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: November 2, 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
incorporation or organization) Identification No.)
402 INDUSTRIAL LANE, BIRMINGHAM, ALABAMA 35211
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(205) 942-3737
--------------
(Registrant's phone number including area code)
NONE
----
(Former name, former address and former fiscal year,
if changed since last period)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's common stock,
as of the latest practicable date: Shares of common stock, par value $.01 per
share, outstanding as of November 29, 2002 were 16,200,073 shares.
EXPLANATORY NOTE:
This amendment on Form 10-Q/A amends the Company's quarterly report on Form 10-Q
for the period ended November 2, 2002, as initially filed with the Securities
and Exchange Commission on December 17, 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
<Table>
<Caption>
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 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters of Vote of Security-Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
</Table>
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)
<Table>
<Caption>
NOVEMBER 2, 2002 FEBRUARY 2, 2002
AS RESTATED RESTATED
(SEE NOTES 10 AND 11) (SEE NOTE 10)
--------------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,642 $ 5,212
Accounts receivable, net 8,548 8,040
Related party accounts receivable, net 265 967
Inventories 245,902 210,853
Prepayments and other 5,111 5,680
Deferred income taxes 8,125 5,530
--------- ---------
TOTAL CURRENT ASSETS 272,593 236,282
--------- ---------
PROPERTY AND EQUIPMENT:
Gross property and equipment 157,359 145,428
Less accumulated depreciation and
amortization 100,494 88,712
--------- ---------
NET PROPERTY AND EQUIPMENT 56,865 56,716
--------- ---------
OTHER ASSETS:
Goodwill, net 1,368 1,368
Other 330 492
--------- ---------
TOTAL OTHER ASSETS 1,698 1,860
--------- ---------
TOTAL ASSETS $ 331,156 $ 294,858
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 107,897 $ 97,523
Related party accounts payable 3,800 5,661
Accrued expenses 23,237 24,442
Accrued income taxes 844 2,674
Current portion of long-term debt 35,280 499
--------- ---------
TOTAL CURRENT LIABILITIES 171,058 130,799
--------- ---------
LONG TERM DEBT 39,580 38,846
--------- ---------
DEFERRED INCOME TAXES 1,681 1,843
--------- ---------
OTHER LONG-TERM LIABILITIES 1,693 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, 18,210,123 and 18,138,963 shares
issued at November 2, 2002 and
February 2, 2002, respectively 182 181
Additional paid-in capital 70,846 70,719
Less treasury stock, at cost; (2,010,050 shares
at November 2, 2002 and February 2, 2002) (5,271) (5,271)
Accumulated other comprehensive loss, net of tax (1,047) (1,217)
Retained earnings 52,434 56,926
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 117,144 121,338
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 331,156 $ 294,858
========= =========
</Table>
SEE ACCOMPANYING NOTES
3
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------------------- --------------------------------------
NOVEMBER 2, 2002 NOVEMBER 3, 2001 NOVEMBER 2, 2002 NOVEMBER 3, 2001
AS RESTATED AS RESTATED AS REST AS RESTATED
(SEE NOTES 10 AND 11) (SEE NOTE 10) (SEE NOTES 10 AND 11) (SEE NOTE 10)
--------------------- ---------------- -------------------- ----------------
NET SALES $ 97,256 $ 97,900 $ 303,221 $ 299,380
Cost of products sold (including warehouse
distribution and store occupancy costs) (1) 74,381 72,009 224,503 219,347
--------- --------- --------- ---------
GROSS PROFIT
22,875 25,891 78,718 80,033
Operating, selling and administrative
expenses
21,931 23,786 68,735 69,523
Depreciation and amortization 4,114 3,908 12,084 11,681
--------- --------- --------- ---------
OPERATING LOSS (3,170) (1,803) (2,101) (1,171)
Interest expense, net 1,274 1,133 3,208 3,542
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (4,444) (2,936) (5,309) (4,713)
Income taxes benefit (1,689) (1,117) (2,018) (1,792)
--------- --------- --------- ---------
Loss before cumulative effect of a change in
