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: May 3, 2003
-------------
- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transaction period from __________to__________
COMMISSION FILE NUMBER 0-20664
BOOKS-A-MILLION, INC.
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 63-0798460
-------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
402 INDUSTRIAL LANE, BIRMINGHAM, ALABAMA 35211
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(205) 942-3737
--------------
(Registrant's phone number including area code)
NONE
----
(Former name, former address and former fiscal year,
if changed since last period)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
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 June 10, 2003 were 16,243,186 shares.
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (UNAUDITED)
Condensed Consolidated Balance Sheets ................................ 3
Condensed Consolidated Statements of Operations ...................... 4
Condensed Consolidated Statements of Cash Flows ...................... 5
Notes to Condensed Consolidated Financial Statements ................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 16
Item 4. Controls and Procedures .......................................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 18
Item 2. Changes in Securities ............................................ 18
Item 3. Defaults Upon Senior Securities .................................. 18
Item 4. Submission of Matters of Vote of Security-Holders ................ 18
Item 5. Other Information ................................................ 18
Item 6. Exhibits and Reports on Form 8-K ................................. 18
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
AS OF MAY 3, 2003 AS OF FEBRUARY 1, 2003
------------------- ----------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 4,333 $ 4,977
Accounts receivable, net .................................. 8,409 7,799
Related party accounts receivable, net .................... 308 437
Inventories ............................................... 239,453 224,019
Prepayments and other ..................................... 5,345 5,380
Deferred income taxes ..................................... 5,826 6,130
--------- ---------
TOTAL CURRENT ASSETS .................................. 263,674 248,742
--------- ---------
PROPERTY AND EQUIPMENT:
Gross property and equipment .............................. 161,013 159,368
Less accumulated depreciation and amortization ............ 106,230 102,222
--------- ---------
NET PROPERTY AND EQUIPMENT .............................. 54,783 57,146
--------- ---------
OTHER ASSETS ................................................. 1,744 1,830
--------- ---------
TOTAL ASSETS .......................................... $ 320,201 $ 307,718
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................... $ 94,879 $ 99,585
Related party accounts payable ............................ 6,412 9,071
Accrued expenses .......................................... 22,287 24,790
Accrued income taxes ...................................... 850 2,530
Current portion of long-term debt ......................... 26,232 170
--------- ---------
TOTAL CURRENT LIABILITIES ............................. 150,660 136,146
--------- ---------
LONG-TERM DEBT ............................................... 44,940 44,942
DEFERRED INCOME TAXES ........................................ 778 1,703
OTHER LONG-TERM LIABILITIES .................................. 1,850 2,059
--------- ---------
TOTAL NON-CURRENT LIABILITIES ......................... 47,568 48,704
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares outstanding ......................... -- --
Common stock, $.01 par value, 30,000,000 shares authorized,
18,253,211 and 18,211,706 shares issued at May 3, 2003 and
February 1, 2003, respectively ............................ 183 182
Additional paid-in capital ................................ 70,932 70,849
Less treasury stock, at cost; (2,010,050 shares at May 3,
2003 and February 1, 2003) ................................ (5,271) (5,271
Accumulated other comprehensive loss, net of tax .......... (1,156) (1,219)
Retained earnings ......................................... 57,285 58,327
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ............................ 121,973 122,868
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $ 320,201 $ 307,718
========= =========
SEE ACCOMPANYING NOTES
3
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THIRTEEN WEEKS ENDED
--------------------
MAY 3, 2003 MAY 4, 2002
----------- -----------
NET SALES ............................................... $ 99,084 $ 101,007
Cost of products sold (including warehouse
distribution and store occupancy costs) (1) .......... 74,018 73,475
--------- ---------
GROSS PROFIT ............................................ 25,066 27,532
Operating, selling and administrative expenses ....... 21,721 22,791
Depreciation and amortization ........................ 4,084 3,984
--------- ---------
OPERATING INCOME (LOSS) ................................. (739) 757
Interest expense, net ................................ 869 934
--------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE ... (1,608) (177)
Income taxes benefit ................................. (611) (68)
--------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE (997) (109)
DISCONTINUED OPERATIONS (NOTE 10)
Loss from discontinued operations (including loss on
disposal of $16) ..................................... (73) (3)
