing activities reflected a $5.7 million and
$7.5 million net use of cash for the thirty-nine week periods ended October 30,
2004 and November 1, 2003, respectively. Cash was used primarily to
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
fund capital expenditures for new store openings, store relocations, renovation
and improvements to existing stores and investments in management information
systems.
Financing activities provided cash of $1.9 million and $13.6 million in
the thirty-nine week periods ended October 30, 2004 and November 1, 2003,
respectively, principally from net borrowings under the revolving credit
facility. The reduced borrowings under the credit facility during fiscal 2005
were due to the improved cash flows from operating activities.
Our primary sources of liquidity are cash flows from operations,
including credit terms from vendors, and borrowings under our credit facility.
We have an unsecured revolving credit facility that allows borrowings up to $100
million. Our current credit facility was extended two years to July 2007 by our
bank group during the second quarter of fiscal 2005. 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. As of October 30, 2004 and
January 31, 2004, $20.4 million and $13.1 million, respectively, were
outstanding under this credit facility. The maximum and average outstanding
balances during the thirteen weeks ended October 30, 2004 were $30.2 million and
$21.4 million, respectively, compared to $65.3 million and $59.2 million,
respectively for the same period in the prior year. The maximum and average
outstanding balances during the thirty-nine weeks ended October 30, 2004 were
$34.4 million and $24.0 million, respectively, compared to $77.6 million and
$64.1 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
higher earnings, improved inventory management and better accounts payable
leveraging. The outstanding borrowings as of October 30, 2004 had interest rates
ranging from 1.86% per year to 3.61% per year. Additionally, as of October 30,
2004 and January 31, 2004, we have outstanding borrowings under an industrial
revenue bond totaling $7.5 million, which is secured by certain property.
During the thirty-nine weeks ended October 30, 2004, we have paid dividends
of $2,520,000. During the thirteen weeks ended October 30, 2004, the Board of
Directors approved a dividend of $0.03 per share to stockholders of record at
the close of business November 30, 2004, payable on December 14, 2004. The
Company expects to pay quarterly cash dividends in the future subject to Board
approval.
Future Commitments
The following table lists the aggregate maturities of various classes
of obligations and expiration amounts of our various classes of commitments at
October 30, 2004 (in thousands):
PAYMENTS DUE UNDER CONTRACTUAL OBLIGATIONS
Total FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 Thereafter
----- ------- ------- ------- ------- ------- ----------
Long-term debt-
revolving credit
facility ........... $ 20,420 $ 9,220 $ -- $ -- $ 11,200 $ -- $ --
Long-term debt -
industrial revenue
bond ............... 7,500 -- -- 7,500 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Subtotal of debt ... 27,920 9,220 -- 7,500 11,200 -- --
Operating leases ... 109,461 7,404 27,051 21,384 17,663 12,998 22,961
--------- --------- --------- --------- --------- --------- ---------
Total of obligations $ 137,381 $ 16,624 $ 27,051 $ 28,884 $ 28,863 $ 12,998 $ 22,961
========= ========= ========= ========= ========= ========= =========
Indemnification
From time to time, we enter into certain types of agreements that
require us to indemnify parties against third party claims under certain
circumstances. Generally these agreements relate to: (a) agreements with vendors
and suppliers under which we may provide customary indemnification to our
vendors and suppliers in respect of actions they take at our request or
otherwise on our behalf, (b) agreements with vendors who publish books or
manufacture merchandise specifically for us to indemnify the vendors against
trademark and copyright infringement claims concerning the books published or
merchandise manufactured on behalf of us, (c) real estate leases, under which we
may agree to indemnify the lessors from claims arising from our use of the
property, and (d) agreements
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
with our directors, officers and employees, under which we may agree to
indemnify such persons for liabilities arising out of their relationship with
us. We have Directors and Officers Liability Insurance, which, subject to the
policy's conditions, provides coverage for indemnification amounts payable by
us with respect to our 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 us to perform under these indemnities are
transaction and circumstance specific. Generally, our maximum liability under
such indemnities is not explicitly stated, and therefore the overall maximum
amount of our obligations cannot be reasonably estimated. Historically, we have
not incurred significant costs related to performance under these types of
indemnities. No liabilities have been recorded for these obligations on our
balance sheet at October 30, 2004 and January 31, 2004 as such liabilities are
considered de minimis.