accounting principle (2,755) (1,819) (3,291) (2,921)
Cumulative effect of a change in accounting
principle, net of deferred income tax benefit of
$736 -- -- (1,201) --
--------- --------- --------- ---------
NET LOSS $ (2,755) $ (1,819) $ (4,492) $ (2,921)
========= ========= ========= =========
NET LOSS PER COMMON SHARE:
BASIC:
LOSS BEFORE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE $ (0.17) $ (0.11) $ (0.20) $ (0.17)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE -- -- (0.08) --
--------- --------- --------- ---------
NET LOSS $ (0.17) $ (0.11) $ (0.28) $ (0.17)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC 16,200 16,417 16,187 16,837
========= ========= ========= =========
DILUTED:
LOSS BEFORE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE $ (0.17) $ (0.11) $ (0.20) $ (0.17)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE -- -- (0.08) --
--------- --------- --------- ---------
NET LOSS $ (0.17) $ (0.11) $ (0.28) $ (0.17)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED 16,200 16,417 16,187 16,837
========= ========= ========= =========
PROFORMA AMOUNTS ASSUMING CHANGE IN ACCOUNTING
PRINCIPLE IS APPLIED RETROACTIVELY:
NET LOSS $ (2,034) $ (2,752)
========= =========
NET LOSS PER SHARE - BASIC (0.12) (0.16)
========= =========
NET LOSS PER SHARE - DILUTED $ (0.12) (0.16)
========= =========
</Table>
(1) Inventory purchases from related parties were $11,777, $11,673, $25,297 and
$28,870, 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)
<Table>
<Caption>
THIRTY-NINE WEEKS ENDED
---------------------------------------
NOVEMBER 2, 2002 NOVEMBER 3, 2001
AS RESTATED AS RESTATED
(SEE NOTES 10 AND 11) (SEE NOTE 10)
--------------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (4,492) $ (2,921)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Cumulative effect of change in accounting principle 1,201 --
Depreciation and amortization 12,084 11,681
Loss on disposal of property and equipment 1 246
Increase in deferred income taxes (2,125) (1,855)
Increase in inventories (36,986) (32,800)
Increase in accounts payable 8,513 17,267
Changes in certain other assets and liabilities (2,386) (1,912)
--------- ---------
Total adjustments (19,698) (7,373)
--------- ---------
Net cash used in operating activities (24,190) (10,294)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,038) (7,149)
Acquisition of stores -- (6,532)
Proceeds from sale of equipment 16 23
--------- ---------
Net cash used in investing activities (12,022) (13,658)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 152,556 146,551
Repayments under credit facilities (117,041) (118,342)
Proceeds from sale of common stock, net 127 83
Purchase of treasury stock -- (3,389)
--------- ---------
Net cash provided by financing activities 35,642 24,903
--------- ---------
Net increase (decrease) in cash and cash equivalents (570) 951
Cash and cash equivalents at beginning of period 5,212 5,124
--------- ---------
Cash and cash equivalents at end of period $ 4,642 $ 6,075
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the thirty-nine week period for:
Interest $ 2,893 $ 3,180
Income taxes, net of refunds $ 1,644 $ 1,019
</Table>
SEE ACCOMPANYING NOTES
5
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Books-A-Million, Inc. and its subsidiaries (the "Company") for the thirteen and
thirty-nine week periods ended November 2, 2002 and November 3, 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 November 2, 2002, and the results of its operations and
cash flows for the thirteen and thirty-nine week periods ended November 2, 2002
and November 3, 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 and
thirty-nine week period. A reconciliation of the weighted average shares for
basic and diluted EPS is as follows:
<Table>
<Caption>
For the Thirteen Weeks Ended
(in thousands)
November 2, 2002 November 3, 2001
---------------- ----------------
Weighted average shares outstanding:
Basic 16,200 16,417
Dilutive effect of stock options outstanding -- --
------ ------
Diluted 16,200 16,417
====== ======
<Caption>
For the Thirty-Nine Weeks Ended
(in thousands)
November 2, 2002 November 3, 2001
