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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to ______________
Commission File No. 0-20664
BOOKS-A-MILLION, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 63-0798460
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
402 INDUSTRIAL LANE
BIRMINGHAM, ALABAMA 35211
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 942-3737
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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(Title of Class)
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
--- ---
CONTINUED
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of
the Registrant (assuming for these purposes, but without conceding, that all
executive officers and directors are "affiliates" of the Registrant) as of April
14, 1998 (based on the closing sale price as reported on the Nasdaq National
Market on such date), was $54,188,953.
The number of shares outstanding of the Registrant's Common Stock as of
April 14, 1998 was 17,443,875.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
January 31, 1998 are incorporated by reference into Part II of this report.
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on June 4, 1998 are incorporated by reference into Part III of this
report.
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PART I
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.
ITEM 1. BUSINESS
GENERAL
Books-A-Million, Inc. (the "Company" or the "Registrant"), is a leading
book retailer and is one of the dominant book retailers in the southeastern
United States. The Company, which was founded in 1917, has developed three
distinct store formats to address the various market areas it serves.
Superstores, the first of which was opened in 1988, average approximately 20,000
square feet and operate under the name "Books-A-Million." Combination book and
greeting card stores, which are operated under the name "Bookland," have
approximately 4,500 square feet and are generally located in smaller markets
that do not readily sustain stand-alone book and greeting card stores.
"Traditional" bookstores, also operated under the name "Bookland," have
approximately 3,500 square feet and are located primarily in malls. All store
formats offer an extensive selection of best sellers and other hardcover and
paperback books, magazines, newspapers, cards and gifts. The Company is also a
wholesaler of books to, among others, bookstores, wholesale clubs, supermarkets,
department stores and mass merchandisers.
The Company was originally incorporated under the laws of the State of
Alabama in 1964 and was reincorporated in Delaware in September 1992. The
principal executive offices of the Company are located at 402 Industrial Lane,
Birmingham, Alabama 35211, and its telephone number is (205) 942-3737. Unless
the context otherwise requires, references to the Company include its wholly
owned subsidiary, American Wholesale Book Company, Inc. ("American Wholesale").
BOOKS-A-MILLION SUPERSTORES
The Company opened its first Books-A-Million superstore in April 1988.
The Company developed its superstores to capitalize on the growing consumer
demand for the convenience, selection and value associated with the superstore
retailing format. Each superstore is designed to be a receptive and open
environment conducive to browsing and reading and includes ample space for
promotional events open to the public, including book autograph sessions and
children's storytelling. The Company operates 107 Books-A-Million superstores as
of January 31, 1998.
Books-A-Million superstores emphasize selection, value and customer
service. Books-A-Million superstores offer an extensive selection of best
sellers and other hardcover and paperback books, magazines, local and
out-of-town newspapers, greeting cards and gifts. Books-A-Million superstores
also dedicate space to bargain books that are sold at a discount from
publishers' originally suggested retail prices. Each Books-A-Million superstore
has a centrally located service center staffed with associates who are
knowledgeable about the store's merchandise and who are trained to answer
customers' questions, assist customers in locating books within the store and
place special orders. The majority of the superstores also include an espresso
and coffee bar called Joe Muggs. The Company's superstores are conveniently
located on major, high-traffic roads and in enclosed malls or strip shopping
centers with adequate parking. Books-A-Million superstores are generally open
seven days a week from 9:00 a.m. to 11:00 p.m.
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BOOKLAND STORES
The Company's Bookland stores utilize two formats, the combination and
traditional store formats, which are tailored to the size, demographics and
competitive conditions of the particular market area. Combination stores average
approximately 4,500 square feet and carry a broad selection of best sellers and
other hardcover and paperback books, bargain books, magazines, gifts and
greeting cards. Because of the increased customer traffic it generates, the
combination store format has been particularly successful in smaller market
areas that do not readily sustain stand-alone book and greeting card stores. The
Company has 31 combination stores as of January 31, 1998.
The Company's traditional bookstores average approximately 3,500 square
feet and offer a wide selection of best sellers and other hardcover and
paperback books, magazines and newspapers. The Company's traditional bookstores
are located in multiple types of market areas, but are generally located in
market areas that are larger than those in which combination stores are located.
The Company has 27 traditional bookstores as of January 31, 1998.
MERCHANDISING
The Company employs several value-oriented merchandising strategies.
Books on the Company's best-seller list, which is developed exclusively by the
Company based on its sales and customer demand in its stores, are generally sold
in the Company's superstores at 33% below publishers' suggested retail prices.
In addition, superstore customers can join the Millionaire's Club and save 10%
on all purchases in Books-A-Million superstores, including already discounted
best-sellers. Bookland store customers can join the Read & Save Club and enjoy
similar discounts. The Company's point-of-sale computer system provides the data
necessary to enable the Company to anticipate consumer demand and customize
store inventory selection to reflect local customer interest and demand.
