1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
------- EXCHANGE ACT OF 1934.
For the quarterly period ended: May 2, 1998
- 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 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 May 2, 1998 were 17,443,875 shares.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOKS-A-MILLION, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
May 2, 1998 January 31, 1998
----------- ----------------
ASSETS
CURRENT ASSETS: $ $
Cash and temporary cash investments 4,154 3,909
Accounts receivable 10,398 11,732
Related party receivables 7,014 7,559
Inventories 165,194 151,312
Prepayments and other 1,492 816
Deferred income taxes 3,220 3,098
----------- ----------------
TOTAL CURRENT ASSETS 191,472 178,426
----------- ----------------
PROPERTY AND EQUIPMENT:
Land 628 628
Buildings 5,367 5,367
Equipment 28,630 28,558
Furniture and fixtures 32,071 31,894
Leasehold improvements 37,559 37,552
Construction-in-process 2,499 783
----------- ----------------
106,754 104,782
Less-accumulated depreciation and amortization 41,946 38,968
----------- ----------------
NET PROPERTY AND EQUIPMENT 64,808 65,814
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OTHER ASSETS:
Goodwill, net 1,527 1,538
Other 37 38
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TOTAL OTHER ASSETS 1,564 1,576
----------- ----------------
TOTAL ASSETS $ 257,844 $ 245,816
=========== ================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable:
Trade $ 74,983 $ 71,439
Related party 3,674 7,493
Accrued expenses 12,475 13,993
Accrued income taxes - 2,730
Notes payable 14,753 -
----------- ----------------
TOTAL CURRENT LIABILITIES 105,885 95,655
----------- ----------------
LONG TERM DEBT 46,917 45,240
----------- ----------------
DEFERRED INCOME TAXES 1,469 1,436
----------- ----------------
STOCKHOLDERS' INVESTMENT:
Preferred stock, $.01 par value, 1,000,000 shares authorized, no - -
shares outstanding
Common stock, $.01 par value, 30,000,000 shares authorized,
17,443,875 and 17,427,593 shares issued and outstanding at May 2,
1998 and January 31, 1998, respectively 174 174
Additional paid-in capital 63,003 62,925
Retained earnings 40,396 40,386
----------- ----------------
TOTAL STOCKHOLDERS' INVESTMENT 103,573 103,485
=========== ================
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 257,844 $ 245,816
=========== ================
See accompanying notes
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BOOKS-A-MILLION, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Thirteen Weeks Ended
---------------------------
May 2, 1998 May 3, 1997
----------- -----------
NET SALES $ 74,469 $ 68,237
Cost of products sold including warehouse
distribution and store occupancy costs(1) 55,474 50,696
----------- -----------
GROSS PROFIT 18,995 17,541
Operating, selling and administrative expenses 14,717 13,243
Depreciation and amortization 3,143 2,692
----------- -----------
OPERATING INCOME 1,135 1,606
Interest expense, net 1,119 1,011
----------- -----------
INCOME BEFORE INCOME TAXES 16 595
Provision for income taxes 6 226
----------- -----------
NET INCOME $ 10 $ 369
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC 17,436 17,419
=========== ===========
NET INCOME PER SHARE - BASIC (2) $ 0.00 $ 0.02
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED 17,459 17,420
=========== ===========
NET INCOME PER SHARE - DILUTED (2) $ 0.00 $ 0.02
=========== ===========
(1) Inventory purchases from related parties were $ 8,724 and $ 9,096
respectively, for each of the periods presented above.
(2) Effective January 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share (EPS), for all periods
presented.
See accompanying notes
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BOOKS-A-MILLION, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THIRTEEN WEEKS ENDED
---------------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10 $ 369
----------- -----------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 3,143 2,692
Loss on disposal of property and equipment 15 5
Change in deferred income taxes (89) (86)
(Increase) decrease in current assets:
Accounts receivable 1,334 1,904
Related party receivables 545 (1,086)
Inventories (13,882) (23,623)
Prepayments and other (675) (405)
Increase (decrease) in current liabilities:
Accounts payable (275) 1,188
Accrued income taxes (2,730) (1,838)
Accrued expenses (1,554) (2,347)
----------- -----------
Total adjustments (14,168) (23,596)
----------- -----------
Net cash used in operating activities (14,158) (23,227)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,109) (2,185)
Proceeds from sale of equipment 4 0
----------- -----------
Net cash used in investing activities (2,105) (2,185)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 45,750 49,726
Repayments under credit facilities (29,320) (24,465)
Proceeds from sale of common stock, net 78 95
----------- -----------
Net cash provided by financing activities 16,508 25,356
----------- -----------
Net increase (decrease) in cash and temporary cash investments 245 (56)
Cash and temporary cash investments at beginning of period 3,909 4,776
----------- -----------
Cash and temporary cash investments at end of period $ 4,154 $ 4,720
=========== ===========
See accompanying notes
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BOOKS-A-MILLION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Books-A-Million, Inc. and its Subsidiary (the "Company") for the thirteen week
period ended May 2, 1998 have been prepared in accordance with generally
accepted accounting principles 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 generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the fiscal year
ended January 31, 1998, included in the Company's 1998 Annual Report on Form
10-K. In the opinion of management, the consolidated financial statements
included herein contain all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation of the Company's
financial position as of May 2, 1998, and the results of its operations and cash
flows for the thirteen week period then ended.
