UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO 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 4, 2002
-----------
- OR -
- ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transaction period from__________to__________
COMMISSION FILE NUMBER 0-20664
BOOKS-A-MILLION, INC.
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 63-0798460
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
402 INDUSTRIAL LANE, BIRMINGHAM, ALABAMA 35211
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(205) 942-3737
--------------
(Registrant's phone number including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last period)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate 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 6, 2002 were 18,208,043 shares.
EXPLANATORY NOTE:
This amendment on Form 10-Q/A amends the Company's quarterly report on Form 10-Q
for the period ended May 4, 2002, as initially filed with the Securities and
Exchange Commission on June 18, 2002, and is being filed to reflect the
restatement of the Company's condensed consolidated financial statements. The
significant effects of this restatement on the financial statements are
presented in Notes 10 and 11 to the condensed consolidated financial statements.
This amendment incorporates certain revisions to historical financial data and
related descriptions, but is not intended to update other information presented
in this quarterly report as originally filed, except where specifically noted.
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (UNAUDITED)
Condensed Consolidated Balance Sheets, as restated 3
Condensed Consolidated Statements of Operations, as restated 4
Condensed Consolidated Statements of Cash Flows, as restated 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 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 19
2
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)
MAY 4, 2002 FEBRUARY 2, 2002
ASSETS AS RESTATED AS RESTATED
CURRENT ASSETS: (SEE NOTES 10 AND 11) (SEE NOTE 10)
-------------------- --------------------
Cash and cash equivalents $ 5,294 $ 5,212
Accounts receivable, net 8,512 8,040
Related party accounts receivable, net 763 967
Inventories 226,520 210,853
Prepayments and other 5,003 5,680
Deferred income taxes 6,388 5,530
-------------------- --------------------
TOTAL CURRENT ASSETS 252,480 236,282
-------------------- --------------------
PROPERTY AND EQUIPMENT:
Gross property and equipment 146,481 145,428
Less accumulated depreciation and amortization 92,580 88,712
-------------------- --------------------
NET PROPERTY AND EQUIPMENT 53,901 56,716
-------------------- --------------------
OTHER ASSETS:
Goodwill, net 1,368 1,368
Other 434 492
-------------------- --------------------
TOTAL OTHER ASSETS 1,802 1,860
-------------------- --------------------
TOTAL ASSETS $ 308,183 $ 294,858
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 92,418 $ 97,523
Related party accounts payable 7,063 5,661
Accrued expenses 20,437 24,442
Accrued income taxes 544 2,674
Current portion of long-term debt 24,207 499
-------------------- --------------------
TOTAL CURRENT LIABILITIES 144,669 130,799
-------------------- --------------------
LONG TERM DEBT 39,485 38,846
-------------------- --------------------
DEFERRED INCOME TAXES 1,922 1,843
-------------------- --------------------
OTHER LONG-TERM LIABILITIES 1,835 2,032
-------------------- --------------------
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, 18,208,543 and
18,138,963 shares issued and outstanding
at May 4, 2002 and February 2, 2002, respectively 182 181
Additional paid-in capital 70,844 70,719
Less treasury stock, at cost; 2,010,050 shares at May 4, (5,271) (5,271)
2002 and February 2, 2002
Accumulated other comprehensive loss (1,097) (1,217)
Retained earnings 55,614 56,926
-------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 120,272 121,338
-------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 308,183 $ 294,858
==================== ====================
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 4, 2002 MAY 5, 2001
AS RESTATED AS RESTATED
(SEE NOTES 10 AND 11) (SEE NOTE 10)
--------------------- --------------------
NET SALES $ 101,311 $ 97,580
Cost of products sold (including warehouse
distribution and store occupancy costs) (1) 73,681 71,187
-------------------- --------------------
GROSS PROFIT 27,630 26,393
Operating, selling and administrative expenses 22,878 21,841
Depreciation and amortization 3,998 3,877
-------------------- --------------------
OPERATING INCOME 754 675
Interest expense, net 934 1,267