MARKETING
The Company maintains a regional focus, which involves dedicating space
in its stores to books of regional and local interest and creating special
departments such as regional literature, cooking and religious books. Store
managers are given the flexibility to select titles that are responsive to
consumer demand in that particular market area, and the Company continuously
modifies its title selection in each bookstore to tailor selection to local
consumer preferences. The Company offers frequent promotions that have a
regional flavor, including book autograph sessions with popular regional
authors.
The Company promotes its bookstores principally through the use of
geographically concentrated newspaper advertising and direct mail circulars, as
well as point-of-sale materials posted and distributed in the stores. Store
managers are instrumental in tailoring certain promotions for their particular
market area and in designing store displays. The Company also arranges for
special appearances and book autograph sessions with recognized authors to
attract customers and to build and reinforce customer awareness of its stores. A
substantial portion of the Company's advertising expenses are reimbursed from
publishers through their cooperative advertising programs.
STORE OPERATIONS AND SITE SELECTION
In choosing specific store sites within a market area, the Company
applies standardized site selection criteria that take into account numerous
factors, including the local demographics, desirability of available leasing
arrangements, proximity to existing Company operations and overall level of
retail activity. In general, stores are located on major high-traffic roads
convenient to customers and have adequate parking. The Company generally
negotiates short-term leases with renewal options. The Company periodically
reviews the profitability trends and prospects of each of its stores and
evaluates whether or not any underperforming stores should be closed, converted
to a different format or relocated to more desirable locations.
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PURCHASING
The Company's purchasing decisions are centralized and are made by the
Company's merchandising department. The Company's buyers negotiate terms,
discounts and cooperative advertising allowances for all the Company's
bookstores and decide which books to purchase, in what quantity and for which
stores. The buyers use current inventory and sales information provided by the
Company's in-store point-of-sale computer system to make reorder decisions.
Although the majority of purchases are made by the Company's merchandising
department, individual store managers have the flexibility to influence
purchasing decisions in order to respond to local demand.
The Company purchases merchandise from over 500 vendors. The Company
purchases substantially all of its collectors' supplies from one supplier, the
majority of its music inventory from one supplier and substantially all of its
magazines from another supplier, each of which is a related party. No one vendor
accounted for more than 8.1% of the Company's overall merchandise purchases in
the fiscal year ended January 31, 1998. In general, approximately 80% of the
Company's inventory may be returned by the Company for full credit, which
substantially reduces the Company's risk of inventory obsolescence.
DISTRIBUTION CAPABILITIES
American Wholesale receives a substantial portion of its inventory
shipments, including substantially all of its books, at its facility located in
Florence, Alabama. Orders from the Company's bookstores are processed by
computer and assembled for delivery to the stores on pre-determined weekly
schedules. Substantially all deliveries of inventory from American Wholesale's
facilities are made by their dedicated transportation fleet. At the time
deliveries are made to each of the Company's stores, returns of slow moving or
obsolete books are picked up and returned to the American Wholesale returns
processing center. American Wholesale then returns these books to publishers for
credit.
COMPETITION
The retail bookstore industry is highly competitive and includes
competitors that have substantially greater financial and other resources than
the Company. The Company competes directly with national and regional bookstore
chains, independent bookstores, certain mass merchandisers and greeting card
stores. The Company is one of the top three retail bookstore chains in the
nation. In recent years, competing bookstore chains have been expanding their
businesses and certain leading regional and national chains have developed and
opened superstores. The Company also experiences indirect competition from
retail specialty stores that offer books in a particular area of specialty.
Management believes that the key competitive factors in the retail book industry
are convenience of location, selection, customer service and price.
SEASONALITY
Similar to many retailers, the Company's business is seasonal, with its
highest retail sales, gross profit and net income historically occurring in its
fourth fiscal quarter. This seasonal pattern reflects the increased demand for
books and gifts experienced during the year-end holiday selling season. Working
capital requirements are generally at their 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's results of operations depend
significantly upon net sales generated during the fourth fiscal quarter, and any
significant adverse trend in the net sales of such period would have a material
adverse affect on the Company's results of operations for the full year. In
addition to seasonality, the Company's results of operations may fluctuate from
quarter to quarter as a result of the amount and timing of sales and profits
contributed by new stores as well as other factors. Accordingly, the addition of
a large number of new stores in a particular fiscal quarter could adversely
affect the Company's results of operations for that quarter.
TRADEMARKS
"Books-A-Million," "BAM!," "Bookland," "Books & Co.," "Up All Night
Reader," "Kids-A-Million," "Teachers First", "The Write-Price" and "Book$mart"
are the primary registered trademarks of the Company. Management does not
believe that these trademarks are crucial to the continuation of the Company's
operations.
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EMPLOYEES
As of fiscal year end, the Company employed approximately 2,600
full-time associates and 1,700 part-time associates. The number of part-time
associates employed by the Company fluctuates based upon seasonal needs. None of
the Company's associates are covered by a collective bargaining agreement, and
management believes that the Company's relations with its associates are
excellent.