The Company has 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 PER SHARE
Basic net income per share ("EPS") is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock are exercised
or converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB Opinion No. 15.
The Company adopted SFAS No. 128 effective January 31, 1998 and
restated EPS for all periods presented in the consolidated statements of income.
A reconciliation of the weighted average shares for basic and diluted EPS is as
follows:
For the Quarters Ended
(in thousands)
May 2, 1998 May 3, 1997
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Weighted average shares outstanding:
Basic 17,436 17,419
Dilutive effect of stock options outstanding 23 1
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Diluted 17,459 17,420
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BOOKS-A-MILLION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DEBT AND LINES OF CREDIT
The company amended its revolving credit facility and working capital
line of credit effective June 4, 1997. The amended credit facilities increased
the maximum allowable borrowings to $100 million, from $70 million (see the
Liquidity and Capital Resources section of the Management's Discussion and
Analysis of Financial Condition for more details).
4. PENDING ACCOUNTING PRONOUNCEMENTS
The FASB has issued Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information . This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Generally, financial information is required to
be reported on the basis that it is used by the chief operating decision maker
in deciding how to allocate resources and in assessing performance. This
statement also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The Company is currently
evaluating the impact on financial reporting and will adopt the new rules for
fiscal 1999 annual reporting.
The AICPA has issued Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. This
statement requires capitalization of external direct costs of materials and
services; payroll and payroll related costs for employees directly associated;
and interest cost during development of computer software for internal use
(planning and preliminary costs should be amortized on a straight-line basis
unless another systematic and rational basis is more representative of the
software's use). This statement is not expected to have a material effect on the
consolidated financial statements.
The AICPA has issued Statement of Position 98-5, Reporting on the Costs
of Start-up Activities. This statement provides guidance on the financial
reporting of start-up costs and organization costs, and requires these costs to
be expensed as incurred. The new rules are not expected to have a significant
impact on the Company's financial reporting upon adoption in fiscal 2000.
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 or results of
operations of the company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain of the statements set forth herein with respect to store
openings and closings, the profitability of certain product lines, capital
expenditures and future liquidity are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are based on management's current intentions, assumptions and projections and
are subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in the forward-looking statements. Factors that
could cause actual results to differ materially from those in the
forward-looking statements include, among other things, unanticipated increases
in merchandise, salary and distribution costs and the effects of increased
competition on specific stores and the Company generally.
RESULTS OF OPERATIONS
Net sales increased 9.1% to $74.5 million in the thirteen weeks ended
May 2, 1998, from $68.2 million in the thirteen weeks ended May 3, 1997. The
increase in net sales resulted primarily from net sales from new stores.
Comparable store sales decreased 4.3% for the thirteen weeks ended May 2, 1998.
During the thirteen weeks ended May 2, 1998, one superstore was opened.
Gross profit increased $1.5 million or 8.3% to $19.0 million in the
thirteen weeks ended May 2, 1998 from $17.5 million in the thirteen weeks ended
May 3, 1997. Gross profit as a percentage of net sales for the thirteen weeks
ended May 2, 1998 was 25.5% versus 25.7% in the same period last year. The
slight decrease as a percentage of net sales for the thirteen week period was
due to increased occupancy costs as a percentage of net sales.
Operating, selling and administrative expenses increased $1.5 million
or 11.1% to $14.7 million in the thirteen weeks ended May 2, 1998 from $13.2
million in the thirteen weeks ended May 3, 1997. Operating, selling and
administrative expenses as a percentage of net sales for the thirteen weeks
ended May 2, 1998 increased to 19.8% from 19.4% in the same period last year.
The increase in this percentage for the thirteen week period was primarily due
to higher store selling expenses as a percentage of net sales.
Depreciation and amortization increased $.4 million or 16.8% to $3.1
million in the thirteen weeks ended May 2, 1998 from $2.7 million in the
thirteen weeks ended May 3, 1997. The increase in depreciation and amortization
is primarily the result of the increased number of superstores operated by the
Company.
