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 29, 2005
- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition 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 December 6, 2005 were 16,524,930 shares.
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (UNAUDITED)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statement of Changes in Stockholder's Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Item 4. Controls and Procedures 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits 25
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 OCTOBER 29, 2005 AS OF JANUARY 29, 2005
(UNAUDITED)
---------------------- ----------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,070 $ 16,559
Accounts receivable, net 7,725 6,543
Related party accounts receivable, net 423 73
Inventories 226,849 210,270
Prepayments and other 3,774 3,830
Deferred income taxes 2,369 1,704
--------- ---------
TOTAL CURRENT ASSETS 246,210 238,979
--------- ---------
PROPERTY AND EQUIPMENT:
Gross property and equipment 202,470 195,964
Less accumulated depreciation and amortization (149,397) (140,018)
--------- ---------
NET PROPERTY AND EQUIPMENT 53,073 55,946
--------- ---------
OTHER ASSETS
Deferred income taxes 1,081 -
Other assets 2,972 2,806
--------- ---------
TOTAL OTHER ASSETS 4,053 2,806
--------- ---------
TOTAL ASSETS $ 303,336 $ 297,731
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 102,595 $ 95,954
Related party accounts payable 3,934 7,741
Accrued expenses 35,601 38,360
Accrued income taxes - 1,542
--------- ---------
TOTAL CURRENT LIABILITIES 142,130 143,597
--------- ---------
LONG-TERM DEBT 14,740 7,500
DEFERRED INCOME TAXES - 1,415
OTHER LONG-TERM LIABILITIES 11,348 10,360
--------- ---------
TOTAL NON-CURRENT LIABILITIES 26,088 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, 19,510,276 and 19,067,960 shares issued at
October 29, 2005 and January 29, 2005, respectively 195 191
Additional paid-in capital 78,420 74,505
Less treasury stock, at cost (2,992,846 and 2,792,869
shares at October 29, 2005 and January 29, 2005,
respectively) (14,341) (11,630)
Deferred compensation (1,003) (481)
Accumulated other comprehensive loss, net of tax (64) (195)
Retained earnings 71,911 72,469
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 135,118 134,859
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 303,336 $ 297,731
========= =========
SEE ACCOMPANYING NOTES
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 29, 2005 OCTOBER 30, 2004 OCTOBER 29, 2005 OCTOBER 30, 2004
---------------- ---------------- ---------------- ----------------
NET SALES $ 107,638 $ 104,072 $ 343,060 $ 325,479
Cost of products sold (including warehouse
distribution and store occupancy costs) 79,491 76,247 249,160 236,445
--------- --------- --------- ---------
GROSS PROFIT 28,147 27,825 93,900 89,034
Operating, selling and administrative expenses 26,521 24,748 78,927 72,440
Gain on insurance recovery (Note 11) 1,248 - 1,248 -
Depreciation and amortization 3,889 4,394 11,915 13,330
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (1,015) (1,317) 4,306 3,264
Interest expense, net 379 503 1,178 1,508
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (1,394) (1,820) 3,128 1,756
Income taxes provision (benefit) (534) (674) 1,198 649
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS (860) (1,146) 1,930 1,107
DISCONTINUED OPERATIONS (NOTE 10)
Loss from discontinued operations before
income taxes (21) (41) (68) (98)
Income tax benefit 8 15 26 36
--------- --------- --------- ---------
LOSS FROM DISCONTINUED OPERATIONS (13) (26) (42) (62)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (873) $ (1,172) $ 1,888 $ 1,045
========= ========= ========= =========
NET INCOME PER COMMON SHARE:
BASIC:
INCOME (LOSS) FROM CONTINUING OPERATIONS $ (0.05) $ (0.07) $ 0.12 $ 0.06
LOSS FROM DISCONTINUED OPERATIONS -- -- -- --
--------- --------- --------- ---------
NET INCOME (LOSS) $ (0.05) $ (0.07) $ 0.12 $ 0.06
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
BASIC 16,487 16,578 16,329 16,507
========= ========= ========= =========
DILUTED:
INCOME (LOSS) FROM CONTINUING OPERATIONS $ (0.05) $ (0.07) $ 0.11 $ 0.06
LOSS FROM DISCONTINUED OPERATIONS - - - -
--------- --------- --------- ---------
NET INCOME (LOSS) $ (0.05) $ (0.07) $ 0.11 $ 0.06
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING -
DILUTED 16,487 16,578 16,924 17,227
========= ========= ========= =========
DIVIDENDS PER SHARE - DECLARED $ 0.05 $ 0.15 $ 0.15 $ 0.15
========= ========= ========= =========
SEE ACCOMPANYING NOTES
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Accumulated
Common Stock Additional Treasury Stock Deferred Compensation Other Total
-------------- Paid-In ---------------- --------------------- 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 1,888 1,888
Unrealized gain
on accounting for
derivative
instruments, net
of tax provision
of $71 131 131
Subtotal
comprehensive
income 2,019
Purchase of
treasury stock 200 (2,711) (2,711)
Dividends paid (2,446) (2,446)
Issuance of
restricted stock 40 809 (809) -
Amortization of
deferred
compensation
related to
restricted stock 287 287