ITEM 2. PROPERTIES
The Company's bookstores are located either in enclosed malls or strip
shopping centers. All of the Company's stores are leased. Generally, these
leases have terms ranging from five to ten years and require the Company to pay
a fixed minimum rental fee and/or a rental fee based on a percentage of net
sales together with certain customary costs (such as property taxes, common area
maintenance and insurance).
The Company's principal executive offices are located in a 20,550
square foot leased building located in Birmingham, Alabama. The lease, which is
with a related party, extends to January 31, 2001, and the Company has an option
to extend the lease for an additional five years.
American Wholesale owns its wholesale distribution center which is
located in an approximately 252,000 square foot facility located in Florence,
Alabama. During fiscal 1995 and 1996, the Company financed the acquisition and
construction of the wholesale distribution facility through loans obtained from
the proceeds of an industrial revenue bond, which are secured by a mortgage
interest in this facility. The Company also leases, from a related party, a
second warehouse facility, which is located in an approximately 286,000 square
foot facility in Tuscumbia, Alabama. In addition, the Company leases all of its
tractor trailers, which comprise its transportation fleet.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings that it
believes could have a material adverse effect upon its business or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the heading "Market and Dividend Information" on
the inside back cover of the Annual Report to Stockholders for the year ended
January 31, 1998 is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under the heading "Selected Consolidated Financial
Data" for the years ended January 29, 1994, through January 31, 1998 on page 6
of the Annual Report to Stockholders for the year ended January 31, 1998, is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information under the heading "Management's Discussion and Analysis
of Financial Condition & Results of Operations" on pages 7 through 9 of the
Annual Report to Stockholders for the year ended January 31, 1998 is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant and its subsidiary
included in the Annual Report to Stockholders for the year ended January 31,
1998 are incorporated herein by reference:
Consolidated Balance Sheets as of January 31, 1998 and February 1,
1997.
Consolidated Statements of Income for the Fiscal Years Ended January
31, 1998, February 1, 1997 and February 3, 1996.
Consolidated Statements of Stockholders' Investment for the Fiscal
Years Ended January 31, 1998, February 1, 1997 and February 3, 1996.
Consolidated Statements of Cash Flow for the Fiscal Years Ended
January 31, 1998, February 1, 1997 and February 3, 1996.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
The information under the heading "Summary of Quarterly Results
(Unaudited)" on page 23 of the Annual Report to Stockholders for the
year ended January 31, 1998 is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The sections under the heading "Proposal I-Election of Directors"
entitled "Nominees for Election - Term Expiring 2001", "Incumbent Directors -
Term Expiring 1999" and "Incumbent Directors - Term Expiring 2000" on pages 2
through 4 of the Proxy Statement for the Annual Meeting of Stockholders to be
held June 4, 1998, are incorporated herein by reference for information on the
directors of the Registrant.
EXECUTIVE OFFICERS
All executive officers of the Company are elected annually by and
serve at the discretion of the Board of Directors. The executive officers
of the Company are listed below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Charles C. Anderson 63 Chairman of the Board of Directors
Clyde B. Anderson 37 Chief Executive Officer, President and Director
Sandra B. Cochran 39 Executive Vice President, Chief Financial Officer
and Assistant Secretary
Terrance G. Finley 44 Senior Vice President - Merchandising
</TABLE>
Charles C. Anderson has served as the Chairman of the Board of
Directors of the Company for more than 28 years. He also served as the Chief
Executive Officer of the Company from 1964 until July 1992. Mr. Anderson is the
father of Clyde B. Anderson, the Company's Chief Executive Officer and a member
of the Company's Board of Directors, and Terry C. Anderson, a member of the
Company's Board of Directors.
Clyde B. Anderson has served as the President of the Company since
November 1987 and as Chief Executive Officer of the Company since July 1992. Mr.
Anderson joined the Company in 1983 and served as the Chief Operating Officer of
the Company from November 1987 to March 1994. Mr. Anderson has served as a
director of the Company since August 1987 and serves on the Board of Directors
and the Compensation Committee of Hibbett Sporting Goods, Inc., a sporting goods
retailer. Mr. Anderson is the son of Charles C. Anderson, the Chairman of the
Company's Board of Directors, and the brother of Terry C. Anderson, a member of
the Company's Board of Directors.
Sandra B. Cochran has served as Executive Vice President since February
1996, Chief Financial Officer since September 1993, and Vice President and
Assistant Secretary of the Company since August 1992. Prior to joining the
Company, Ms. Cochran served as a Vice President (as well as in other capacities)
of SunTrust Securities, Inc., a subsidiary of SunTrust Banks, Inc. for more than
five years.
Terrance G. Finley has served as the Senior Vice President -
Merchandising since January 1998. Mr. Finley served as Vice President -
Merchandising from April 1994 to January 1998 and was named an executive officer
of the Company in March 1995. Mr. Finley served as the General Manager of
Book$mart from February 1992 to April 1994. Prior to joining the Company, Mr.
Finley served as the Vice President - Sales for Smithmark Publishers.