RELATED PARTY ACTIVITIES
Charles C. Anderson and Terry C. Anderson, both directors of the
Company during the quarter, and Clyde B. Anderson, a director and officer of the
Company have controlling ownership interests in other entities with which we
conduct business. Significant transactions between us and these various other
entities ("related parties") are summarized in the following paragraphs.
We purchase a substantial portion of our magazines as well as certain
of our seasonal music and newspapers from Anderson Media Corporation ("Anderson
Media"), an affiliate through common ownership. During the thirty-nine weeks
ended October 30, 2004 and November 1, 2003, purchases of these items from
Anderson Media totaled $24,645,000 and $26,061,000, respectively. We purchase
certain of our collectibles and books from Anderson Press, Inc. ("Anderson
Press"), an affiliate through common ownership. During the thirty-nine weeks
ended October 30, 2004 and November 1, 2003, such purchases from Anderson Press
totaled $580,000 and $660,000, respectively. We purchase certain of our greeting
cards and gift products from C.R. Gibson, Inc., an affiliate through common
ownership. The purchases of these products during the thirty-nine weeks ended
October 30, 2004 and November 1, 2003 were $278,000 and $207,000, respectively.
We purchase certain magazine subscriptions from Magazines.com, an affiliate
through common ownership. During the thirty-nine weeks ended October 30, 2004
and November 1, 2003, purchases of these items were $53,000 and $59,000,
respectively. We purchase content for publication from Publication Marketing
Corporation, an affiliate through common ownership. During the thirty-nine weeks
ended October 30, 2004 and November 1, 2003, purchases of these items were
$51,000 and $54,000, respectively. We utilize 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 $905,000 and
$723,000 during the thirty-nine weeks ended October 30, 2004 and November 1,
2003, respectively. These amounts paid to Anco Far East primarily included the
actual cost of the product, as well as duty, freight and 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 $63,000 and $51,000, respectively.
We sold books to (received returns from) Anderson Media in the amounts of
($78,000) and $501,000 during the thirty-nine weeks ended October 30, 2004 and
November 1, 2003, respectively. During the thirty-nine weeks ended October 30,
2004 and November 1, 2003, we provided $253,000 and $204,000, respectively, of
internet services to Magazines.com. During the thirty-nine weeks ended October
30, 2004 and November 1, 2003, we provided $62,000 and $54,000, respectively, of
internet services to American Promotional Events, an affiliate through common
ownership.
We lease our principal executive offices from a trust, which was
established for the benefit of the grandchildren of Mr. Charles C. Anderson, a
member of the Board of Directors. The lease extends to January 31, 2006. During
the thirty-nine weeks ended October 30, 2004 and November 1, 2003, we paid rent
of $103,000 in each period to the trust under this lease. Anderson & Anderson
LLC ("A&A"), which is an affiliate through common ownership, also leases three
buildings to us. During the thirty-nine weeks ended October 30, 2004 and
November 1, 2003, we paid A&A a total of $331,000 and $339,000, respectively, in
connection with such leases. Total minimum future rental payments under all of
these leases are $172,000 at October 30, 2004. We sublease certain property to
Hibbett Sporting Goods, Inc. ("Hibbett"), a sporting goods retailer in the
southeastern United States. Our Executive Chairman, Clyde B. Anderson, is a
member of Hibbett's board of directors. During the thirty-nine weeks ended
October 30, 2004 and November 1, 2003, we received $143,000 and $141,000,
respectively, in rent payments from Hibbett.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We share ownership of a plane, which we use in the operations of our
business, with an affiliated company. We rent the plane to affiliated companies
at the approximate actual cost of usage. The total amounts received from
affiliated companies for use of the plane during the thirty-nine weeks ended
October 30, 2004 and November 1, 2003, was $144,000 and $428,000, respectively.