Income tax benefit ................................... (28) (1)
--------- ---------
LOSS FROM DISCONTINUED OPERATIONS ....................... (45) (2)
--------- ---------
LOSS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE ............................................... (1,042) (111)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, NET OF DEFERRED INCOME TAX BENEFIT OF
$736 ................................................. -- (1,201)
--------- ---------
NET LOSS ................................................ $ (1,042) $ (1,312)
========= =========
NET LOSS PER COMMON SHARE:
BASIC:
LOSS FROM CONTINUING OPERATIONS BEFORE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE ..................... $ (0.06) $ (0.01)
LOSS FROM DISCONTINUED OPERATIONS ................... -- --
--------- ---------
LOSS BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE ................................ (0.06) (0.01)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE -- (0.07)
--------- ---------
NET LOSS ............................................. $ (0.06) $ (0.08)
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 16,220 16,162
========= =========
DILUTED:
LOSS FROM CONTINUING OPERATIONS BEFORE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE ..................... $ (0.06) $ (0.01)
LOSS FROM DISCONTINUED OPERATIONS .................. -- --
--------- ---------
LOSS BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE ................................ (0.06) (0.01)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE -- (0.07)
--------- ---------
NET LOSS ............................................. $ (0.06) $ (0.08)
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
DILUTED............................................... 16,220 16,162
========= =========
(1) Inventory purchases from related parties were $11,506 and $10,525,
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)
THIRTEEN WEEKS ENDED
--------------------
MAY 3, 2003 MAY 4, 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ............................................ $ (1,042) $ (1,312)
-------- --------
Adjustments to reconcile net loss to net cash used in
operating activities:
Cumulative effect of change in accounting principle -- 1,201
Depreciation and amortization ..................... 4,087 3,998
Change in deferred income taxes ................... (660) (117)
Increase in inventories ........................... (15,435) (17,604)
Decrease in accounts payable ...................... (7,365) (4,926)
Changes in certain other assets and liabilities ... (4,727) (4,565)
-------- --------
Total adjustments .............................. (24,100) (22,013)
-------- --------
Net cash used in operating activities .......... (25,142) (23,325)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................ (1,646) (1,067)
Proceeds from sale of equipment ..................... - 1
-------- --------
Net cash used in investing activities .......... (1,646) (1,066)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities .................. 69,870 60,879
Repayments under credit facilities .................. (43,810) (36,532)
Proceeds from sale of common stock, net ............. 84 126
-------- --------
Net cash provided by financing activities ...... 26,144 24,473
-------- --------
Net increase (decrease) in cash and cash equivalents ... (644) 82
Cash and cash equivalents at beginning of period ....... 4,977 5,212
-------- --------
Cash and cash equivalents at end of period ............. $ 4,333 $ 5,294
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the thirteen week period for:
Interest ....................................... $ 1,030 $ 860
Income taxes, net of refunds ................... $ 1,701 $ 1,884
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 week periods ended May 3, 2003 and May 4, 2002, have been prepared
in accordance with accounting principles generally accepted in the United
States ("GAAP") for interim financial information and are presented in
accordance with the requirements of Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, for the fiscal year ended February 1, 2003,
included in the Company's Fiscal 2003 Annual Report on Form 10-K. In the
opinion of management, the financial statements included herein contain all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation of the Company's financial position as of
May 3, 2003, and the results of its operations and cash flows for the
thirteen week periods ended May 3, 2003 and May 4, 2002. Certain prior year
amounts have been reclassified to conform to current year presentation.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates and
assumptions.
The Company has also experienced, and expects to continue to
experience, significant variability in sales and net income from quarter to
quarter. Therefore, the results of the interim periods presented herein are
not necessarily indicative of the results to be expected for any other
interim period or the full year.
Stock-Based Compensation
At May 3, 2003 and February 1, 2003, the Company had one stock option
plan. The Company accounts for the plan under the recognition and
measurement principles of Accounting Pronouncements Bulletin (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. No stock-based employee compensation cost is reflected in
net income, as all options granted under the plan had an exercise price
equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net loss and net
loss per common share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards No.