Issuance of stock
for employee
stock purchase
plan 13 83 83
Exercise of stock
options 389 4 2,632 2,636
Tax benefit from
exercise of stock
options 391 391
BALANCE OCTOBER
29, 2005 19,510 $195 $ 78,420 2,993 $(14,341) - $(1,003) $ 71,911 $ (64) $135,118
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THIRTY-NINE WEEKS ENDED
-----------------------
OCTOBER 29, 2005 OCTOBER 30, 2004
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,888 $ 1,045
--------- ---------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 11,925 13,381
Deferred (compensation) amortization 287 103
Loss on impairment of assets 210 181
(Gain)/Loss on disposal of property 1 (15)
Change in deferred income taxes (3,161) 128
Increase in inventories (16,579) (16,904)
Increase in accounts payable 2,835 12,832
Changes in certain other assets and liabilities (4,184) (6,337)
--------- ---------
Total adjustments (8,666) 3,369
--------- ---------
Net cash provided by (used in) operating activities (6,778) 4,414
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,521) (7,026)
Proceeds from sale of equipment 8 31
--------- ---------
Net cash used in investing activities (9,513) (6,995)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 146,650 143,420
Repayments under credit facilities (139,410) (136,140)
Purchase of treasury stock (2,711) (3,910)
Proceeds from sale of common stock, net 2,719 1,045
Payment of dividends (2,446) (2,520)
--------- ---------
Net cash provided by financing activities 4,802 1,895
--------- ---------
Net increase (decrease) in cash and cash equivalents (11,489) (686)
Cash and cash equivalents at beginning of period 16,559 5,348
--------- ---------
Cash and cash equivalents at end of period $ 5,070 $ 4,662
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the thirty-nine week period for:
Interest $ 1,206 $ 1,569
Income taxes, net of refunds $ 6,387 $ 4,408
SEE ACCOMPANYING NOTES
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
thirty-nine week periods ended October 29, 2005 and October 30, 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 October 29,
2005, and the results of its operations and cash flows for the thirteen and
thirty-nine week periods ended October 29, 2005 and October 30, 2004,
respectively. 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
On June 1, 2005, the stockholders of the Company approved the adoption of
the Books-A-Million, Inc. 2005 Incentive Award Plan. The Company's board of
directors had previously approved this plan subject to stockholder approval. An
aggregate of 300,000 shares of common stock may be issued pursuant to awards
granted under the Plan. On June 29, 2005 the Company granted 77,100 shares of
restricted stock to the Company's officers and key employees pursuant to the
terms of the Plan. Additionally, the Company granted 3,333 shares of restricted
stock to a Director that joined the Company's Board of Directors in August 2005.
The compensation expense related to these grants is being expensed over the
vesting period for the individual grants. In the thirteen and thirty-nine weeks
ended October 29, 2005, the Company has recorded $54,454 and $157,768,
respectively, of stock-based compensation expense for the restricted stock
grants.
The Company has a stock option plan that provides for the issuance of
options to employees and members of the board of directors. Upon the approval of
the 2005 Incentive Award Plan by our stockholders at the Company's annual
meeting, we determined that there will be no additional awards made under the
Company's stock option plan. The Company accounts for the plan under the
recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations. No stock-based employee compensation cost for this plan is
reflected in net income, as all options granted under the plan had an exercise
price equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income and net income
per common share if the Company were to apply 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):
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the Thirteen Weeks Ended For the Thirty-Nine Weeks Ended
----------------------------------- ----------------------------------
In thousands October 29, 2005 October 30, 2004 October 29, 2005 October 30, 2004
------------ ---------------- ---------------- ---------------- ----------------
Net income (loss), as reported $ (873) $ (1,172) $ 1,888 $ 1,045
Add: Stock-based
employee compensation
expense included in
reported net income
(loss), net of related tax 64 25 177 64
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of tax
effects 202 366 591 1,087
Pro forma net income (loss) $ (1,011) $ (1,513) $ 1,474 $ 22
Net income (loss) per common
share:
Basic -- as reported $ (0.05) $ (0.07) $ 0.12 $ 0.06
Basic -- pro forma $ (0.06) $ (0.09) $ 0.09 $ 0.00
Diluted -- as reported $ (0.05) $ (0.07) $ 0.11 $ 0.06
Diluted -- pro forma $ (0.06) $ (0.09) $ 0.09 $ 0.00
There were no new grants of stock options in fiscal 2006. Stock-based
compensation expense reflected 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 0.44; risk-free
interest rates of 3.45% to 4.31%; and expected lives of six or ten years.
2. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share ("EPS") is computed by dividing income
(loss) available to common 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 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 29, 2005 October 30, 2004
---------------- ----------------
Weighted average shares outstanding:
Basic 16,487 16,578
Dilutive effect of stock options and
restricted stock outstanding - -
------ ------
Diluted 16,487 16,578
====== ======
For the Thirty-Nine Weeks Ended
(in thousands)
October 29, 2005 October 30, 2004
---------------- ----------------
Weighted average shares outstanding:
Basic 16,329 16,507
Dilutive effect of stock options and
restricted stock outstanding 595 720
------ ------
Diluted 16,924 17,227
====== ======
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Options outstanding to purchase 24,500 and 796,000 shares of common stock
as of October 29, 2005 and October 30, 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 thirteen
and thirty-nine weeks ended October 29, 2005 purchases of these items from
Anderson Media totaled $12,485,000 and $25,425,000, respectively, compared to
$8,708,000 and $24,645,000 during the same periods last year. The Company
purchases certain of its collectibles and books from Anderson Press, Inc.
("Anderson Press"), an affiliate through common ownership. During the thirteen
and thirty-nine weeks ended October 29, 2005, such purchases from Anderson Press
totaled $505,000 and $1,162,000, respectively, compared to $355,000 and $580,000
during the same periods last year. The Company purchases certain of its greeting
cards and gift products from C.R. Gibson, Inc. ("C.R. Gibson"), an affiliate
through common ownership. The purchases of these products from C.R. Gibson
during the thirteen and thirty-nine weeks ended October 29, 2005 were $22,000
and $156,000, respectively, compared to $48,000 and $278,000 during the same
periods last year. The Company purchases certain magazine subscriptions from
Magazines.com, an affiliate through common ownership. During the thirteen and
thirty-nine weeks ended October 29, 2005, purchases of these items from
Magazines.com were $17,000 and $44,000, respectively, compared to $16,000 and
$53,000 in the same periods last year. The Company purchases content for
publication from Publication Marketing Corporation ("Publication Marketing"), an
affiliate through common ownership. During the thirteen and thirty-nine weeks
ended October 29, 2005, purchases of these items from Publication Marketing were
$24,000 and $53,000, respectively, compared to $27,000 and $51,000 during the
same periods last year. 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 $370,000 and
$1,768,000 during the thirteen and thirty-nine weeks ended October 29, 2005,
respectively, compared to $583,000 and $905,000 during the same periods last
year. 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 $26,000
and $124,000 during the thirteen and thirty-nine weeks ended October 29, 2005,
respectively, compared to $41,000 and $63,000 during the same periods last year.
The Company sold books to (received returns from) Anderson Media in the
amounts of $233,000 and $239,000 during the thirteen and thirty-nine weeks ended
October 29, 2005, respectively, compared to ($47,000) and ($78,000) during the
same periods last year. During the thirteen and thirty-nine weeks ended October
29, 2005, the Company provided $0 and $7,000, respectively, of internet services
to Magazines.com, compared to $206,000 and $253,000 during the same periods last
year. The Company provided internet services to American Promotional Events, an
affiliate through common ownership, of $6,000 and $69,000 during the thirteen
and thirty-nine weeks ended October 29, 2005, respectively, compared to $8,000
and $62,000 during the same periods last year.
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 thirteen and thirty-nine weeks ended October 29, 2005, the Company
paid rent of $34,000 and $103,000, respectively, to the trust under this lease
compared to $34,000 and $103,000 during the same periods last year. Anderson &
Anderson LLC ("A&A"), an affiliate through common ownership, also leases three
buildings to the Company. During the thirteen and thirty-nine weeks ended
October 29, 2005, the Company paid A&A a total of $111,000 and $333,000,
respectively, in connection with such leases compared to $110,000 and $331,000
during the same periods last year. Total minimum future rental payments under
all of these leases are $34,000 at October 29, 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
thirteen and thirty-nine weeks ended October 29, 2005, the Company received
$62,000 and $157,000, respectively, in rent payments from Hibbett compared to
$48,000 and $143,000 during the same periods last year.
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
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
and a portion of the fixed cost of the plane. The total amounts received from
affiliated companies for use of the plane during the thirteen and thirty-nine
weeks ended October 29, 2005 were $82,000 and $238,000, respectively, compared
to $13,000 and $144,000 during the same periods last year. The Company also
occasionally rents a plane from A&A as well. The amounts paid to A&A for plane
rental were $4,000 and $35,000 for the thirteen and thirty-nine weeks ended
October 29, 2005, respectively compared to $6,000 and $22,000 during the same
periods last year.