Mr. Lew Burdette was named President of American Wholesale Book
Company, Inc. ("American Wholesale"), a wholly-owned subsidiary of the Company,
on January 9, 1998, and consequently, no longer serves as the Chief Operating
Officer and Executive Vice President of the Company. Further, effective March
17, 1998, Mr. Burdette resigned from the Company's Board of Directors.
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COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors, executive officers and persons who own
beneficially more than 10% of the Company's Common Stock to file reports of
ownership and changes in ownership of such stock with the Securities and
Exchange Commission (the "SEC") and the Nasdaq Stock Market, Inc. Directors,
executive officers and greater than 10% stockholders are required by SEC
regulations to furnish the Company with copies of all such forms they file. To
the Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, its directors, executive officers and greater than 10% stockholders
complied during fiscal 1998 with all applicable Section 16(a) filing
requirements, except for a Form 4 for Mr. Charles C. Anderson for the month of
September 1997. Such Form 4 was filed to report the purchase of an aggregate of
50,000 Shares pursuant to five separate transactions in that month by Mr.
Anderson and his wife and, due to an administrative oversight, was filed three
weeks after the deadline for the filing of such form.
ITEM 11. EXECUTIVE COMPENSATION
The sections under the heading "Executive Compensation," other than
those entitled "Report on Executive Compensation", "Compensation Committee
Interlocks and Insider Participation", "Certain Relationships and Related
Transactions" and "Performance Graph", on pages 9 through 17 of the Proxy
Statement for the Annual Meeting of Stockholders to be held June 4, 1998 are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section under the heading "Proposal I-Election of Directors"
entitled "Beneficial Ownership of Common Stock" on pages 7 and 8 of the Proxy
Statement for the Annual Meeting of Stockholders to be held June 4, 1998 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections under the heading "Executive Compensation" entitled
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" on pages 11 and 12 of the Proxy
Statement for the Annual Meeting of Stockholders to be held June 4, 1998 are
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following Consolidated Financial Statements of Books-A-Million, Inc.
and its subsidiary, included in the Registrant's Annual Report to
Stockholders for the fiscal year ended January 31, 1998 are incorporated by
reference in Part II, Item 8:
Consolidated Balance Sheets as of January 31,1998 and February 1, 1997.
Consolidated Statements of Income for the Fiscal Years Ended January 31,
1998, February 1, 1997 and February 3, 1996.
Consolidated Statements of Stockholders' Investment for the Fiscal
Years Ended January 31, 1998, February 1, 1997 and February 3, 1996.
Consolidated Statements of Cash Flow for the Fiscal Years Ended
January 31, 1998, February 1, 1997 and February 3, 1996.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
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2. Financial Statement Schedule:
The following consolidated financial statement schedule of Books-A-
Million, Inc. is attached hereto:
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable, and therefore
have been omitted.
3. Exhibits **
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
3.1 -- Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1, File No. 33-52256, originally filed September 21, 1992).
3.2 -- Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to Registration Statement on
Form S-1, File No. 33-52256, originally filed September 21, 1992).
4.1 -- See Exhibits 3.1 and 3.2 hereto incorporated herein by reference to the Exhibits of the same
number to Registration Statement on Form S-1, File No. 33-52256, originally filed September 21,
1992.
10.1 -- Lease Agreement between First National Bank of Florence, Alabama, as Trustee, and Bookland
Stores, Inc. (which is a predecessor of the Registrant), an Alabama corporation, dated January
30, 1991 (incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-1, File
No. 33-52256, originally filed September 21, 1992).
*10.2 -- Amended and Restated Stock Option Plan (incorporated by reference to Appendix A of the Registrant's
Proxy Statement, File No. 0-20664, dated April 27, 1998, for the Annual Meeting of the Registrant's
Stockholders to be held June 4, 1998).
*10.3 -- Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.7 to Registration Statement
on Form S-1, File No. 33-52256, originally filed September 21, 1992).
*10.4 -- Amendment to Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.6 to Annual Report
on Form 10-K for the fiscal year ended January 29, 1994, File No. 0-20664, filed on April 29, 1994).
*10.5 -- 401(k) Plan (together with related documents) (incorporated by reference to Exhibit 10.9 to
Registration Statement on Form S-1, File No. 33-52256, originally filed September 21, 1992).
10.6 -- Shareholders Agreement dated as of September 1, 1992 (incorporated by reference to Exhibit 10.9 to
Annual Report on Form 10-K for the fiscal year ended January 31, 1993, File No. 0-20664, filed May 3,
1993).
*10.7 -- Executive Incentive Plan (incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for
the fiscal year ended January 28, 1995, File No. 0-20664, filed April 28, 1995).
10.8 -- Short-Term Credit Agreement dated as of October 27, 1995, between the Company and AmSouth Bank, N.A.
(incorporated by reference to Exhibit 10.6 to Annual Report on Form 10-K for the fiscal year ended
February 3, 1996, File No. 0-20664, filed May 3, 1996).