148 ("SFAS 148"), "Accounting for Stock-Based Compensation--Transaction and
Disclosure--an Amendment of FASB Statement No. 123," to stock-based
employee compensation (in thousands except per share amounts):
For the Thirteen Weeks Ended
----------------------------
In thousands May 3, 2003 May 4, 2002
----------- -----------
Net loss, as reported ......................................... $ (1,042) $ (1,312)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
tax effects.................................................... 328 283
---------- ---------
Pro forma net loss.. .......................................... $ (1,370) $ (1,595)
Net loss per common share:
Basic--as reported ............................................ $ (0.06) $ (0.08)
Basic--pro forma .............................................. $ (0.08) $ (0.10)
Diluted--as reported .......................................... $ (0.06) $ (0.08)
Diluted--pro forma ............................................ $ (0.08) $ (0.10)
========== =========
The fair value of the options granted under the Company's stock option
plan was estimated on their date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: no
dividend yield; expected volatility of 1.01% and 1.21%, respectively;
risk-free interest rates of 3.63% to 5.10% and 3.76% to 5.71%,
respectively; and expected lives of six or ten years.
2. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share ("EPS") is computed by dividing
income (loss) available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS 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
6
in the issuance of common stock that then shared in the earnings of the
Company. Diluted EPS has been computed based on the average number of
shares outstanding including the effect of outstanding stock options, if
dilutive, in each respective thirteen week period. A reconciliation of the
weighted average shares for basic and diluted EPS is as follows:
For the Thirteen Weeks Ended
(in thousands)
----------------------------
May 3, 2003 May 4, 2002
----------- -----------
Weighted average shares outstanding:
Basic ......................................... 16,220 16,162
Dilutive effect of stock options outstanding... -- --
------ ------
Diluted ....................................... 16,220 16,162
====== ======
Options outstanding of 2,555,000 and 2,418,000 for the thirteen weeks
ended May 3, 2003 and May 4, 2002 were not included in the table above as
they were anti-dilutive.
3. DERIVATIVE AND HEDGING ACTIVITIES
The Company is subject to interest rate fluctuations involving its
credit facilities and debt related to an Industrial Development Revenue
Bond (the "Bond"). However, the Company uses both fixed and variable debt
to manage this exposure. On February 9, 1998, the Company entered into an
interest rate swap agreement with a five-year term that carried a notional
principal amount of $30 million. The swap effectively fixed the interest
rate on $30.0 million of variable rate debt at 7.41% and expired February
2003. The Company entered into two separate $10 million swaps on July 24,
2002. Both expire August 2005 and effectively fix the interest rate on $20
million of variable debt at 5.13%. In addition, the Company entered into a
$7.5 million interest rate swap in May 1996 that effectively fixes the
interest rate on the Bond at 7.98%, and expires in June 2006. The counter
parties to the interest rate swaps are two of the Company's primary banks.
The Company believes the credit and liquidity risk of the counter parties
failing to meet their obligation is remote as the Company settles its
interest position with the banks on a quarterly basis.
The Company's hedges are designated as cash flow hedges. Cash flow
hedges protect against the variability in future cash outflows of current
or forecasted debt. Interest rate swaps that convert variable payments to
fixed payments are cash flow hedges. The changes in the fair value of these
hedges are reported on the balance sheet with a corresponding adjustment to
accumulated other comprehensive income (loss). Over time, the unrealized
gains and losses held in accumulated other comprehensive income (loss) may
be realized and reflected in the Company's Statements of Operations.
The derivative instruments are classified as Other Long-Term
Liabilities in the accompanying condensed consolidated balance sheets at
their fair value of $1.9 million and $2.1 million as of May 3, 2003 and
February 1, 2003, respectively. For the thirteen weeks ended May 3, 2003
and May 4, 2002, respectively, adjustments of $63,000 (net of tax of
$39,000) and $120,000 (net of tax of $73,000) were recorded as unrealized
gains in accumulated other comprehensive loss and are detailed in
Note 4 below.
4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is net income or loss, plus certain other
items that are recorded directly to stockholders' equity. The only such
items currently applicable to the Company are the unrealized gains (losses)
on the derivative instruments explained in Note 3, as follows:
COMPREHENSIVE LOSS Thirteen Weeks Ended
(in thousands)
--------------------
May 3, 2003 May 4, 2002
----------- -----------
Net loss ......................................... ($1,042) ($1,312)
Unrealized gains on derivative instruments, net of
deferred tax provision of $39 and $73,
respectively ..................................... 63 120
----------- -----------
Total comprehensive loss ......................... ($ 979) ($1,192)
=========== ===========
7
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. In the opinion of management, after consultation with legal
counsel, the ultimate liability, if any, with respect to those proceedings
is not presently expected to materially affect the financial position,
results of operations or cash flows of the Company.