-------------------- --------------------
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE IN (180) (592)
ACCOUNTING PRINCIPLE
Income taxes benefit (69) (225)
-------------------- --------------------
Loss before cumulative effect of a change in accounting principle (111) (367)
Cumulative effect of a change in accounting principle, net of (1,201) --
deferred income tax benefit of $ 736
-------------------- --------------------
NET LOSS $ (1,312) $ (367)
==================== ====================
NET LOSS PER COMMON SHARE:
BASIC:
LOSS BEFORE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE $ (0.01) $ (0.02)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (0.07) --
-------------------- --------------------
NET LOSS $ (0.08) $ (0.02)
==================== ====================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 16,162 17,321
==================== ====================
DILUTED:
LOSS BEFORE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE $ (0.01) $ (0.02)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (0.07) --
-------------------- --------------------
NET LOSS $ (0.08) $ (0.02)
==================== ====================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 16,162 17,321
==================== ====================
PROFORMA AMOUNTS ASSUMING CHANGE IN ACCOUNTING PRINCIPLE IS
APPLIED RETROACTIVELY:
NET LOSS $ (129)
====================
NET LOSS PER SHARE - BASIC (0.01)
====================
NET LOSS PER SHARE - DILUTED $ (0.01)
====================
(1) Inventory purchases from related parties were $10,525 and $12,326,
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 4, 2002 MAY 5, 2001
AS RESTATED AS RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES: (SEE NOTES 10 AND 11) (SEE NOTE 10)
--------------------- ---------------------
Net loss $ (1,312) $ (367)
--------------------- ---------------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Cumulative effect of a change in accounting principle 1,201 --
Depreciation and amortization 3,998 3,877
Loss on disposal of property and equipment -- 34
Change in deferred income taxes (117) (276)
Increase in inventories (17,604) (8,674)
Decrease in accounts payable (4,926) (4,983)
Changes in certain other assets and liabilities (4,565) (5,582)
--------------------- ---------------------
Total adjustments (22,013) (15,604)
--------------------- ---------------------
Net cash used in operating activities (23,325) (15,971)
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,067) (1,194)
Acquisition of stores -- (6,532)
Proceeds from sale of equipment 1 10
--------------------- ---------------------
Net cash used in investing activities (1,066) (7,716)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 60,879 58,717
Repayments under credit facilities (36,532) (33,759)
Proceeds from sale of common stock, net 126 84
Purchase of treasury stock -- (1,267)
--------------------- ---------------------
Net cash provided by financing activities 24,473 23,775
--------------------- ---------------------
Net increase in cash and cash equivalents 82 88
Cash and cash equivalents at beginning of period 5,212 5,124
--------------------- ---------------------
Cash and cash equivalents at end of period $ 5,294 $ 5,212
===================== =====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the quarter for:
Interest $ 860 $ 692
Income taxes, net of refunds $ 1,884 $ 1,173
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 4, 2002 and May 5, 2001, 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 Company's most recently available annual report. In the opinion of
management, the financial statements included herein contain all adjustments
(consisting only of normal recurring adjustments, except for the restatement and
change in accounting principle as discussed in Note 10 and Note 11,
respectively) considered necessary for a fair presentation of the Company's
financial position as of May 4, 2002, and the results of its operations and cash
flows for the thirteen week periods ended May 4, 2002 and May 5, 2001. 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.
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 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 4, 2002 May 5, 2001
------------ ------------
Weighted average shares outstanding:
Basic 16,162 17,321
Dilutive effect of stock options outstanding 0 0
------------ ------------
Diluted 16,162 17,321
============ ============
Options outstanding of 2,418,000 and 2,203,000 for the thirteen weeks
ended May 4, 2002 and May 5, 2001, respectively, were not included in the table
above as they were anti-dilutive.