</TABLE>
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<TABLE>
<S> <C>
10.9 -- Revolving Loan Agreement dated as of October 27, 1995 between the Company and
AmSouth Bank, N.A. (incorporated by reference to Exhibit 10.10 to Annual Report on
Form 10-K for the fiscal year ended February 3, 1996, File 0-20664, filed May 3, 1996).
10.10 -- First amendment to Short-Term Credit Agreement, dated as of November 1, 1996
between the Company and AmSouth Bank, N.A. (incorporated by reference to Exhibit 10.11 to
Annual Report on Form 10-K for the fiscal year ended February 1, 1997, File 0-20664, filed May
2, 1997).
10.11 -- First amendment to Revolving Loan Agreement dated June 4, 1997 between the Company and
AmSouth Bank of Alabama, SunTrust Bank, Atlanta and NationsBank, N.A. and Master Assignment and
Acceptance Agreement dated November 7, 1997 between AmSouth Bank, NationsBank, N.A., SunTrust Bank,
Atlanta and SouthTrust Bank, N.A.
10.12 -- Second amendment to Short-Term Credit Agreement, dated June 4, 1997 between the Company
and AmSouth Bank of Alabama.
13 -- Portions of the Annual Report to Stockholders for the year ended January 31, 1998 that
are expressly incorporated by reference into Part II of this Report.
21 -- Subsidiary of the Registrant.
23 -- Consent of Independent Public Accountants to the incorporation of their report on the Company's
consolidated financial statements for the fiscal year ended January 31, 1998, into the
Registration Statements on Form S-8. (File Nos. 33-72812 and 33-86980).
27.1 -- Financial Data Schedule (for SEC use only).
27.2 -- Financial Data Schedule - Restated for the period ended February 1, 1997
(for SEC use only).
</TABLE>
* The indicated exhibit is a compensatory plan required to be filed as an
exhibit to this Annual Report on Form 10-K.
** The Company has financed certain capital expenditures with proceeds of
an industrial development revenue bond (the "Bond"), for which the outstanding
balance as of January 31, 1998, is less than 10% of the Company's total assets.
The Bond documents have not been included as an exhibit hereto but the Company
will provide such documents to the Securities and Exchange Commission upon
request.
(b) Reports on Form 8-K
Not applicable.
(c) See Item 14(a) (3), the Exhibit Index and the Exhibits attached hereto.
(d) See Item 14(a) (2).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BOOKS-A-MILLION, INC.
by: /s/ Clyde B. Anderson
------------------------------------
Clyde B. Anderson
Chief Executive Officer and President
Date: May 1, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
PRINCIPAL EXECUTIVE OFFICER:
/s/ Clyde B. Anderson
- -------------------------------------
Clyde B. Anderson
Chief Executive Officer and President
Date: May 1, 1998
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Sandra B. Cochran
- -------------------------------------
Sandra B. Cochran
Executive Vice President, Chief Financial
Officer and Assistant Secretary
Date: May 1, 1998
DIRECTORS:
/s/ Charles C. Anderson
- -------------------------------------
Charles C. Anderson
Date: May 1, 1998
/s/ Clyde B Anderson
- -------------------------------------
Clyde B. Anderson
Date: May 1, 1998
[Signatures continued on following page]
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[Signatures continued]
DIRECTORS:
/s/ Ronald G. Bruno
- -------------------------------------
Ronald G. Bruno
Date: May 1, 1998
/s/ John E. Southwood
- -------------------------------------
John E. Southwood
Date: May 1, 1998
/s/ J. Barry Mason
- -------------------------------------
J. Barry Mason
Date: May 1, 1998
/s/ Terry C. Anderson
- -------------------------------------
Terry C. Anderson
Date: May 1, 1998
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Books-A-Million, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Books-A-Million, Inc. (A Delaware
corporation) and subsidiary included in this Form 10-K and have issued our
report thereon dated March 17, 1998. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the accompanying index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
March 17, 1998
S-1
<PAGE> 15
SCHEDULE II
BOOKS-A-MILLION, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 3, 1996, FEBRUARY 1, 1997 AND JANUARY 31, 1998
<TABLE>
<CAPTION>
CHARGED/
BALANCE AT (CREDITED) (DEDUCTIONS)/
BEGINNING TO COSTS RECOVERIES BALANCE AT
OF YEAR AND EXPENSES NET END OF YEAR
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED FEBRUARY 3, 1996:
Allowance for doubtful accounts $ 200,320 $ (50,323) $ - $ 149,997
FOR THE YEAR ENDED FEBRUARY 1, 1997:
Allowance for doubtful accounts $ 149,997 $ 180,101 $ - $ 330,098
FOR THE YEAR ENDED JANUARY 31, 1998:
Allowance for doubtful accounts $ 330,098 $ 25,416 $ - $ 355,514
</TABLE>
S-2
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Registration
Statement on Form S-1, File No. 33-52256, originally filed
September 21, 1992).
3.2 -- Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to Registration Statement on Form S-1, File No.
33-52256, originally filed September 21, 1992).
4.1 -- See Exhibits 3.1 and 3.2 hereto incorporated herein by
reference to the Exhibits of the same number to the
Registration Statement on Form S-1, File No. 33-52256,
originally filed September 21, 1992.