From time to time, the Company enters into certain types of agreements
that contingently require the Company to indemnify parties against third
party claims. Generally these agreements relate to: (a) agreements with
vendors and suppliers, under which the Company may provide customary
indemnification to its vendors and suppliers in respect of actions they
take at the Company's request or otherwise on its behalf, (b) agreements
with vendors who publish books or manufacture merchandise specifically for
the Company to indemnify the vendors against trademark and copyright
infringement claims concerning the books published or merchandise
manufactured on behalf of the Company, (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, a maximum
obligation is not explicitly stated and and therefore the overall maximum
amount of the obligations cannot be reasonably estimated. Historically, the
Company has not incurred significant costs related to performance under
these types of indemnities. No liabilities have been recorded for these
obligations on the Company's balance sheet at May 3, 2003.
6. INVENTORY
Inventories and the method of determining cost were:
(In thousands) May 3, 2003 February 1, 2003
------------- -------------
Inventories (at FIFO) $ 239,617 $ 224,019
LIFO reserve 164 -
------------- -------------
Net inventories $ 239,453 $ 224,019
============= =============
As of February 2, 2003, the Company changed from the first-in,
first-out (FIFO) method of accounting for inventories to the last-in,
first-out (LIFO) method. Management believes this change is preferable in
that it achieves a more appropriate matching of revenues and expenses. The
impact of this accounting change was to increase "Costs of Products Sold"
in the consolidated statements of operations by $0.2 million for the
thirteen weeks ended May 3, 2003. This resulted in an after-tax increase to
net loss of $0.1 million or an increase in net loss per diluted share of
$0.01, for the thirteen weeks ended May 3, 2003. The cumulative effect of a
change in accounting principle from the FIFO method to LIFO method is not
determinable. Accordingly, such change has been accounted for
prospectively. In addition, pro forma amounts of retroactively applying the
change cannot be reasonably estimated and have not been disclosed.
7. CHANGE IN ACCOUNTING PRINCIPLE
The Company receives allowances from its vendors from a variety of
programs and arrangements, including merchandise placement and cooperative
advertising programs. Effective February 3, 2002, the Company adopted the
provisions of Emerging Issues Task Force ("EITF") No. 02-16, Accounting by
a Customer (Including a Reseller) for Certain Consideration Received from a
Vendor, which addresses the accounting for vendor allowances. As a result
of the adoption of this statement, vendor allowances in excess of
incremental direct costs are reflected as a reduction of inventory costs
and recognized in cost of products sold upon the sale of related inventory.
The impact of the adoption of EITF No. 02-16 is reflected as a cumulative
effect of a change in accounting principle as of February 3, 2002 of
approximately $1.2 million (net of income tax benefit of $736,000), or
$0.07 per diluted share increase to net loss. Prior to fiscal 2003, the
Company recognized these vendor allowances over the period covered by the
vendor arrangement.
8
8. BUSINESS SEGMENTS
The Company has two reportable segments: retail trade and electronic
commerce trade. The retail trade segment is a strategic business segment
that is engaged in the retail trade of mostly book merchandise and includes
the Company's distribution center operations, which predominately supplies
merchandise to the Company's retail stores. The electronic commerce trade
segment is a strategic business segment that transacts business over the
internet and is managed separately due to divergent technology and
marketing requirements.
The accounting policies of the segments are substantially the same as
those described in the Company's Fiscal 2003 Annual Report on Form 10-K.
The Company evaluates performance of the segments based on profit and loss
from operations before interest and income taxes. Certain intersegment cost
allocations have been made based upon consolidated and segment revenues.
9
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEGMENT INFORMATION (IN THOUSANDS) Thirteen Weeks Ended
--------------------
May 3, 2003 May 4, 2002
----------- -----------
NET SALES
Retail Trade ................. $ 97,778 $ 99,423
Electronic Commerce Trade .... 5,207 5,870
Intersegment Sales Elimination (3,901) (4,286)
--------- ---------
Net Sales ................. $ 99,084 $ 101,007
========= =========
OPERATING INCOME (LOSS)
Retail Trade ................. $ (551) $ 972
Electronic Commerce Trade .... (236) (243)
Intersegment Elimination of
Certain Costs ................ 48 28
--------- ---------
Total Operating Income (Loss) $ (739) $ 757
========= =========
As of May 3, As of February 1,
2003 2003
ASSETS
Retail Trade ................. $ 319,042 $ 306,542
Electronic Commerce Trade .... 1,691 1,752
Intersegment Asset Elimination (532) (576)
--------- ---------
Total Assets ............. $ 320,201 $ 307,718
========= =========
10
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition of Certain Employee Termination Benefits and
Other Costs to Exit an Activity." SFAS No. 146 requires that a liability
for a cost associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liability is incurred. The
provisions of SFAS No. 146 are effective for exit or disposal activities
initiated after December 31, 2002. The Company adopted SFAS No. 146 on
January 1, 2003, and the adoption of this standard did not have a material
impact on financial condition, results of operations or cash flows.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation -
Transition and Disclosure - an Amendment of FASB No. 123." SFAS 148 amends
SFAS 123, "Accounting for Stock -Based Compensation", 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. The disclosures
required by this statement are included herein. The Company is currently
assessing the alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation included in this statement.
FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", was issued in November 2002. This interpretation
requires guarantors to account at fair value for and disclose certain types
of guarantees. The interpretation's disclosure requirements became
effective for the Company February 1, 2003 and are reflected in Note 5; the
interpretation's accounting requirements are effective for guarantees
issued or modified after December 31, 2002.
FIN No. 46, "Consolidation of Variable Interest Entities", was issued
in January, 2003. This interpretation requires consolidation of variable
interest entities ("VIE") (also formerly referred to as "special purpose
entities") if certain conditions are met. The interpretation applies
immediately to VIE's created after January 31, 2003, and to interests
obtained in VIE's after January 31, 2003. Beginning after June 15, 2003,
the interpretation applies also to VIE's created or interests obtained in
VIE's before Janaury 31, 2003. The Company believes this interpretation
will have no effect on its financial position, results of operations or
cash flows.
10. DISCONTINUED OPERATIONS
Discontinued operations represent the closure of the Company's only
store in a North Carolina market. This store had sales of $349,000 and
$304,000 and pretax operating losses of $57,000 and $3,000 for the
thirteen-week periods ended May 3, 2003 and May 4, 2002, respectively.
Included in the loss on discontinued operations are closing costs of
$16,000 for the thirteen weeks ended May 3, 2003.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This document contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to, the competitive environment in the book retail industry
in general and in the Company's specific market areas; inflation; economic
conditions in general and in the Company's specific market areas; the number of
store openings and closings; the profitability of certain product lines, capital
expenditures and future liquidity; liability and other claims asserted against
the Company; uncertainties related to the Internet and the Company's Internet
initiatives; and other factors referenced herein. In addition, such
forward-looking statements are necessarily dependent upon the assumptions,
estimates and dates that may be incorrect or imprecise and involve known and
unknown risks, uncertainties and other factors. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized. Given these uncertainties, shareholders
and prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
GENERAL
The Company was founded in 1917 and currently operates 207 retail
bookstores, including 164 superstores, concentrated in the southeastern United
States.
The Company's growth strategy is focused on opening superstores in new and
existing market areas, particularly in the Southeast. In addition to opening new
stores, management intends to continue its practice of reviewing the
profitability trends and prospects of existing stores and closing or relocating
under-performing stores or converting stores to different formats.
Comparable store sales are determined each fiscal quarter during the year
based on all stores that have been open at least 12 full months as of the first
day of the fiscal quarter. Any stores closed during a fiscal quarter are
excluded from comparable store sales as of the first day of the quarter in which
they close.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data expressed as a
percentage of net sales for the periods presented.
Thirteen Weeks Ended
--------------------
May 3, 2003 May 4, 2002
----------- -----------
Net sales ............................................................... 100.0% 100.0%
Gross profit ............................................................ 25.3% 27.3%
Operating, selling and administrative expenses .......................... 21.9% 22.6%
Depreciation and amortization ........................................... 4.1% 3.9%
----- -----
Operating income (loss) ................................................. (0.7)% 0.7%
Interest expense, net ................................................... 0.9% 0.9%
----- -----
Loss from continuing operations before income taxes and cumulative effect
of a change in accounting principle ................................ (1.6)% (0.2)%
Income taxes benefit .................................................... (0.6)% (0.1)%
----- -----
Loss from continuing operations before cumulative effect of a change in
accounting principle ............................................... (1.0)% (0.1)%
Loss from discontinued operations ....................................... (0.1)% --
----- -----
Loss before cumulative effect of a change in accounting principle ....... (1.1)% (0.1)%
Cumulative effect of change in accounting principle ..................... -- (1.2)%
----- -----
Net loss ................................................................ (1.1)% (1.3)%
===== =====
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net sales decreased 1.9% to $99.1 million in the thirteen weeks ended May
3, 2003, from $101.0 million in the thirteen weeks ended May 4, 2002. Comparable
store sales in the first quarter decreased 2.9% when compared with the same
13-week period for the prior year.