The cost of operating the plane during these periods was approximately the same
as the revenue received.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate fluctuations involving our credit
facilities and debt related to our industrial revenue bond. The average amount
of debt outstanding under our credit facilities was $57.5 million during fiscal
2004. However, we utilize both fixed and variable debt to manage this exposure.
We entered into two separate $10 million swaps on July 24, 2002. Both expire
August 2005 and effectively fix the interest rate on an aggregate of $20 million
of variable rate debt at 5.00% per year. Also, on May 14, 1996, we entered into
an interest rate swap agreement, with a ten- year term, which carries a notional
principal amount of $7.5 million. The swap effectively fixes the interest rate
on our industrial revenue bond at 8.48% per year. The swap agreement expires on
June 7, 2006. The counter parties to the interest rate swaps are parties to our
revolving credit facilities. We believe the credit and liquidity risk of the
counter parties failing to meet their obligations is remote as we settle our
interest position with the banks on a quarterly basis.
To illustrate the sensitivity of the results of operations to changes
in interest rates on its debt, we estimate that a 66% increase in LIBOR rates
would increase interest expense by approximately $4,000 for the thirteen weeks
ended October 30, 2004. Likewise, a 66% decrease in LIBOR rates would decrease
interest expense by $4,000 for the thirteen weeks ended October 30, 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.
19
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under
the supervision and with the participation of the our management, including our
Chief Executive Officer and our Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures as of the end
of the fiscal quarter covered by this report. Based on the foregoing, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective at the reasonable assurance level as of
the end of the fiscal quarters covered by this report. There has been no change
in our internal controls over financial reporting during our most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.
20
II - OTHER INFORMATION
ITEM 1: Legal Proceedings
We are a party to various legal proceedings incidental to our business.
In the opinion of management, after consultation with legal counsel, the
ultimate liability, if any, with respect to those proceedings is not presently
expected to materially affect our financial position, results of operations or
cash flows.
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity 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:
Maximum Number of
Total Number of Shares that May Yet
Shares Purchased as Be Purchased Under
Total Number of Average Price Paid Part of Publicly the Program at End
Period Shares Purchased per Share Announced Program of Period
---------------------- ---------------- -------------------- -------------------- -------------------
3/17/2004 to 4/3/2004 54,400 $6.3416 54,400 1,592,224
4/4/2004 to 5/1/2004 30,300 $6.5535 30,300 1,561,924
5/2/2004 to 5/29/2004 - - - 1,561,924
5/30/2004 to 7/3/2004 - - - 1,561,924
7/4/2004 to 7/31/2004 - - - 1,561,924
8/1/2004 to 8/28/2004 33,500 $7.1851 33,500 1,528,425
8/29/2004 to 10/2/2004 207,678 $7.5621 207,678 1,320,747
10/3/2004 to 10/30/2004 232,861 $8.1234 232,861 1,087,886
------- ------- -------
Total 558,739 $7.6000 558,739 1,087,886
======= ======= ======= =========
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Security Holders
None
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
Exhibits
Exhibit 3(i) 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 (Registration No.
33-52256))
Exhibit 3(ii) 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 (Registration No.
33-52256))
Exhibit 4.1 See Exhibits 3.1 and 3.2 hereto incorporated
herein by reference to the Exhibits of the same number to the
S-1 Registration Statement.
Exhibit 10.1 Lease Agreement between First National Bank of
Florence, Alabama, as Trustee, and Bookland Stores, Inc.
(which is a predecessor of the Registrant), an Alabama
corporation, dated January 30, 1991 (incorporated by reference
to Exhibit 10.1 to the S-1 Registration Statement).
21
Exhibit 10.2 Amended and Restated Stock Option Plan
(incorporated by reference to Exhibit 10.2 to Annual Report on
Form 10-K for the fiscal year ended January 30, 1999, File No.
0-20664, filed on April 30, 1999).
Exhibit 10.3 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.7 to the S-1 Registration Statement).
Exhibit 10.4 Amendment to Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.6 to Annual Report on
Form 10-K for the fiscal year ended January 29, 1994,File No.
0-20664, filed on April 29, 1994).
Exhibit 10.5 1999 Amended and Restated Employee Stock
Purchase Plan (incorporated by reference to Exhibit 10.5 to
Annual Report on Form 10-K for the fiscal year ended January
29, 2000, File No. 0-20664, filed on April 28, 2000).