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 a
portion of this exposure. The Company entered into two separate $10 million
interest rate swaps on July 24, 2002 (the "Credit Facility Hedges"), which
effectively fixed the interest rate on $20 million of variable credit facility
debt at 5.13%. Both of the Credit Facility Hedges expired in August 2005, and
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 fixes the interest rate on the Bond at 8.73% (the
"Bond Hedge"). The counterparty 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.
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
liabilities classified in other long-term liabilities in the accompanying
condensed consolidated balance sheets at their fair value of $150,000 and
$543,000 as of October 29, 2005 and January 29, 2005, respectively. For the
thirteen weeks ended October 29, 2005 and October 30, 2004, respectively,
adjustment gains of $21,000 (net of tax provision of $12,000) and $72,000 (net
of tax provision of $42,000), respectively, and in the thirty-nine weeks ended
October 29, 2005 and October 30, 2004, adjustment gains of $130,000 (net of tax
provision of $85,000) and $298,000 (net of tax provision of $175,000),
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, and the Company de-designated the hedge
at that time. 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 October 29, 2005 and October 30, 2004, pre-tax gains of $30,000 and
$34,000, respectively, were recorded in earnings related to the de-designated
hedges. For the thirty-nine weeks ended October 29, 2005 and October 30, 2004,
pre-tax gains of $178,000 and $213,000, respectively, were recorded in earnings
related to the de-designated hedges.
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- ----------------------
(in thousands) (in thousands)
----------------------------------- ----------------------------------
COMPREHENSIVE INCOME (LOSS) October 29, 2005 October 30, 2004 October 29, 2005 October 30, 2004
---------------- ---------------- ---------------- ----------------
Net Income (Loss) $(873) $(1,172) $1,888 $1,045
Unrealized gains (losses) on
hedges, net of deferred tax
provision (benefit) for the
thirteen-week periods of $12 and
$42, respectively, and the
thirty-nine week periods of $84
and $175, respectively. 21 72 131 298
----- ------- ------ ------
Total comprehensive income (loss) $(852) $(1,100) $2,019 $1,343
----- ------- ------ ------
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 October 29,
2005 and January 29, 2005 as such liabilities are considered de minimis.
7. INVENTORIES
Inventories were:
(In thousands) October 29, 2005 January 29, 2005
-------------- ---------------- ----------------
Inventories (at FIFO) $228,366 $211,375
LIFO reserve (1,517) (1,105)
-------- --------
Net inventories $226,849 $210,270
-------- --------
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 supplies merchandise primarily
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.
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
SEGMENT INFORMATION (IN THOUSANDS) October 29, 2005 October 30, 2004 October 29, 2005 October 30, 2004
---------------- ---------------- ---------------- ----------------
NET SALES
Retail Trade $ 105,434 $ 101,965 $ 337,656 $ 319,469
Electronic Commerce Trade 6,807 6,571 19,987 19,246
Intersegment Sales Elimination (4,603) (4,464) (14,583) (13,236)
--------- --------- --------- ---------
Net Sales $ 107,638 $ 104,072 $ 343,060 $ 325,479
========= ========= ========= =========
OPERATING INCOME (LOSS)
Retail Trade $ (1,407) $ (1,773) $ 3,844 $ 2,247
Electronic Commerce Trade 478 408 650 660
Intersegment Elimination of (86) 48 (188) 357
Certain Costs
--------- --------- --------- ---------
Total Operating Income (Loss) $ (1,015) $ (1,317) $ 4,306 $ 3,264
========= ========= ========= =========
As of As of
October 29, 2005 January 29, 2005
---------------- ----------------
ASSETS
Retail Trade $ 301,748 $ 296,622
Electronic Commerce Trade 1,698 1,372
Intersegment Asset Elimination (110) (263)
--------- ---------
Total Assets $ 303,336 $ 297,731
========= =========
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 Company is currently determining the impact of
adopting this new accounting standard on the Company's financial position,
results of operations and cash flows.
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 beginning in fiscal 2006. 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 October 29, 2005 and October 30, 2004, these stores had net
sales of $0 and $393,000, respectively, and pretax operating losses of $21,000
and $41,000, respectively. For the thirty-nine week periods ended October 29,
2005 and October 30, 2004, these stores had net sales of $109,000 and
$1,566,000, respectively, and pretax operating losses of $68,000 and $98,000,
respectively. Also included in the loss on discontinued operations are store
closing costs of $0 and $20,000 for the thirteen and thirty-nine weeks ended
October 29, 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.