---------------- ----------------
Weighted average shares outstanding:
Basic 16,187 16,837
Dilutive effect of stock options outstanding -- --
------ ------
Diluted 16,187 16,837
====== ======
</Table>
Options outstanding of 2,374,108 and 2,167,020 for the thirteen and
thirty-nine weeks ended November 2, 2002 and November 3, 2001 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 7.41%, and expires February 2003. The Company entered into
to 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 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 classified as Other Long-Term Liabilities in
the accompanying condensed consolidated balance sheets at their fair value of
$1.7 million and $2.0 million as of November 2, 2002 and February 2, 2002,
respectively. For the thirteen weeks ended November 2, 2002 and November 3,
2001, respectively, adjustments of ($279,000) (net of tax provision of $171,000)
and $545,000 (net of tax benefit of $334,000) and in the thirty-nine weeks ended
November 2, 2002 and November 3, 2001, respectively, adjustments of ($170,000)
(net of tax provision of $104,000) and $1,451,000 (net of tax benefit of
$889,000) were recorded as unrealized gains or losses 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:
<Table>
<Caption>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------- -------------------------
COMPREHENSIVE INCOME (LOSS) (in thousands) (in thousands)
------------------------- -------------------------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net loss ($2,755) ($1,819) ($4,492) ($2,921)
------- ------- ------- -------
Cumulative effect of accounting change for derivatives
instruments, net of deferred tax provision (benefit) of
($285) -- -- -- (465)
------- ------- ------- -------
Unrealized gains (losses) on derivative instruments,
net of deferred tax provision (benefit) for the thirteen
week periods of $171 and ($334), respectively, and the
thirty-nine week periods of $104 and ($604), respectively 279 (545) 170 (986)
------- ------- ------- -------
Total comprehensive loss ($2,476) ($2,364) ($4,322) ($4,372)
------- ------- ------- -------
</Table>
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 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
estimated 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 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 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 intersegment 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)
<Table>
<Caption>
SEGMENT INFORMATION (IN THOUSANDS) Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------------------------- ------------------------------------
November 2, 2002 November 3, 2001 November 2, 2002 November 3, 2001
---------------- ---------------- ---------------- ----------------
NET SALES
Retail Trade $ 96,004 $ 96,174 $ 299,234 $ 294,700
Electronic Commerce Trade 5,968 5,449 17,110 14,964
Intersegment Sales Elimination (4,716) (3,723) (13,123) (10,284)
-------- -------- --------- ---------
Net Sales $ 97,256 $ 97,900 $ 303,221 $ 299,380
======== ======== ========= =========
OPERATING INCOME (LOSS)
Retail Trade $ (2,972) (1,490) (1,543) (77)
Electronic Commerce Trade (224) (356) (621) (1,155)
Intersegment Elimination of Certain
Costs 26 43 63 61
-------- -------- --------- ---------
Total Operating Loss $ (3,170) (1,803) (2,101) (1,171)
======== ======== ========= =========
<Caption>
As of November 2, 2002 As of February 2, 2002
---------------------- ----------------------
ASSETS
Retail Trade $ 329,814 $ 293,567
Electronic Commerce Trade 1,927 1,939
Intersegment Asset Elimination (585) (648)
--------- ---------
Total Assets $ 331,156 $ 294,858
========= =========
</Table>
9
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RECENT ACCOUNTING PRONOUNCEMENTS
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.
In June of 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. Management is in the
process of analyzing this statement for the impact on future transactions.
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 was included in
accrued expenses. Such revenue was previously recorded when received from the
customer.