6
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 carries a notional principal amount of
$30.0 million. The swap effectively fixes the interest rate on $30.0 million of
variable rate debt at 6.78%, and expires February 2003. In addition, the Company
entered into a $7.5 million interest swap in May 1996 that effectively fixes the
interest rate on the Bond at 7.98%, and expires in June 2006. The counter party
to the interest rate swaps is one of the Company's primary banks. The Company
believes the credit and liquidity risk of the counter party failing to meet its
obligation is remote as the Company settles its interest position with the bank
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 either
accumulated other comprehensive income (loss) or in earnings, depending on the
type of hedging relationship. Over time, the unrealized gains and losses held in
accumulated other comprehensive income (loss) may be realized and reclassified
to earnings.
The derivative instruments are a liability classified as Other
Long-Term Liabilities in the accompanying condensed consolidated balance sheets
at their fair value of $1.8 million and $2.0 million as of May 4, 2002 and
February 2, 2002, respectively. For the quarter, adjustments of $0.1 million
(net of tax of $73,000) were recorded as unrealized gains in accumulated other
comprehensive income (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 INCOME (LOSS)
Thirteen Weeks Ended
(in thousands)
May 4, 2002 May 5, 2001
------------ ------------
Net loss $ (1,312) $ (367)
Cumulative effect of accounting change for derivatives instruments, net of
deferred tax benefit of $0 and $283 -- (465)
Unrealized gains (losses) on derivative instruments, net of deferred tax
provision (benefit) of $73 and ($180) 120 (296)
------------ ------------
Total comprehensive loss (1,192) $ (1,128)
============ ============
7
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. 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.
6. GOODWILL
During fiscal 2002, goodwill was amortized on a straight-line basis
over its estimated periods to be benefited. On February 3, 2002, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets", in its entirety. Pursuant to such adoption, the
Company did not amortize any goodwill during the first quarter of fiscal 2003.
The Company has recorded amortization expense on goodwill of approximately
$43,000 for fiscal 2000, 2001 and 2002. The amount of amortization expense that
would have been recorded in future years if SFAS No. 142 was not adopted on
February 3, 2002 would be approximately $43,000 per year through fiscal 2034.
The Company is required to assess goodwill for impairment annually, or
more frequently if circumstances indicate impairment may have occurred. The
Company reviewed the carrying value of its goodwill by comparing such amount to
its fair value utilizing a discounted cash flow model and determined that the
carrying amount of such asset did not exceed its fair value. Accordingly, the
initial implementation of this statement did not impact the Company's
consolidated financial statements.
7. ACQUISITION OF STORES
During March 2001, the Company acquired inventory and lease-rights of
eighteen stores from Crown Books Corporation for $6.5 million (which was
allocated predominantly to inventories). The stores are located in the Chicago,
Illinois and Washington, D.C. metropolitan areas. The results of operations for
these stores were reflected in the consolidated financial statements beginning
in the first quarter of fiscal 2002. Pro-forma information is not presented as
it would not differ materially from the actual reflected results
8. BUSINESS SEGMENTS
The Company has two reportable segments: retail trade and electronic
commerce trade. The retail trade segment is a strategic business segment that is
engaged in the retail trade of mostly book merchandise and includes the
Company's distribution center operations, which predominantly supplies
merchandise to the Company's retail stores. The electronic commerce trade
segment is a strategic business segment that transacts business over the
internet and is managed separately due to divergent technology and marketing
requirements.
The accounting policies of the segments are substantially the same as
those described in the Company's most recently available Annual Report. The
Company evaluates performance of the segments based on profit and loss from
operations before interest and income taxes. Certain inter-segment cost
allocations have been made based upon consolidated and segment revenues.
8
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEGMENT INFORMATION (IN THOUSANDS)
Thirteen Weeks Ended
NET SALES May 4, 2002 May 5, 2001
------------- -------------
Retail Trade $ 99,727 $ 96,147
Electronic Commerce Trade 5,870 4,931
Inter-segment Sales Elimination (4,286) (3,498)
------------- -------------
Net Sales $ 101,311 $ 97,580
============= =============
OPERATING INCOME (LOSS)
Retail Trade $ 969 $ 1,163
Electronic Commerce Trade (243) (460)
Inter-segment Elimination of
Certain Costs 28 (28)
------------- -------------
Total Operating Income $ 754 $ 675
============= =============
As of As of
ASSETS May 4, 2002 February 2, 2002
------------- ----------------
Retail Trade $ 306,868 $ 293,567
Electronic Commerce Trade 1,920 1,939
Inter-segment Asset Elimination (605) (648)
------------- -------------
Total Assets $ 308,183 $ 294,858
============= =============
9
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RECENT ACCOUNTING PRONOUNCEMENTS
During 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations" and SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 143 related to obligations which
generally are incurred in connection with the ownership of real property. The
Company currently leases the substantial majority of our real property and,
therefore, the provisions of SFAS No. 143 do not apply to our current
operations.