Exhibit 10.6 401(k) Plan adopted September 15, 2003, with
Suntrust Bank as Trustee (incorporated by reference to Exhibit
10.6 to Annual report of Form 10-K for fiscal year ended
January 31, 2004, File No. 0-20664, filed on April 27, 2004.
Exhibit 10.7 Shareholders Agreement dated as of September 1,
1992 (incorporated by reference to Exhibit 10.9 to Annual
Report on Form 10-K for the fiscal year ended January 31,
1993, File No. 0-20664, filed May 3, 1993).
Exhibit 10.8 Executive Incentive Plan (incorporated by
reference to Exhibit 10.8 to Annual Report on Form 10-K for
the fiscal year ended January 28, 1995, File No. 0-20664,
filed April 28, 1995).
Exhibit 10.9 Stock Option Plans for Booksamillion.com,
American Internet Service, Inc., Netcentral, Inc. and
Faithpoint, Inc. (incorporated by reference to Exhibit 10.19
to Annual Report on Form 10-K for the fiscal year ended
February 3, 2001, File No. 0-20664, filed on May 4, 2001).
Exhibit 10.10 Credit agreement dated as of July 1, 2002,
between the Company and Bank of America, N.A., SunTrust Bank,
N.A., Wells Fargo Bank, N.A., SouthTrust Bank N.A. and Amsouth
Bank, N.A. (incorporated by reference to Exhibit 10.20 to Form
10-Q for the quarter ended August 3, 2002).
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, as
amended.
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, as
amended.
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, as
amended.
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, as amended.
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, as amended.
Exhibit 32.3 Certification of Richard S. Wallington, Chief
Financial Officer of Books-A-Million, Inc., pursuant to 18
U.S.C. Section 1350, as amended.
22
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: December 14, 2004 by:/s/ Clyde B. Anderson
---------------------
Clyde B. Anderson
Executive Chairman of the Board
Date: December 14, 2004 by:/s/ Sandra B. Cochran
---------------------
Sandra B. Cochran
President and Chief Executive Officer
Date: December 14, 2004 by:/s/ Richard S. Wallington
-------------------------
Richard S. Wallington
Chief Financial Officer
23
Exhibit 31.1
CERTIFICATIONS
I, Clyde B. Anderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Books-A-Million, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the 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 quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control 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: December 14, 2004
_/s/ Clyde B. Anderson
-----------------------
Clyde B. Anderson
Executive Chairman of the Board
24
Exhibit 31.2
CERTIFICATIONS
I, Sandra B. Cochran, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Books-A-Million, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the 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 quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control 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: December 14, 2004
_/s/ Sandra B. Cochran
----------------------
Sandra B. Cochran
President and Chief Executive Officer
25
Exhibit 31.3
CERTIFICATIONS
I, Richard S. Wallington, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Books-A-Million, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the 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 quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control 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: December 14, 2004
_/s/ Richard S. Wallington
--------------------------
Richard S. Wallington
Chief Financial Officer
26
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 of the Company for
the quarterly period ended October 30, 2004 (the "Report") fully complies
with the requirements of Section 13(a) or Section 15(d), as applicable, of
the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: December 14, 2004 /s/ Clyde B. Anderson
----------------------------
Clyde B. Anderson
Executive Chairman of the Board
The foregoing certification is being furnished solely to accompany the
Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of the Company, whether made before or
after the date hereof, regardless of the general incorporation language in such
filing.
27
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 of the Company for
the quarterly period ended October 30, 2004 (the "Report") fully complies
with the requirements of Section 13(a) or Section 15(d), as applicable, of
the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: December 14, 2004 /s/ Sandra B. Cochran
-----------------------------
Sandra B. Cochran
President and Chief Executive Officer
The foregoing certification is being furnished solely to accompany the
Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of the Company, whether made before or
after the date hereof, regardless of the general incorporation language in such
filing.
28
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 of the Company for
the quarterly period ended October 30, 2004 (the "Report") fully complies
with the requirements of Section 13(a) or Section 15(d), as applicable, of
the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: December 14, 2004 /s/ Richard S. Wallington
-------------------------------
Richard S. Wallington
Chief Financial Officer
The foregoing certification is being furnished solely to accompany the
Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of the Company, whether made before or
after the date hereof, regardless of the general incorporation language in such
filing.
29