Gross profit decreased 9.0% to $25.1 million in the thirteen weeks ended
May 3, 2003 when compared with the same thirteen week period for the prior year.
Gross profit as a percentage of net sales for the thirteen weeks ended May 3,
2003 was 25.3% versus 27.3% in the same period last year. The decrease in gross
profit stated as a percent to sales was primarily due to higher occupancy costs
as a percentage of sales and increased promotional sales activity. Additionally,
as of February 2, 2003, the Company changed from the first-in first-out (FIFO)
method of accounting for inventories to the last-in last-out (LIFO) method. The
impact of this accounting change was to decrease gross profit in the
consolidated statements of operations by $0.2 million for the thirteen weeks
ended May 3, 2003. Refer to Note 6 in the notes to the condensed consolidated
financial statements for additional information related to this change.
Operating, selling and administrative expenses decreased 4.7% to $21.7
million from $22.8 million in the thirteen week period ended May 3, 2003
compared to the same period last year. Operating, selling and administrative
expenses as a percentage of net sales for the thirteen weeks ended May 3, 2003
decreased to 21.9% from 22.6% in the same period last year. The decrease in
operating, selling and administrative expenses stated as a percent to sales was
primarily due to strong expense controls in both corporate and store selling
expenses.
Depreciation and amortization increased 2.5% to $4.1 million in the
thirteen weeks ended May 3, 2003, from $4.0 million in the thirteen weeks ended
May 4, 2002. The increase in depreciation and amortization was due to the
increased number of superstores operated by the Company combined with capital
improvements made to existing stores during fiscal 2003.
Interest expense was $869,000 in the thirteen weeks ended May 3, 2003
versus $934,000 in the same period last year. The decrease was due to lower
average interest rates versus last year.
Discontinued operations represent the closure of the Company's only store
in a North Carolina market. This store had sales of $349,000 and $304,000 and
pretax operating losses of $57,000 and $3,000 for the thirteen-week periods
ended May 3, 2003 and May 4, 2002, respectively. Included in the loss on
discontinued operations are closing costs of $16,000 for the thirteen weeks
ended May 3, 2003.
Effective February 3, 2002, the Company adopted Emerging Issues Task Force
("EITF") No. 02-16, Accounting by a Customer (including a reseller) for Certain
Consideration Received from a Vendor, which addresses the accounting for vendor
allowances. The adoption of this accounting principle resulted in a cumulative
after-tax increase to net loss of $1.2 million, or $0.07 per diluted share for
the thirteen weeks ended May 4, 2002.
13
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 2005. The credit facility has certain financial and
non-financial covenants. The most restrictive financial covenant is the
maintenance of a minimum fixed charge ratio. As of May 3, 2003 and February 1,
2003, $63.6 million and $37.4 million, respectively, were outstanding under this
credit facility. The maximum and average outstanding balances during the
thirteen weeks ended May 3, 2003 were $73.9 million and $64.4 million,
respectively, compared to $64.3 million and $58.7 million, respectively for the
same period in the prior year. The outstanding borrowings as of May 3, 2003 had
interest rates ranging from 2.06% to 4.25%. Additionally, as of May 3, 2003 and
February 1, 2003, the Company has outstanding borrowings under an industrial
revenue bond totaling $7.5 million, which is secured by certain property.
Financial Position
During the thirteen weeks ended May 3, 2003, the Company opened two
superstores, closed one superstore and closed one newsstand. The store openings,
combined with seasonal fluctuation in inventory, resulted in increased inventory
balances at May 3, 2003, as compared to February 1, 2003.