SFAS No. 144 superseded SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations and Transactions"--"Reporting the
Effects of Disposal of a Segment of a Business," and "Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" for the disposal of a segment of
a business. SFAS No. 144 also amended Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The Company
adopted SFAS No. 143 and SFAS No. 144 on February 3, 2002, which did not have a
material impact on financial condition, results of operations or cash flows.
10. RESTATEMENT
Subsequent to the issuance of the Company's quarterly fiscal 2003
financial statements and fiscal 2002 annual financial statements, the Company
determined that it was necessary to restate its fiscal 2003 quarterly filings
and its fiscal 2002 annual financial statements to adjust the accounting
treatment of its Millionaire's Club Card. As a result, the Company now defers
and amortizes the revenue from its Millionaire's Club Card based upon the
historical usage of the card over the 12-month life. Related deferred revenue is
included in accrued expenses. Such revenue was previously recorded when received
from the customer.
The Company has also reclassified certain vendor allowances of
$1,164,000 and $851,000 for the first quarter of fiscal year 2003 and 2002,
respectively, previously reported as a reduction of selling expenses, to reduce
cost of products sold.
The accompanying consolidated financial statements have also been
restated to reflect the adoption of EITF No. 02-16 as if this cumulative effect
of the change had been previously presented in the first quarter of fiscal 2003
as discussed in Note 11.
The following are reconciliations of the Company's balance sheet
amounts and results of operations from financial statements previously filed
(after certain reclassifications) to the restated and condensed consolidated
financial statements (in thousands, except per share amounts):
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MAY 4, 2002
AS PREVIOUSLY REPORTED,
AFTER CERTAIN
RECLASSIFICATIONS ADJUSTMENTS AS RESTATED
INVENTORIES (ASSET) (1) $ 228,163 $ (1,643) $ 226,520
DEFERRED INCOME TAXES (ASSET) (1) 5,172 1,216 6,388
ACCRUED EXPENSES 18,881 1,556 20,437
RETAINED EARNINGS $ 57,597 $ (1,983) $ 55,614
(1) THE ADJUSTMENTS ASSOCIATED WITH THESE CAPTIONS INCLUDE THE IMPACT OF THE
CHANGE IN ACCOUNTING PRINCIPLE DISCUSSED IN NOTE 11.
10
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 2, 2002
AS PREVIOUSLY REPORTED,
AFTER CERTAIN ADJUSTMENTS AS RESTATED
RECLASSIFICATIONS
DEFERRED INCOME TAXES (ASSET) $ 4,894 $ 636 $ 5,530
ACCRUED EXPENSES 22,769 1,673 24,442
RETAINED EARNINGS $ 57,963 $ (1,037) $ 56,926
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MAY 4, 2002
AS PREVIOUSLY
REPORTED, AFTER ADJUSTMENTS AS RESTATED
CERTAIN
RECLASSIFICATIONS
NET SALES $ 101,176 $ 135 $ 101,311
COST OF PRODUCTS SOLD, INCLUDING WAREHOUSE DISTRIBUTION AND 75,007 (1,326) 73,681
STORE OCCUPANCY COSTS (1)
GROSS PROFIT 26,169 1,461 27,630
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES 21,827 1,051 22,878
OPERATING INCOME 344 410 754
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (590) 410 (180)
INCOME TAXES BENEFIT (1) (224) 155 (69)
LOSS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (366) 255 (111)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (1) - (1,201) (1,201)
NET LOSS (366) (946) (1,312)
NET LOSS PER SHARE - BASIC:
LOSS BEFORE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (0.02) 0.01 (0.01)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (1) - (0.07) (0.07)
NET LOSS (0.02) (0.06) (0.08)
NET LOSS PER SHARE - DILUTED:
INCOME (LOSS) BEFORE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (0.02) 0.01 (0.01)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (1) - (0.07) (0.07)
NET LOSS $ (0.02) $ (0.06) $ (0.08)
(1) THE ADJUSTMENTS ASSOCIATED WITH THESE CAPTIONS INCLUDE THE IMPACT OF THE
CHANGE IN ACCOUNTING PRINCIPLE DISCUSSED IN NOTE 11.