11. INSURANCE GAIN
In the third quarter of fiscal 2006 the Company recognized an insurance
gain of $770,000, net of taxes, related to insurance recoveries for hurricane
damage suffered at three stores in the third quarter of fiscal 2005. The
insurance recovery amounts were finalized with the insurance company during the
third quarter of fiscal 2006, therefore the gain was recorded in the current
period.
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 October 29, 2005 we operate 208 retail
bookstores, including 173 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.
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 Thirty-Nine Weeks Ended
-------------------- -----------------------
October 29, 2005 October 30, 2004 October 29, 2005 October 30, 2004
---------------- ---------------- ---------------- ----------------
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 26.1% 26.7% 27.4% 27.4%
Operating, selling and administrative
expenses 24.6% 23.8% 23.0% 22.3%
Gain on insurance recovery 1.2% - 0.4% -
Depreciation and amortization 3.6% 4.2% 3.5% 4.1%
Operating income (loss) (0.9)% (1.3)% 1.3% 1.0%
Interest expense, net 0.4% 0.4% 0.4% 0.5%
Income (loss) from continuing
operations before income taxes (1.3)% (1.7)% 0.9% 0.5%
Income taxes provision (benefit) (0.5)% (0.6)% 0.3% 0.2%
Income (loss) from continuing
operations (0.8)% (1.1)% 0.6% 0.3%
Net income (0.8)% (1.1)% 0.6% 0.3%
Net sales increased $3.5 million, or 3.4%, to $107.6 million in the
thirteen weeks ended October 29, 2005, from $104.1 million in the thirteen weeks
ended October 30, 2004. Net sales increased $17.6 million, or 5.4%, to $343.1
million in the thirty-nine weeks ended October 29, 2005, from $325.5 million in
the thirty-nine weeks ended October 30, 2004. Comparable store sales in the
thirteen weeks ended October 29, 2005 increased 0.6% when compared with the same
thirteen week period for the prior year. Comparable store sales increased 2.9%
for the thirty-nine weeks ended October 29, 2005. The increase in comparable
store sales for the thirteen and thirty-nine 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 during the
second quarter, 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 by segment for the thirteen
weeks and the thirty-nine weeks ended October 29, 2005 and October 30, 2004:
NET SALES BY SEGMENT (IN THOUSANDS)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
October 29, October 30, October 29, October 30,
2005 2004 $ Change % Change 2005 2004 $ Change % Change
---------- --------- -------- -------- ----------- ----------- -------- --------
Retail Trade $105,434 $101,965 $ 3,469 3.4% $ 337,656 $ 319,469 $ 18,187 5.7%
Electronic Commerce
Trade 6,807 6,571 236 3.6% 19,987 19,246 741 3.9%
Intersegment Sales
Elimination (4,603) (4,464) (139) 3.1% (14,583) (13,236) (1,347) 10.2%
-------- -------- -------- ---- ----------- ----------- -------- ----
Net Sales $107,638 $104,072 $ 3,566 3.4% $ 343,060 $ 325,479 $ 17,581 5.4%
-------- -------- -------- ---- ----------- ----------- -------- ----
The increase in net sales for the retail trade segment was primarily due
to higher comparable store sales for the thirteen and thirty-nine week periods
as described above. 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 $0.3 million, or 1.2%, to $28.1 million in the
thirteen weeks ended October 29, 2005 when compared with $27.8 million in the
same thirteen week period for the prior year. For the thirty-nine weeks ended
October 29, 2005, gross profit increased $4.9 million, or 5.5%, to $93.9 million
from $89.0 million in the same period last year. Gross profit as a percentage of
net sales for the thirteen weeks ended October 29, 2005 was 26.1% versus 26.7%
in the same period last year. Gross profit as a percentage of sales for the
thirty-nine weeks ended October 29, 2005 was 27.4% versus 27.4% in the same
period last year. The decrease in gross profit as a percent of net sales for the
thirteen week period was due to higher occupancy costs as a percentage of net
sales.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating, selling and administrative expenses were $26.5 million in the
thirteen week period ended October 29, 2005 compared to $24.7 million in the
same period last year. Operating, selling and administrative expenses as a
percentage of net sales for the thirteen weeks ended October 29, 2005 increased
to 24.6 % from 23.8% in the same period last year. For the thirty-nine weeks
ended October 29, 2005, operating, selling and administrative expenses were
$78.9 million compared to $72.4 million in the same period last year. Operating,
selling and administrative expenses as a percentage of net sales for the
thirty-nine weeks ended October 29, 2005 increased to 23.0% from 22.3% in the
same period last year. The increase in operating, selling and administrative
expenses as a percent of sales for the thirteen and thirty-nine week periods was
primarily due to costs incurred for increased internal staffing and outside
professional fees related to Sarbanes-Oxley Act compliance work.