Future Commitments
The following table lists the aggregate maturities of various classes of
obligations and expiration amounts of various classes of commitments related to
Books-A-Million, Inc. at May 3, 2003 (in thousands):
PAYMENTS DUE UNDER CONTRACTUAL OBLIGATIONS
Total FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 Thereafter
-------- -------- -------- -------- -------- -------- ----------
Notes payable ...... $ 72 $ 72 $ -- $ -- $ -- $ -- $ --
Short-term debt -
revolving
credit facility .... 26,160 26,160 -- -- -- -- --
Long-term debt -
revolving credit
facility ........... 37,440 -- -- 37,440 -- -- --
Long-term debt
-industrial
revenue bond ....... 7,500 -- -- 7,500 -- -- --
-------- -------- -------- -------- -------- -------- --------
Subtotal of debt ... 71,172 26,232 -- 44,940 -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating leases ... 128,041 20,728 25,546 22,819 17,767 14,270 26,911
Total of obligations $199,213 $ 46,960 $ 25,546 $ 67,759 $ 17,767 $ 14,270 $ 26,911
======== ======== ======== ======== ======== ======== ========
Guarantees
From time to time, the Company enters into certain types of agreements that
contingently require the Company to indemnify parties against third party
claims. Generally these agreements relate to: (a) agreements with vendors and
suppliers, under which the Company may provide customary indemnification to its
vendors and suppliers in respect of actions they take at the Company's request
or otherwise on its behalf, (b) agreements with vendors who publish books or
manufacture merchandise specifically for the Company to indemnify the vendors
against trademark and copyright infringement claims concerning the books
published or merchandise manufactured on behalf of the Company, (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.
14
The nature and terms of these types of indemnities vary. The events or
circumstances that would require the Company to perform under these indemnities
are transaction and circumstance specific. Generally, a maximum obligation is
not explicitly stated and and therefore the overall maximum amount of the
obligations cannot be reasonably estimated. Historically, the Company has not
incurred significant costs related to performance under these types of
indemnities. No liabilities have been recorded for these obligations on the
Company's balance sheet at May 3, 2003.
Cash Flows
Operating activities used cash of $25.1 million and $23.3 million in the
first thirteen weeks of fiscal 2004 and 2003, respectively, and included the
following effects:
o Cash used for inventories in the first thirteen weeks of fiscal 2004
and 2003 was $15.4 million and $17.6 million, respectively, due to
seasonal fluctuations in inventory.
o Cash used by accounts payable in the first thirteen weeks of fiscal 2004
and 2003 was $7.4 million and
$4.9 million, respectively.
o Depreciation and amortization expenses were $4.1 million and $4.0
million in the first thirteen weeks of fiscal 2004 and 2003, respectively.
Cash flows used in investing activities reflected a $1.6 million and $1.1
million net use of cash for the first thirteen weeks of fiscal 2004 and 2003,
respectively. Cash was used primarily to fund capital expenditures for new store
openings, renovation and improvements to existing stores, warehouse distribution
purposes and investments in management information systems.
Financing activities provided cash of $26.1 million and $24.5 million in
the first thirteen weeks of fiscal 2004 and 2003, respectively, principally from
net borrowings under the revolving credit facility.
OUTLOOK
For fiscal 2004, the Company currently expects to open approximately six to
eight new stores, relocate or remodel approximately 20 to 25 stores and close
approximately two to four stores. The Company's capital expenditures totaled
$1.6 million in the first thirteen weeks of fiscal 2004. These expenditures were
primarily used for new store openings, renovation and improvements to existing
stores and investment in management information systems. Management estimates
that capital expenditures for the remainder of fiscal 2004 will be approximately
$10.8 million and that such amounts will be used primarily for new stores,
renovation and improvements to existing stores, and investments in management
information systems. Management believes that existing cash balances and net
cash from operating activities, together with borrowings under the Company's
credit facilities, will be adequate to finance the Company's planned capital
expenditures and to meet the Company's working capital requirements for the
remainder of fiscal 2004.
RELATED PARTY ACTIVITIES
Certain stockholders and directors (including certain officers) of the
Company have controlling ownership interests in other entities with which the
Company conducts business. Significant transactions between the Company and
these various other entities ("related parties") are summarized in the following
paragraph.
The Company purchases a portion of its inventories for resale from related
parties; such purchases were $11.5 million in the thirteen weeks ended May 3,
2003, versus $10.5 million in the thirteen weeks ended May 4, 2002. The Company
sells a portion of its inventories to related parties; such sales amounted to
$0.2 million and $0.1 million in the thirteen weeks ended May 3, 2003 and May 4,
2002, respectively. Management believes the terms of these related party
transactions are substantially equivalent to those available from unrelated
parties and, therefore, have no significant impact on gross profit.
The Company also leases certain office, warehouse and retail store space
from related parties. Rental expense under these leases was approximately
$153,400 And $150,500 In the thirteen weeks ended May 3, 2003 and May 4, 2002,
respectively. Total minimum future rental payments under these leases are
$394,000 at May 3, 2003.