11
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MAY 5, 2001
AS PREVIOUSLY
REPORTED, AFTER
CERTAIN
RECLASSIFICATIONS ADJUSTMENTS AS RESTATED
NET SALES $ 97,490 $ 90 $ 97,580
COST OF PRODUCTS SOLD, INCLUDING WAREHOUSE DISTRIBUTION 72,004 (817) 71,187
AND STORE OCCUPANCY COSTS
GROSS PROFIT 25,486 907 26,393
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES 21,011 830 21,841
OPERATING INCOME 598 77 675
LOSS BEFORE INCOME TAXES (669) 77 (592)
INCOME TAXES BENEFIT (254) 29 (225)
NET LOSS (415) 48 (367)
NET LOSS PER SHARE - BASIC (0.02) -- (0.02)
NET LOSS PER SHARE - DILUTED $ (0.02) $ -- $ (0.02)
11. CHANGE IN ACCOUNTING PRINCIPLE
The Company receives allowances from its vendors from a variety of
programs and arrangements, including placement and co-operative advertising
programs. In the fourth quarter of fiscal 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 accompanying
consolidated financial statements have been restated to reflect the adoption of
EITF No. 02-16 as if this cumulative effect of the change had been previously
presented in the first quarter of fiscal 2003. As a result of the adoption of
this statement, vendor allowances in excess of direct costs are reflected as a
reduction of inventory costs and recognized in costs of products sold upon the
sale of the related inventory. 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 deferred income tax benefit of $736,000, or
$0.07 per diluted share. This change increased net earnings before cumulative
effect of change in accounting principle by $182,000 ($0.01 per basic and
diluted share) for the thirteen weeks ended May 4, 2002. The Company previously
recognized these vendor allowances over the period covered by the vendor
arrangement.
12
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 204 retail
bookstores, including 158 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.
The Company determined that it was necessary to restate its fiscal 2002
financial statements to adjust the accounting treatment of its Millionaire's
Club Card. As a result, the Company now defers and amortizes the revenue from
its Millionaire's Club Card based upon the historical usage of the card over the
12-month life. Such revenue was previously recorded when received from the
customer. Additional information related to the restatement of the consolidated
financial statements is included in Note 10. The following discussion and
analysis gives effect to the restatement.
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 accompanying condensed consolidated financial
statements have also been restated to reflect the adoption of EITF No. 02-16 as
if this cumulative effect of a change in accounting principle had been
previously presented in the first quarter of fiscal 2003, as discussed in Note
11.
CRITICAL ACCOUNTING POLICIES
Inventories
Physical inventories are taken throughout the course of the fiscal
period. Store inventory counts are performed by an independent inventory service
while warehouse inventory counts are performed internally. All physical
inventory counts are reconciled to the Company's records. The Company's accrual
for inventory shortages is estimated based upon historical inventory shortage
results.
Cost is assigned to store and warehouse inventories using the retail
inventory method. Using this method, store and warehouse inventories are valued
by applying a calculated cost-to-retail ratio to the retail value of
inventories. The retail method is an averaging method that is widely used within
the retail industry. This methodology requires certain significant management
estimates and judgments involving markdowns, the allocation of vendor allowances
and shrinkage. These practices affect ending inventories at cost as well as the
resulting gross margins and inventory turnover ratios.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Accrued Expenses
On a monthly basis, certain material expenses are estimated and accrued
to properly record those expenses in the period incurred. Such estimates are
made for payroll and employee benefits costs, occupancy costs and advertising
expenses among other items. These estimates are made based upon current and
historical results.