Interest expense was $1.1 million in the thirteen weeks ended May 2,
1998, versus $1.0 million for the same period last year. This increase in
interest expense resulted from borrowings incurred due primarily to increased
inventory and capital expenditures related to new stores opened in the first
quarter of fiscal 1999 and the last nine months of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the first thirteen weeks of fiscal 1999, 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.
The Company has a revolving credit facility that allows borrowings up
to $90 million for which no principal repayments are due until the facility
expires on June 3, 2002, and an unsecured working capital line of credit for $10
million, which is subject to annual renewal. As of May 2, 1998, $54.2 million
was outstanding under these facilities combined. Additionally, as of May 2,
1998, the Company has outstanding borrowings associated with the issuance of an
industrial revenue bond totaling $7.5 million.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's capital expenditures totaled $2.1 million during the
first thirteen weeks of fiscal 1999. These expenditures were primarily used to
open new stores, perform renovations and improvements to existing stores, invest
in management information systems and general corporate purposes. Management
estimates that capital expenditures for the remainder of fiscal 1999 will be
approximately $20.0 million, and that such amounts will be used primarily for
new stores, renovations and remodeling of certain existing stores and
investments in management information systems. Management believes that existing
cash reserves 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 1999.
RELATED PARTY ACTIVITIES
Certain principal stockholders 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
(described as "related parties") are summarized in the following paragraph.
The Company purchases a portion of its inventories for resale from
related parties; such purchases were relatively constant at $8.7 million in the
thirteen weeks ended May 2, 1998, versus $9.1 million in the thirteen weeks
ended May 3, 1997. The Company sells a portion of its inventories to related
parties; such sales amounted to $.7 million and $1.3 million in the thirteen
weeks ended May 2, 1998 and May 3, 1997, respectively. This decrease in related
party sales is primarily due to decreased sales of bargain books to related
parties. Management believes these related party purchases and sales do not have
a significant impact on gross profit.
FINANCIAL POSITION
During the thirteen weeks ended May 2, 1998, the Company opened one
superstore. Inventory and debt balances at May 2, 1998 increased as compared to
January 31, 1998 due to seasonal fluctuations in inventory levels and the new
superstore opened during the first quarter of fiscal 1999.
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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 or results of operations 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 4, 1998
- Annual Meeting
- Name of each director elected at meeting:
Charles C. Anderson
J. Barry Mason
- Name of each other director whose term of office as director
continued after the meeting:
Clyde B. Anderson
Terry C. Anderson
John E. Southwood
Ronald G. Bruno
- Other matters voted on at Annual Meeting:
i) Ratify the appointment by the Audit Committee of the
Board of Directors of Arthur Andersen LLP to serve as
the Company's independent auditor for fiscal 1999.
ii) Approve an amendment and restatement of the Company's
Stock Option Plan that will increase the number of
shares of Common Stock reserved for grants of options
under the plan from 1,800,000 to 3,300,000 and
simplify administration of the Stock Option Plan in
accordance with revisions to Section 16 of the
Securities Exchange Act of 1934.
- Results of votes:
Number of Votes Number of Votes Number of Votes
Cast For Cast Against Abstaining
--------------- --------------- ---------------
Election of 14,902,067 1,072,147 0
Charles C. Anderson
Election of 14,905,478 1,068,736 0
J. Barry Mason
Item i) above 15,923,042 38,171 13,001
Item ii) above 11,660,999 1,449,282 42,972
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ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 3i Certificate of Incorporation of Books-A-Million,
Inc. (incorporated herein by reference to Exhibit 3.1 in the
Company's Registration Statement on Form S-1 (Capital
Registration No. 33-52256))
Exhibit 3ii By-Laws of Books-A-Million, Inc. (incorporated
herein by reference to Exhibit 3.2 in the Company's
Registration Statement on Form S-1 (Capital Registration No.
33-52256))
Exhibit 27.1 Financial Data Schedule (for SEC use only)
Exhibit 27.2 Financial Date Schedule - Restated for fiscal 1998
quarterly information (for SEC use only)
Exhibit 27.3 Financial Data Schedule - Restated for fiscal
1997 quarterly information (for SEC use only)
(B) Reports on Form 8-K
There were no reports filed on Form 8-K during the
thirteen week period ended May 2, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
BOOKS-A-MILLION, INC.
Date: June 15, 1998
By: /s/ Clyde B. Anderson
------------------------------
Clyde B. Anderson
President and
Chief Executive Officer
Date: June 15, 1998
By: /s/ Sandra B. Cochran
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Sandra B. Cochran
Executive Vice President,
Chief Financial Officer
and Assistant Secretary