10.1 -- Lease Agreement between First National Bank of Florence,
Alabama, as Trustee, and Bookland Stores, Inc. (which is a
predecessor of the Registrant), an Alabama corporation,
dated January 30, 1991 (incorporated by reference to Exhibit
10.1 to Registration Statement on Form S-1, File No.
33-52256, originally filed September 21, 1992).
10.2 -- Amended and Restated Stock Option Plan (incorporated by
reference to Appendix A of the Registrant's Proxy Statement,
File No. 0-20664, dated April 27, 1998, for the Annual
Meeting of the Registrant's Stockholders to be held June 4,
1998).
10.3 -- Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.7 to Registration Statement on Form S-1, File No.
33-52256, originally filed September 21, 1992).
10.4 -- Amendment to Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.6 to Annual Report on 10-K, for the
fiscal year ended January 29, 1994, File No. 0-20664, filed
on April 29, 1994).
10.5 -- 401(k) Plan (together with related documents) (incorporated
by reference to Exhibit 10.9 to Registration Statement on
Form S-1, File No. 33-52256, originally filed September 21,
1992).
10.6 -- Shareholders Agreement dated as of September 1, 1992,
(incorporated by reference to Exhibit 10.9 to Annual Report
on Form 10-K for the fiscal year ended January 31, 1993,
File No. 0-20664 filed May 3, 1993).
10.7 -- Executive Incentive Plan (incorporated by reference to
Exhibit 10.8 to Annual Report on Form 10-K for the fiscal
year ended January 28, 1995, File No. 0-20664, filed April
28, 1995).
10.8 -- Short-Term Credit Agreement dated as of October 27, 1995
between the Company and AmSouth Bank, N.A. (incorporated by
reference to Exhibit 10.6 to Annual Report on Form 10-K for
the fiscal year ended February 3, 1996, File No. 0-200664,
filed May 3, 1996).
10.9 -- Revolving Loan Agreement dated as of October 27, 1995
between the Company and AmSouth Bank, N.A. (incorporated by
reference to Exhibit 10.10 to Annual Report on Form 10-K for
the fiscal year ended February 3, 1996, File No. 0-20664,
filed May 3, 1996).
10.10 -- First amendment to Short-Term Credit Agreement, dated
November 1, 1996, between the Company and AmSouth Bank, N.A.
(incorporated by reference to Exhibit 10.11 to Annual Report
on Form 10-K for the fiscal year ended February 1, 1997,
File No. 0-20664, filed May 2, 1997).
10.11 -- First amendment to Revolving Loan Agreement dated June 4,
1997 between the Company and AmSouth Bank of Alabama,
SunTrust Bank, Atlanta and NationsBank, N.A. and Master
Assignment and Acceptance Agreement dated November 7, 1997
between AmSouth Bank, NationsBank, N.A., SunTrust Bank,
Atlanta and SouthTrust Bank, N.A.
10.12 -- Second amendment to Short-Term Credit Agreement, dated June
4, 1997 between the Company and AmSouth Bank of Alabama.
13 -- Portions of the Annual Report to Stockholders for the year
ended January 31, 1998 that are expressly incorporated by
reference into Part II of this report.
21 -- Subsidiary of the Registrant.
23 -- Consent of Independent Public Accountants to the
incorporation of their report on the Company's consolidated
financial statements for the fiscal year ended January 31,
1998 into the Registration Statements on Form S-8. (File
Nos. 33-72812 and 33-86980).
27.1 -- Financial Data Schedule (for SEC use only).
27.2 -- Financial Data Schedule -- Restated for the period ended
February 1, 1997 (for SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 10.11
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT dated June 4, 1997 ("this
Amendment") is entered into by BOOKS-A-MILLION, INC., a Delaware corporation
("BAM"), AMERICAN WHOLESALE BOOK COMPANY, INC., an Alabama corporation ("AWBC";
BAM and AWBC are sometimes together referred to as the "Borrowers"), AMSOUTH
BANK OF ALABAMA, an Alabama banking corporation ("AmSouth"), SUNTRUST BANK,
ATLANTA, a Georgia banking corporation, and NATIONSBANK, N.A., a national
banking association, successor by merger to NationsBank, N.A. (South), a
national banking association formerly known as NationsBank of Georgia, N.A.
(collectively, the "Lenders"), and AMSOUTH BANK OF ALABAMA, an Alabama banking
corporation, as agent for the Lenders (the "Agent").
RECITALS
A. The Borrowers, the Agent and the Lenders have heretofore entered
into that certain Credit Agreement dated October 27, 1995 (the "Agreement")
pursuant to which the Lenders made available to the Borrowers a revolving credit
facility in an aggregate principal amount outstanding not to exceed $50,000,000
(the "Revolving Facility"), the proceeds of which are to be used by the
Borrowers for general corporate purposes.
A. The Borrowers have requested the Lenders to increase the Revolving
Facility to an aggregate principal amount outstanding not to exceed $90,000,000,
the proceeds of which will continue to be used by the Borrowers for general
corporate purposes.