Differences in management's estimates and assumptions could result in
accruals that are materially different from the actual result.
RESULTS OF OPERATIONS
Net sales increased 3.8 % to $101.3 million in the thirteen weeks ended
May 4, 2002, from $97.6 million in the thirteen weeks ended May 5, 2001. The
increase in net sales resulted from two superstores and four newsstands opened
after the first quarter of fiscal 2002 combined with one superstore opened in
the first quarter of fiscal 2003. In addition, the Company opened eighteen new
stores, acquired from Crown Books Company, that started operations in the middle
part of the first quarter of fiscal 2002.
Comparable store sales in the first quarter decreased 0.7 % when
compared with the 13-week period for the prior year. Comparable store sales for
all book categories increased 3.1 % for the quarter. The decrease in non-book
sales, driven by the decision to discontinue the sale of music in all stores and
by the strong sales in the collector's category in the prior year, contributed
to the overall decrease in total comparable store sales for the quarter.
Gross profit increased $1.2 million or 4.7 % to $27.6 million in the
thirteen weeks ended May 4, 2002 from $26.4 million in the thirteen weeks ended
May 5, 2001. Gross profit as a percentage of net sales for the thirteen weeks
ended May 4, 2002 was 27.3 % versus 27.1% in the same period last year. The
increase in gross profit stated as a percent to sales was primarily due to
reduced warehouse processing costs as a percent to sales.
Operating, selling and administrative expenses increased $1.1 million
or 4.8 % to $22.9 million in the thirteen weeks ended May 4, 2002, from $21.8
million in the thirteen weeks ended May 5, 2001. Operating, selling and
administrative expenses as a percentage of net sales for the thirteen weeks
ended May 4, 2002, were 22.6% versus 22.4% in the same period last year. The
slight increase as a percent to sales was due to higher selling costs.
Depreciation and amortization increased $0.1 million or 3.1 % to $4.0
million in the thirteen weeks ended May 4, 2002, from $3.9 million in the
thirteen weeks ended May 5, 2001. The increase in depreciation and amortization
is primarily the result of the increased number of superstores operated by the
Company.
Interest expense was $0.9 million in the thirteen weeks ended May 4,
2002 versus $1.3 million at May 5, 2001. The decrease is due to lower average
borrowings and lower interest rates versus last year.
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 reduction to net income of $1.2 million, or $0.07 per
diluted share.
LIQUIDITY AND CAPITAL RESOURCES
During the first thirteen weeks of fiscal 2003, the Company's cash
requirements have been funded with net cash from operations and with borrowings
under the Company's credit facilities. Similar to many retailers, the Company's
business is seasonal, with its highest retail sales, gross profits and net
income traditionally occurring during the fourth fiscal quarter, reflecting the
increased demand for books and gifts during the year-end, holiday selling
season. Working capital requirements are generally highest during the third
fiscal quarter and the early part of the fourth fiscal quarter due to the
seasonality of the Company's business.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company has a revolving credit facility that allows borrowings up
to $90.0 million, for which no principal repayments are due until the facility
expires on June 18, 2003, and an unsecured working capital line of credit for
$15.0 million, which is subject to annual renewal. The Company is currently
negotiating to renew its credit facilities until fiscal year 2006. The new
facility should be completed by the second quarter of fiscal 2003. As of May 4,
2002, $55.6 million was outstanding under these facilities combined.
Additionally, as of May 4, 2002, the Company has outstanding borrowings
associated with the issuance of an industrial revenue bond totaling $7.5
million.
The Company's capital expenditures totaled $1.1 million in the first 13
weeks of fiscal 2003. 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 2003 will be approximately $17.2 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 2003.