Depreciation and amortization was $3.9 million in the thirteen week period
ended October 29, 2005 compared to $4.4 million in the same period last year. In
the thirty-nine week period ended October 29, 2005 depreciation and amortization
decreased 10.6% to $11.9 million from $13.3 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 by segment for the
thirteen weeks and the thirty-nine weeks ended October 29, 2005 and October 30,
2004:
OPERATING INCOME (LOSS) BY SEGMENT (IN THOUSANDS)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
October 29, October 30, October 29, October 30,
2005 2004 $ Change % Change 2005 2004 $ Change % Change
----------- ----------- -------- -------- ---------- ----------- -------- --------
Retail Trade $(1,407) $(1,773) $ 366 20.6% $ 3,844 $2,247 $1,597 71.1%
Electronic Commerce Trade 478 408 70 17.2% 650 660 (10) (1.5%)
Intersegment Elimination
of Certain Costs (86) 48 (134) (279.2%) (188) 357 (545) (152.7%)
--------- ------- ----- ------- ------- ------ ------ ------
Total Operating Income
(Loss) $(1,015) $(1,317) $ 302 22.9% $ 4,306 $3,264 $1,042 31.9%
--------- ------- ----- ------- ------- ------ ------ ------
The improvement in operating results for the retail trade segment for the
thirteen and thirty-nine week periods was due to the gain on insurance
recoveries recorded during the third quarter. Even though net sales for the
electronic commerce segment for the thirty-nine weeks ended October 29, 2005
increased by 3.9%, operating income for the electronic commerce segment was
slightly decreased compared with the same period last year 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 October 29,
2005 versus $0.5 million in the same period last year and $1.2 million in the
thirty-nine weeks ended October 29, 2005 versus $1.5 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 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 stores' customers. For the thirteen
week periods ended October 29, 2005 and October 30, 2004, these stores had net
sales of $0 and $393,000, respectively, and pretax operating losses of $21,000
and $41,000, respectively. For the thirty-nine week periods ended October 29,
2005 and October 30, 2004, these stores had net sales of $109,000 and
$1,566,000, respectively, and pretax operating losses of $68,000 and $98,000,
respectively. Also included in the loss on discontinued operations are store
closing costs of $0 and $20,000 for the thirteen and thirty-nine weeks ended
October 29, 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.
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 October
29, 2005. As of October 29, 2005 and January 29, 2005, $7.2 million and $0,
respectively, were outstanding under this credit facility. The maximum and
average outstanding balances during the thirteen weeks ended October 29, 2005
were $18.5 million and $11.2 million, respectively, compared to $30.2 million
and $21.4 million, respectively, for the same period in the prior year. The
maximum and average outstanding balances during the thirty-nine weeks ended
October 29, 2005 were $23.7 million and $11.7 million, respectively, compared to
$34.4 million and $24.0 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 October 29, 2005 had
interest rates ranging from 3.89% to 5.53%.
In addition, as of October 29, 2005 and January 29, 2005, the Company had
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 October 29, 2005 compared to January 29, 2005
increased due to increased purchases in preparation for the holiday season.
Accrued expenses at October 29, 2005 compared to January 29, 2005 decreased due
to larger capital expenditure accruals at year-end due to significant purchases
of capital assets in the fourth quarter of fiscal 2005, 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.
CONTRACTUAL OBLIGATIONS
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 October 29, 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) $ 7,240 - - 7,240 - - -
Long-term debt
-industrial
revenue bond (2) 7,500 - - 7,500 - - -
Subtotal of debt 14,740 - - 14,740 - - -
Operating leases 139,653 7,829 29,720 26,351 21,110 16,197 38,446
--------- ------- -------- -------- -------- -------- --------
Total of obligations $ 154,393 $ 7,829 $ 29,720 $ 41,091 $ 21,110 $ 16,197 $ 38,446
--------- ------- -------- -------- -------- -------- --------
(1) Revolving credit facility expires in July 2007.
(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 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 October 29,
2005 and January 29, 2005 as such liabilities are considered de minimis.
Cash Flows
Operating activities provided (used) cash of ($6.8) million and $4.4
million in the thirty-nine week periods ended October 29, 2005 and October 30,
2004, respectively, and included the following effects:
- Cash used for inventories in the thirty-nine week periods ended October
29, 2005 and October 30, 2004 was $16.6 million and $16.9 million,
respectively.
- Cash provided by accounts payable in the thirty-nine week periods ended
October 29, 2005 and October 30, 2004 was $2.8 million and $12.8 million,
respectively. This change was due to the timing of payments for purchases
from vendors in the first nine months of fiscal 2006.