B. The Lenders are willing to increase the amount of the Revolving
Facility available to the Borrowers only if, among other things, the Borrowers
enter into this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, and to
induce the Lenders to increase the amount of the Revolving Facility, the
Borrowers, the Lenders and the Agent hereby agree as follows:
1. Capitalized terms used in this Amendment and not otherwise defined
herein have the respective meanings attributed thereto in the Agreement.
2. The defined term "Applicable Commitment Percentage" set forth in
Article I of the Agreement is hereby deleted and replaced in its entirety by the
following:
"Applicable Commitment Percentage" shall mean, for each
Lender, a fraction, the numerator of which shall be the then
amount of such Lender's Commitment and the denominator of
which shall be the aggregate amount of the Commitments of all
the Lenders, which Applicable Commitment
<PAGE> 2
Percentage for each Lender as of June 4, 1997 is as set forth
on the signature pages of the First Amendment to Credit
Agreement under the caption "Applicable Commitment
Percentage".
3. The defined term "Cash Management Line of Credit" is hereby added to
Article I of the Agreement and shall read as follows:
"Cash Management Line of Credit" shall mean that certain line
of credit in the maximum principal amount of $10,000,000 made
available by AmSouth, as lender, to the Borrowers pursuant to
a Short-Term Credit Agreement dated as of October 27, 1995, as
amended by a certain First Amendment thereto dated November 1,
1996, and by a Second Amendment thereto dated June 4, 1997,
with a maturity date of June 3, 1998, as the same may be
renewed or extended from time to time hereafter.
4. The defined term "Revolving Facility" set forth in Article I of the
Agreement is hereby deleted and replaced in its entirety by the following:
"Revolving Facility shall mean the credit facility made
available to the Borrowers by the Lenders under the terms of
Article 2 in an aggregate amount of up to $90,000,000 as may
be reduced by the Borrowers pursuant to Section 2.7 hereof."
5. The defined term "Funded Debt" set forth in Article I of the
Agreement is hereby deleted and replaced in its entirety by the following:
"Funded Debt shall mean all Debt of BAM and the Consolidated
Entities, on a consolidated basis, that matures by its terms
more than one year after, or is renewable or extendible at the
option of the debtor to a date more than one year after the
date as of which Funded Debt is being determined, LESS the
amount of credit available to the Borrowers but not yet
advanced by AmSouth under the Cash Management Line of Credit."
6. The defined term "Termination Date" set forth in Article I of the
Agreement is hereby deleted and replaced in its entirety by the following:
"Termination Date shall mean June 3, 2002, as the same may be
extended from time to time in accordance with Section 2.12
hereof."
7. The reference to the figure "$50,000,000" as it appears in Section
2.1(a) of the Agreement is hereby amended to refer to the figure "$90,000,000."
8. Section 5.8 set forth in Article 5 of the Agreement is hereby
amended to read, in its entirety, as follows:
2
<PAGE> 3
SECTION 5.8 ERISA.
(a) Prohibited Transactions. The execution and delivery of
this Agreement and the issuance and delivery of the Notes as
contemplated hereby will not involve any prohibited transaction within
the meaning of ERISA or Section 4975 of the Internal Revenue Code, as
amended.
(b) Compliance. Based on ERISA and the regulations and
published interpretations thereunder, it is in compliance in all
material respects with the applicable provisions of ERISA.
(c) Reportable Events. No "Reportable Event," as defined in
Section 4043(b) of Title IV of ERISA, has occurred with respect to any
plan maintained by it.
(d) Liabilities. Neither BAM nor any Consolidated Entity is
currently or will become subject to any liability (other than routine
Plan expenses or contributions, if timely paid), tax or penalty
whatsoever to any person whomsoever, which liability, tax or penalty is
directly or indirectly related to any Plan including, but not limited
to, any penalty or liability arising under Title I or Title IV of
ERISA, any tax or penalty resulting from a loss of deduction under
Sections 404 or 419 of the Code, or any tax or penalty under Chapter 43
of the Code, except such liabilities, taxes, or penalties (when taken
as a whole) as will not have a material adverse effect on BAM and its
Consolidated Entities taken as a whole, or upon their financial
condition, assets, business, operations, liabilities or prospects; and
(e) Funding. BAM and each ERISA Affiliate has made full and
timely payment of all amounts (i) required to be contributed under the
terms of each Plan and applicable law and (ii) required to be paid as
expenses of each Plan. No Plan would have an "amount of unfunded
benefit liabilities" (as defined in Section 4001(a)(18) of ERISA) if
such Plan were terminated as of the date on which this representation
and warranty is made.