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 4, 2002 (in thousands):
PAYMENTS DUE UNDER CONTRACTUAL OBLIGATIONS
Total FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 Thereafter
-------- ------- ------- ------- ------- ------- ----------
Notes payable $ 607 $ 407 $ 200 $ -- $ -- $ -- $ --
Long-term debt - working
capital line of credit (1) 3,585 3,585 -- -- -- -- --
Long-term debt - revolving
credit facility (1) 52,000 -- 52,000 -- -- -- --
Long-term debt -
industrial
revenue bond 7,500 -- -- -- 7,500 -- --
Subtotal of debt 63,692 3,992 52,200 -- 7,500 -- --
Operating leases 145,398 22,181 26,868 24,525 21,594 16,334 33,896
Total of obligations $209,090 $26,173 $79,068 $24,525 $29,094 $16,334 $33,896
(1) Although the amounts outstanding are not contractually due until fiscal
2004, the Company has classified the portion anticipated to be paid within the
next year as current portion of long-term debt.
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 $10.5 million in the thirteen weeks ended
May 4, 2002, versus $12.3 million in the thirteen weeks ended May 5, 2001. The
decrease in related party purchases is primarily due to lower purchases of music
merchandise. The Company sells a portion of its inventories to related parties;
such sales amounted to $0.1 million and $0.5 million in the thirteen weeks ended
May 4, 2002 and May 5, 2001, respectively. This decrease in related party sales
is primarily due to lower sales of bargain books. The Company also purchases
logistics services from a related party; such services amounted to $7,000 and
$58,000 in the thirteen weeks ended May 4, 2002 and May 5, 2001, 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.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL POSITION
During the thirteen weeks ended May 4, 2002, the Company opened one
superstore and closed one Bookland store. Inventory and debt balances at May 4,
2002 increased as compared to February 2, 2002 due to seasonal fluctuations in
inventory levels.
16
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 $63.4 million during fiscal 2002. However, the Company
utilizes 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, which carries a notional principal amount of $30.0 million. The swap
effectively fixes the interest rate on $30.0 million of variable rate debt at
6.78%. The swap agreement expires on February 11, 2003. 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 party to the interest rate swaps
is one of the Company's primary banks. The Company believes the credit and
liquidity risk of the counter party failing to meet its obligation is remote as
the Company settles its interest position with the bank on a quarterly basis.
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
- Date of Meeting - June 6, 2002
- Annual Meeting
- Name of each director elected at meeting:
Terry C. Anderson
- Name of each director whose term of office as director continued
after the meeting:
Charles C. Anderson
Clyde B. Anderson
Ronald G. Bruno
J. Barry Mason
William H. Rodgers, Jr.
- Other matters voted on at Annual Meeting
i) To approve the First Amendment to the Amended and Restated
Employee Stock Purchase Plan increasing the number of shares
authorized for purchase by employees from 200,000 to a
maximum of 400,000.
- Results of votes:
Number of
Election of Number of Votes Cast For Votes Cast Against Number of Votes Abstaining
----------- ------------------------ ------------------- --------------------------
Terry C. Anderson 15,331,773 239,985 0
Item i.) above 15,257,467 284,466 29,825
ITEM 5: Other Information
None
18
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))
(B) Reports on Form 8-K
The Company filed two current reports on Form 8-K before the
filing of the first quarter of fiscal 2003 Form 10-Q as
follows:
Current report on 8-K, filed with the Securities and Exchange
Commission on June 6, 2002, with respect to the engagement of
Deloitte & Touche LLP as its independent accountants for
fiscal 2003.
Current report on Form 8-K, filed with the Securities and
Exchange Commission on May 3, 2002, with respect to the
dismissal of Arthur Andersen LLP as its independent
accountants.
19
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: May 2, 2003 by: /s/ Clyde B. Anderson
--------------------------------
Clyde B. Anderson
Chief Executive Officer
Date: May 2, 2003 by: /s/ Richard S. Wallington
--------------------------------
Richard S. Wallington
Chief Financial Officer
CERTIFICATIONS
I, Clyde B. Anderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Books-A-Million,
Inc.;
2. Based on my knowledge, this 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; and
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.
Date: May 2, 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/A 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; and
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.
Date: May 2, 2003
/s/ Richard S. Wallington
----------------------------------
Richard S. Wallington
Chief Financial Officer