The Company has also reclassified certain vendor allowances totaling
$1,126,000 and $1,608,000 for the thirteen weeks ended November 2, 2002 and
November 3, 2001, respectively, previously reported as a reduction of selling
expenses, to reduce cost of products sold. For the thirty-nine weeks ended
November 2, 2002 and November 3, 2001, respectively, the Company reclassified
certain vendor allowances totaling $3,524,000 and $3,537,000, 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 NOVEMBER 2, 2002
<Table>
<Caption>
AS PREVIOUSLY REPORTED,
AFTER CERTAIN
RECLASSIFICATIONS ADJUSTMENTS AS RESTATED
----------------------- ----------- -----------
INVENTORIES(1) $247,731 $(1,829) $245,902
-------- ------- --------
DEFERRED INCOME TAXES (ASSET)(1) 6,854 1,271 8,125
-------- ------- --------
ACCRUED EXPENSES 21,722 1,515 23,237
-------- ------- --------
RETAINED EARNINGS $ 54,507 $(2,073) $ 52,434
-------- ------- --------
</Table>
(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
<Table>
<Caption>
AS PREVIOUSLY REPORTED,
AFTER CERTAIN
RECLASSIFICATIONS ADJUSTMENTS AS RESTATED
----------------------- ----------- -----------
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
------- ------- -------
</Table>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED
NOVEMBER 2, 2002
<Table>
<Caption>
AS PREVIOUSLY REPORTED,
INCLUDING CERTAIN
RECLASSIFICATIONS ADJUSTMENTS AS RESTATED
----------------------- ----------- -----------
NET SALES $ 97,194 $ 62 $ 97,256
-------- ----- --------
COST OF PRODUCTS SOLD, INCLUDING WAREHOUSE
DISTRIBUTION AND STORE OCCUPANCY COSTS(1) 74,566 (185) 74,381
-------- ----- --------
GROSS PROFIT 22,628 247 22,875
-------- ----- --------
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES 21,149 782 21,931
-------- ----- --------
OPERATING LOSS (2,635) (535) (3,170)
-------- ----- --------
LOSS BEFORE INCOME TAXES (3,909) (535) (4,444)
-------- ----- --------
INCOME TAXES BENEFIT(1) (1,486) (203) (1,689)
-------- ----- --------
NET LOSS (2,423) (332) (2,755)
-------- ----- --------
NET LOSS PER SHARE - BASIC (0.15) (0.02) (0.17)
-------- ----- --------
NET LOSS PER SHARE - DILUTED $ (0.15) $ (0.02) $ (0.17)
-------- ----- --------
</Table>
(1) The adjustments associated with these captions include the impact of the
change in accounting principle discussed in Note 11.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED
NOVEMBER 3, 2001
<Table>
<Caption>
AS PREVIOUSLY REPORTED,
AFTER CERTAIN
RECLASSIFICATIONS ADJUSTMENTS AS RESTATED
----------------------- ----------- -----------
NET SALES $ 97,812 $ 88 $ 97,900
-------- ------- --------
COST OF PRODUCTS SOLD, INCLUDING WAREHOUSE
DISTRIBUTION AND STORE OCCUPANCY COSTS 73,604 (1,595) 72,009
-------- ------- --------
GROSS PROFIT 24,208 1,683 25,891
-------- ------- --------
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES 22,178 1,608 23,786
-------- ------- --------
OPERATING LOSS (1,878) 75 (1,803)
-------- ------- --------
LOSS BEFORE INCOME TAXES (3,011) 75 (2,936)
-------- ------- --------
INCOME TAXES BENEFIT (1,145) 28 (1,117)
-------- ------- --------
NET LOSS $ (1,866) $ 47 $ (1,819)
-------- ------- --------
NET LOSS PER SHARE - BASIC (0.12) 0.01 (0.11)
-------- ------- --------
NET LOSS PER SHARE - DILUTED $ (0.12) $ 0.01 $ (0.11)
-------- ------- --------
</Table>
11
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THIRTY-NINE WEEKS ENDED
NOVEMBER 2, 2002
<Table>
<Caption>
AS PREVIOUSLY REPORTED,
AFTER CERTAIN
RECLASSIFICATIONS ADJUSTMENTS AS RESTATED
----------------------- ----------- -----------
NET SALES $ 303,038 $ 183 $ 303,221
--------- ------- ---------
COST OF PRODUCTS SOLD, INCLUDING WAREHOUSE DISTRIBUTION AND STORE
OCCUPANCY COSTS(1) 227,445 (2,942) 224,503
--------- ------- ---------
GROSS PROFIT 75,593 3,125 78,718
--------- ------- ---------
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES 65,876 2,859 68,735
--------- ------- ---------
OPERATING LOSS (2,367) 266 (2,101)
--------- ------- ---------
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (5,575) 266 (5,309)
--------- ------- ---------
INCOME TAXES BENEFIT(1) (2,119) 101 (2,018)
--------- ------- ---------
LOSS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (3,456) 165 (3,291)
--------- ------- ---------
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE(1) -- (1,201) (1,201)
--------- ------- ---------
NET LOSS (3,456) (1,036) (4,492)
--------- ------- ---------
NET LOSS PER SHARE - BASIC:
--------- ------- ---------
LOSS BEFORE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (0.21) 0.01 (0.20)
--------- ------- ---------
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE(1) -- (0.08) (0.08)
--------- ------- ---------
NET LOSS (0.21) (0.07) (0.28)
--------- ------- ---------
NET LOSS PER SHARE - DILUTED:
--------- ------- ---------
LOSS BEFORE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (0.21) 0.01 (0.20)
--------- ------- ---------
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE(1) -- (0.08) (0.08)
--------- ------- ---------
NET LOSS $ (0.21) $ (0.07) $ (0.28)
--------- ------- ---------
</Table>
(1) The adjustments associated with these captions include the impact of the
change in accounting principle discussed in Note 11.