- Depreciation and amortization expenses were $11.9 million and $13.4
million, respectively in the thirty-nine week periods ended October 29,
2005 and October 30, 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 $9.5 million and $7.0
million net use of cash for the thirty-nine week periods ended October 29, 2005
and October 30, 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 provided cash of $4.8 million and $1.9 million in the
thirty-nine week periods ended October 29, 2005 and October 30, 2004,
respectively, principally from borrowings under 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 thirty-nine weeks ended October 29, 2005, the Company opened
five stores, relocated three stores, remodeled fifteen stores and closed three
stores. For the remainder of fiscal 2006, the Company expects to open two
stores, complete remodels on approximately five stores and close three stores.
The Company's capital expenditures totaled $9.5 million in the thirty-nine week
period ended October 29, 2005. Management estimates that capital expenditures
for the remainder of fiscal 2006 will be approximately $3.8 million and that
such amounts will be used primarily for opening new stores 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.
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 thirteen
and thirty-nine weeks ended October 29, 2005 purchases of these items from
Anderson Media totaled $12,485,000 and $25,425,000, respectively, compared to
$8,708,000 and $24,645,000 during the same periods last year. The Company
purchases certain of its collectibles and books from Anderson Press, Inc.
("Anderson Press"), an affiliate through common ownership. During the thirteen
and thirty-nine weeks ended October 29, 2005, such purchases from Anderson Press
totaled $505,000 and $1,162,000, respectively, compared to $355,000 and $580,000
during the same periods last year. The Company purchases certain of its greeting
cards and gift products from C.R. Gibson, Inc. ("C.R. Gibson"), an affiliate
through common ownership. The purchases of these products from C.R. Gibson
during the thirteen and thirty-nine weeks ended October 29, 2005 were $22,000
and $156,000, respectively, compared to $48,000 and $278,000 during the same
periods last year. The Company purchases certain magazine subscriptions from
Magazines.com, an affiliate through common ownership. During the thirteen and
thirty-nine weeks ended October 29, 2005, purchases of these items from
Magazines.com were $17,000 and $44,000, respectively, compared to $16,000 and
$53,000 in the same periods last year. The Company purchases content for
publication from Publication Marketing Corporation ("Publication Marketing"), an
affiliate through common ownership. During the thirteen and thirty-nine weeks
ended October 29, purchases of these items from Publication Marketing were
$24,000 and $53,000, respectively, compared to $27,000 and $51,000 during the
same periods last year. 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 $370,000 and
$1,768,000 during the thirteen and thirty-nine weeks ended October 29, 2005,
respectively, compared to $583,000 and $905,000 during the same periods last
year. 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 $26,000
and $124,000 during the thirteen and thirty-nine weeks ended October 29, 2005,
respectively, compared to $41,000 and $63,000 during the same periods last year.
The Company sold books to (received returns from) Anderson Media in the
amounts of $233,000 and $239,000 during the thirteen and thirty-nine weeks ended
October 29, 2005, respectively, compared to ($47,000) and ($78,000) during the
same periods last year. During the thirteen and thirty-nine weeks ended October
29, 2005, the Company provided $0 and $7,000, respectively, of internet services
to Magazines.com, compared to $206,000 and $253,000 during the same periods last
year. The Company provided internet services to American Promotional Events, an
affiliate through common ownership, of $6,000 and $69,000 during the thirteen
and thirty-nine weeks ended October 29, 2005, respectively, compared to $8,000
and $62,000 during the same periods last year.
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 thirteen and thirty-nine weeks ended October 29, 2005, the Company
paid rent of $34,000 and $103,000, respectively, to the trust under this lease
compared to $34,000 and $103,000 during the same periods last year. Anderson &
Anderson LLC ("A&A"), an affiliate through common ownership, also leases three
buildings to the Company. During the thirteen and thirty-nine weeks ended
October 29, 2005, the Company paid A&A a total of $111,000 and $333,000,
respectively, in connection with such leases compared to $110,000 and $331,000
during the same periods last year. Total minimum future rental payments under
all of these leases are $34,000 at October 29, 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
thirteen and thirty-nine weeks ended October 29, 2005, the Company received
$62,000 and $157,000, respectively, in rent payments from Hibbett compared to
$48,000 and $143,000 during the same periods last year.
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 thirteen and thirty-nine
weeks ended October 29, 2005 were $82,000 and $238,000, respectively, compared
to $13,000 and $144,000 during the same periods last year. The Company also
occasionally rents a plane from A&A as well. The amounts paid to A&A for plane
rental were $4,000 and $35,000 for the thirteen and thirty-nine weeks ended
October 29, 2005, respectively compared to $6,000 and $22,000 during the same
periods last year.