15
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate fluctuations involving its credit
facilities. The average amount of debt outstanding under the Company's credit
facilities was $65.9 million during fiscal 2003. However, the Company utilizes
both fixed and variable debt to manage this exposure. The Company entered into
two separate $10 million swaps on July 24, 2002. Both expire August 2005 and
effectively fix the interest rate on $20 million of variable debt at 5.13%.
Also, on May 14, 1996, the Company entered into an interest rate swap agreement,
with a ten- year term, which carries a notional principal amount of $7.5
million. The swap effectively fixes the interest rate on $7.5 million of
variable rate debt at 7.98%. The swap agreement expires on June 7, 2006. The
counter parties to the interest rate swaps are parties to the Company's
revolving credit facilities. The Company believes the credit and liquidity risk
of the counter parties failing to meet their obligations is remote as the
Company settles its interest position with the banks on a quarterly basis.
To illustrate the sensitivity of the results of operations to changes in
interest rates on its debt, the Company estimates that a 66% increase in LIBOR
rates would increase interest expense by approximately $97,000 for the thirteen
weeks ended May 3, 2003. Likewise, a 66% decrease in LIBOR rates would decrease
interest expense by $97,000 for the thirteen weeks ended May 3, 2003. This
hypothetical change in LIBOR rates was calculated based on the fluctuation in
LIBOR in 2002, which was the maximum LIBOR fluctuation in the last ten years.
The estimates do not consider the effect of the potential termination of the
interest rate swaps associated with the debt will have on interest expense.
16
CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect the internal controls subsequent to the date the
Company completed its evaluation.
17
II - OTHER INFORMATION
ITEM 1: Legal Proceedings
The Company is a party to various legal proceedings
incidental to its business. In the opinion of management,
after consultation with legal counsel, the ultimate
liability, if any, with respect to those proceedings is not
presently expected to materially affect the financial
position, results of operations or cash flows of the
Company.
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matters of Vote of Security-Holders
a. The Company held its Annual Meeting of stockholders on June 5,
2003.
b. Not applicable.
c. At the Company's Annual Meeting, the stockholders voted on the
election of directors and on one stockholder proposal regarding
the use of Company profits. Set forth below are the results of
each matter voted on by the stockholders.
Number of Votes Number of Votes Number of Votes
Election of Cast For Cast Against Abstaining
----------- -------- ------------ ----------
Clyde B. Anderson 14,961,838 441,495 0
Ronald G. Bruno 15,233,003 170,330 0
Stockholder Proposal 271,584 9,916,007 18,940
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 23.01. Preferability Letter to Books-A-Million, Inc.
from Deloitte & Touche LLP
(B) Reports on Form 8-K
None
18
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: June 16, 2003 by:/s/ Clyde B. Anderson
----------------------
Clyde B. Anderson
Chief Executive Officer
Date: June 16, 2003 by:/s/ Richard S. Wallington
--------------------------
Richard S. Wallington
Chief Financial Officer
19
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 quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 16, 2003 _/s/ Clyde B. Anderson
----------------------
Clyde B. Anderson
Chief Executive Officer
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 quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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.
20
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-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 16, 2003 _/s/ Richard S. Wallington
--------------------------
Richard S. Wallington
Chief Financial Officer
21
EXHIBIT 23.01
June 13, 2003
Books-A-Million, Inc.
402 Industrial Lane
Birmingham, Alabama 35211
Dear Sirs/Madams:
At your request, we have read the description included in your Quarterly Report
on Form 10-Q to the Securities and Exchange Commission for the quarter ended May
3, 2003, of the facts relating to the change in accounting for inventories to
the Last-in, First-out ("LIFO") method. We believe, on the basis of the facts so
set forth and other information furnished to us by appropriate officials of the
Company, that the accounting change described in your Form 10-Q is to an
alternative accounting principle that is preferable under the circumstances.
We have not audited any consolidated financial statements of Books-A-Million,
Inc. (the "Company") and its subsidiaries as of any date or for any period
subsequent to February 1, 2003. Therefore, we are unable to express, and we do
not express, an opinion on the facts set forth in the above-mentioned Form 10-Q,
on the related information furnished to us by officials of the Company, or on
the financial position, results of operations, or cash flows of Books-A-Million,
Inc. and its subsidiaries as of any date or for any period subsequent to
February 1, 2003.
Yours truly,
DELOITTE & TOUCHE LLP
Birmingham, Alabama
22