12
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THIRTY-NINE WEEKS ENDED
NOVEMBER 3, 2001
<Table>
<Caption>
AS PREVIOUSLY REPORTED,
AFTER CERTAIN
RECLASSIFICATIONS ADJUSTMENTS AS RESTATED
----------------------- ----------- -----------
NET SALES $ 299,313 $ 67 $ 299,380
--------- ------- ---------
COST OF PRODUCTS SOLD, INCLUDING WAREHOUSE
DISTRIBUTION AND STORE OCCUPANCY COSTS 222,778 (3,431) 219,347
--------- ------- ---------
GROSS PROFIT 76,535 3,498 80,033
--------- ------- ---------
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES 66,082 3,441 69,523
--------- ------- ---------
OPERATING LOSS (1,228) 57 (1,171)
--------- ------- ---------
LOSS BEFORE INCOME TAXES (4,770) 57 (4,713)
--------- ------- ---------
INCOME TAXES BENEFIT (1,814) 22 (1,792)
--------- ------- ---------
NET LOSS (2,956) 35 (2,921)
--------- ------- ---------
NET LOSS PER SHARE - BASIC (0.18) 0.01 (0.17)
--------- ------- ---------
NET LOSS PER SHARE - DILUTED $ (0.18) $ 0.01 $ (0.17)
--------- ------- ---------
</Table>
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 loss before cumulative effect
of change in accounting principle by $365,000 ($0.02 per basic and diluted
share) and decreased net loss before cumulative effect of change in accounting
principle by $67,000 ($0.004 per basic and diluted share) for the thirteen and
the thirty-nine weeks ended November 2, 2002, respectively. The Company
previously recognized these vendor allowances over the period covered by the
vendor arrangement.
13
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 209 retail
bookstores, including 163 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 consolidated condensed 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.
14
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 decreased 0.7% to $97.3 million in the thirteen weeks ended
November 2, 2002, from $97.9 million in the thirteen weeks ended November 3,
2001. Net sales increased 1.3% to $303.2 million in the thirty-nine weeks ended
November 2, 2002, from $299.4 million in the thirty-nine weeks ended November 3,
2001. The increase in net sales for the thirty-nine weeks resulted from six
superstores opened in the first three quarters 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 third quarter decreased 2.6% when compared
with the same 13-week period for the prior year. Comparable store sales for all
book categories increased 1.6 % for the quarter. In the thirty-nine week period
ended November 2, 2002, comparable store sales decreased 1.5% when compared with
the same period last year. Comparable store sales for all book categories,
however, increased 1.6%. The decrease in non-book sales was driven by lower
music sales (a discontinued line of merchandise) combined with lower magazine
and gift sales versus last year's strong sales of products related to September
11.
Gross profit decreased 11.6% to $22.9 million in the thirteen weeks ended
November 2, 2002 when compared with the same thirteen week period for the prior
year. For the thirty-nine weeks ended November 2, 2002, gross profit decreased
1.6% to $78.7 million from $80.0 million in the same period last year. Gross
profit as a percentage of net sales for the thirteen weeks ended November 2,
2002 was 23.5% versus 26.4% in the same period last year. Gross profit as a
percentage of net sales for the thirty-nine weeks ended November 2, 2002 was
26.0% versus 26.7% 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.