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 a
portion of this exposure. The Company entered into two separate $10 million
interest rate swaps on July 24, 2002 (the "Credit Facility Hedges"), which
effectively fixed the interest rate on $20 million of variable credit facility
debt at 5.13%. Both of the Credit Facility Hedges expired in August 2005, and
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 fixes the interest rate on the Bond at 8.73% (the
"Bond Hedge"). The counterparty 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 $74,000 for the
thirteen weeks ended October 29, 2005. Likewise, a 66% decrease in LIBOR rates
would have decreased interest expense by $74,000 for the thirteen weeks ended
October 29, 2005. 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 Bond Hedge associated with the Bond would have on interest
expense.
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 the end of the fiscal quarter covered by 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 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.
CONTROLS AND PROCEDURES
Due to the risk that discrepancies could arise which could affect our
vendor payment and return cost calculations which could, in turn, impact our
cost of goods sold, we have updated item level cost data in the item master file
and will continue to maintain item level cost data on the item master file going
forward. This will provide accurate item level cost information for merchandise
purchase orders and publisher returns processed going forward. Due to the
completion of the update to, and the ongoing maintenance of item level cost
data, we expect to begin using item level detail in the cost of goods sold
calculation by April 29, 2006, the end of the first quarter of fiscal 2007.
To mitigate the risk of error until we begin using item level cost data in
the cost of goods sold calculations, during the second and third quarters 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 for the second and
third quarters of fiscal 2006 was not material. A full physical inventory at the
warehouse will be taken and reconciled to the financial records during the
fourth quarter of fiscal 2006. Also, the sample size of invoices reviewed for
verifying the cost of goods sold percentages by product line was expanded in
the third quarter, and will be further expanded during the fourth quarter of
fiscal 2006, 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 stated
that neither the director nor the manager were allowed to be involved in vendor
master file maintenance, as of the end of the second quarter the system did not
prevent either of them from making entries to, or performing maintenance on, the
vendor master file. As of October 14, 2005, access privileges to the vendor file
for the director and the manager have been revoked. Also, starting with the
October, 2005 monthly closing process, a senior accounting manager outside of
the accounts payable function is reviewing the reconciliation of the accounts
payable detail activity to the general ledger each month. Management believes
that this significant deficiency has been remediated as of the end of the third
quarter of fiscal 2006.
Inadequate independent verification of expense invoice supporting
documentation. In addition to having responsibility for the merchandise payment
process, the accounts payable department also has the responsibility to manage
and process payments for expense invoices. Our policies and procedures in place
as of the second quarter of fiscal 2006 were not adequate to ensure that 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. As of the date for filing this
quarterly report on Form 10-Q, new policies and procedures were also implemented
requiring supporting documentation to be provided with expense invoices for
certain categories of expense activity for approval by management.
To mitigate the risk of misstatement of expense activity during the second
and third quarters of fiscal 2006, we completed a subsequent review of invoices
processed for sixty days after the end of the second quarter and for thirty days
after the end of the third quarter. This process did not identify any
significant changes to the amounts originally accrued for the each of the
quarter closings.
CONTROLS AND PROCEDURES
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.
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 1A: Risk Factors
We operate on a 52-53 week fiscal year ending on the Saturday closest to
January 31st and fiscal quarters ending on the last Saturday of April, July and
October. As a result, our past practice has been to file our Annual Report on
Form 10-K in April and our Quarterly Reports on Form 10-Q in June, September and
December, respectively. Consistent with our past practice, therefore, we are
filing this Form 10-Q after December 1. Although this Item 1A requires us to
disclose material changes from risk factors previously disclosed in our Form
10-K, we are unable to do so because we have not previously included risk
factors in our Form 10-K. We will include risk factors in our Form 10-K for
fiscal 2006 (which we anticipate will be filed in April 2006), and in all Forms
10-Q filed thereafter we will include, in accordance with this item, all
material changes from risk factors previously disclosed in our Forms 10-K.
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
Total Number of of Shares that May
Total Number Shares Purchased as Yet Be Purchased
of Shares Average Price Paid Part of Publicly Under the Program
Period Purchased per Share Announced Program at End 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
8/26/2005 97,000 $10.0000 97,000 623,235
------- ------- ------- -------
Total 240,571 $9.6533 240,571 623,235
------- ------- ------- -------
Clyde B. Anderson and Charles C. Anderson, Jr. purchased a total of 97,000
shares from Sandra B. Cochran during the third quarter of fiscal 2006 under the
Company's stock repurchase program previously announced in March 2004.
ITEM 3: Defaults Upon Senior Securities
None
II - OTHER INFORMATION
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
(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.
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.
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 13, 2005 by: /s/ Clyde B. Anderson
---------------------
Clyde B. Anderson
Executive Chairman of the Board
Date: December 13, 2005 by: /s/ Sandra B. Cochran
---------------------
Sandra B. Cochran
President and Chief Executive Officer
Date: December 13, 2005 by: /s/ Richard S. Wallington
-------------------------
Richard S. Wallington
Chief Financial Officer