Operating, selling and administrative expenses decreased 7.8% to $21.9
million from $23.8 million in the thirteen week period ended November 2, 2002
compared to the same period last year, and in the thirty-nine weeks ended
November 2, 2002, operating, selling and administrative expenses decreased 1.1%
to $68.7 million from $69.5 million in the same period last year. Operating,
selling and administrative expenses as a percentage of net sales for the
thirteen weeks ended November 2, 2002 decreased to 22.5% from 24.3% in the same
period last year. For the thirty-nine week period, operating, selling and
administrative expenses as a percentage of net sales decreased to 22.7% from
23.2% 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 5.3% to $4.1 million in the
thirteen weeks ended November 2, 2002, from $3.9 million in the thirteen weeks
ended November 3, 2001, and in the thirty-nine week period depreciation and
amortization increased 3.5% to $12.1 million from $11.7 million in the same
period last year. The increase in depreciation and amortization is primarily the
result of the increased number of superstores operated by the Company.
Interest expense was $1.3 million in the thirteen weeks ended November 2,
2002 versus $1.1 million in the same period last year. The increase is due to
higher average debt versus last year. In the thirty-nine weeks ended November 2,
2002, interest expense was $3.2 million versus $3.5 million in the same period
last year. The decrease is due to 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 $0.08 per diluted share.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the first thirty-nine weeks of fiscal 2003, the Company's cash
requirements have been funded with 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.
In July 2002, the Company entered into a revolving credit facility that
allows borrowings up to $100.0 million, for which no principal repayments are
due until the facility expires on July 1, 2005. As of November 2, 2002, $67.0
million was outstanding under these facilities combined. Additionally, as of
November 2, 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 $12.0 million in the first
thirty-nine 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 $4.5 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 November 2, 2002 (in thousands):
<Table>
<Caption>
PAYMENTS DUE UNDER CONTRACTUAL OBLIGATIONS
- -------------------------------------------------------------------------------------------------------------------
Total FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 Thereafter
-------- ------- ------- ------- ------- ------- ----------
Notes payable $ 320 $ 233 $ 87 $ -- $ -- $ -- $ --
-------- ------ ------- ------- ------- ------- -------
Long-term debt - revolving
credit facility(1) 67,040 -- -- -- 67,040 -- --
-------- ------ ------- ------- ------- ------- -------
Long-term debt -industrial
revenue bond(1) 7,500 -- -- -- 7,500 -- --
-------- ------ ------- ------- ------- ------- -------
Subtotal of debt 74,860 233 87 -- 74,540 -- --
-------- ------ ------- ------- ------- ------- -------
Operating leases 141,377 7,512 27,781 25,500 22,752 17,571 40,261
-------- ------ ------- ------- ------- ------- -------
Total of obligations $216,237 $7,745 $27,868 $25,500 $97,292 $17,571 $40,261
-------- ------ ------- ------- ------- ------- -------
</Table>
(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 $25.3 million in the thirty-nine weeks ended
November 2, 2002, versus $28.9 million in the thirty-nine weeks ended November
3, 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 and $1.7 million in the
thirty-nine weeks ended November 2, 2002 and November 3, 2001, respectively.
This decrease in related party sales is mostly due to the decision to
significantly reduce bargain books commerce with related parties. 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.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL POSITION
During the thirty-nine weeks ended November 2, 2002, the Company opened six
superstores and closed one Bookland store. Inventory and debt balances at
November 2, 2002 increased as compared to February 2, 2002 due to seasonal
fluctuations in inventory levels.
17
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 7.41%. The
swap agreement expires on February 11, 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%.
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.
18
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.
19
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
None
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 3i Certificate of Incorporation of Books-A-Million, Inc.
(incorporated herein by reference to Exhibit 3.1 in the Company's
Registration Statement on Form S-1 (Capital Registration No.
33-52256)
Exhibit 3ii By-Laws of Books-A-Million, Inc. (incorporated herein
by reference to Exhibit 3.2 in the Company's Registration
Statement on Form S-1 (Capital Registration No. 33-52256))
(B) Reports on Form 8-K
None
20
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;
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
21
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: 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;
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: May 2, 2003
/s/ Richard S. Wallington
-------------------------
Richard S. Wallington
Chief Financial Officer
22