9. Notwithstanding the execution of this Amendment, all of the
indebtedness evidenced by each of the Notes shall remain in full force and
effect, as modified hereby, and nothing contained in this Amendment shall be
construed to constitute a novation of the indebtedness evidenced by any of the
Notes or to release, satisfy, discharge, terminate or otherwise affect or impair
in any manner whatsoever (a) the validity or enforceability of the indebtedness
evidenced by any of the Notes; (b) the liens, security interests, assignments
and conveyances effected by the Agreement or the Loan Documents, or the priority
thereof; (c) the liability of any maker, endorser, surety, guarantor or other
person that may now or hereafter be liable under or on account of any of the
Notes or the Agreement or the Loan Documents; or (d) any other security or
instrument now or hereafter held by the Lender as security for or as evidence of
any of the above-described indebtedness.
10. All references in the Loan Documents to "Credit Agreement" shall
refer to the Agreement as amended by this Amendment, and as the Agreement may be
further amended from time to time.
11. Each of the Notes dated October 27, 1995, executed and delivered by
the
3
<PAGE> 4
Borrower to the respective Lenders in connection with the execution of the
Agreement shall be marked "Renewed by that Certain Amended and Restated Note
dated June 4, 1997" and retained in the respective Lenders' files until the
Loans have been paid in full and the Agreement has been terminated in writing,
at which time each of the said Notes shall be returned to the Borrowers.
12. The Borrowers hereby certify that the organizational documents of
the Borrowers have not been amended since October 27, 1995.
13. The Borrowers hereby represent and warrant to the Lender that all
representations and warranties contained in the Agreement are true and correct
as of the date hereof; and the Borrowers hereby certify that no Event of Default
nor any event that, upon notice or lapse of time or both, would constitute an
Event of Default, has occurred and is continuing.
14. Except as hereby amended, the Agreement shall remain in full force
and effect as written. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which when
taken together shall constitute one and the same instrument. The covenants and
agreements contained in this Amendment shall apply to and inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns.
15. Nothing contained herein shall be construed as a waiver,
acknowledgment or consent to any breach of or Event of Default under the
Agreement and the Loan Documents not specifically mentioned herein.
16. This Amendment shall be governed by the laws of the State of
Alabama.
4
<PAGE> 5
IN WITNESS WHEREOF, each of the Borrowers, the Lenders and the Agent
has caused this Amendment to be executed and delivered by its duly authorized
corporate officer as of the day and year first above written.
BOOKS-A-MILLION, INC.
By:/s/ Sandra B. Cochran
---------------------------------
Its Executive Vice President
-----------------------------
AMERICAN WHOLESALE BOOK COMPANY,
INC.
By:/s/ Sandra B. Cochran
---------------------------------
Its Vice President
-----------------------------
Hand Delivery Address:
402 Industrial Lane
Birmingham, Alabama 35211
FAX: (205) 945-1772
Attention: Chief Financial Officer
Mailing Address:
Post Office Box 19768
Birmingham, Alabama 35219
FAX: (205) 945-1772
Attention: Chief Financial Officer
<PAGE> 6
AMSOUTH BANK OF ALABAMA
By: /s/ David A. Simmons
---------------------------------------
Its Senior Vice President
Commitment Amount: $32,000,000
Applicable Commitment Percentage: 35.556%
Lending Office and Hand Delivery Address:
7th Floor, AmSouth-Sonat Tower
1900 Fifth Avenue North
Birmingham, Alabama 35203
FAX: (205) 801-0157
Attention: David A. Simmons
Mailing Address:
P. O. Box 11007
Birmingham, Alabama 35288
FAX: (205) 801-0157
Attention: David A. Simmons
<PAGE> 7
SUNTRUST BANK, ATLANTA
By: /s/ David J./ Edge
---------------------------------------
Its Vice President
-----------------------------------
By: /s/ John R. Frazer
---------------------------------------
Its Vice President
-----------------------------------
Commitment Amount: $29,000,000
Applicable Commitment Percentage: 32.222%
Lending Office and Hand Delivery Address:
25 Park Place N.E.
Mail Code 120 - 24th Floor
Atlanta, Georgia 30303
FAX: (404) 827-6270
Attention: F. McClellan Deaver, III
Mailing Address:
Post Office Box 4418
Mail Code 120
Atlanta, Georgia 30302
FAX: (404) 827-6270
Attention: F. McClellan Deaver, III
<PAGE> 8
NATIONSBANK, N.A.
By: /s/ Nancy S. Goldman
---------------------------------------
Its Vice President
-----------------------------------
Commitment Amount: $29,000,000
Applicable Commitment Percentage: 32.222%
Lending Office, Hand Delivery and Mailing
Address:
600 Peachtree Street, N.E.
21st Floor
Atlanta, Georgia 30306
FAX: (404) 607-6484
Attention: Nancy S. Goldman
<PAGE> 9
AMSOUTH BANK OF ALABAMA, as Agent
By: /s/ David A. Simmons
---------------------------------------
Its Senior Vice President
<PAGE> 10
MASTER ASSIGNMENT AND ACCEPTANCE AGREEMENT
THIS MASTER ASSIGNMENT AND ACCEPTANCE AGREEMENT dated November 7, 1997
("this Agreement") is executed by and between AMSOUTH BANK, an Alabama banking
corporation, NATIONSBANK, N.A., a national banking association, and SUNTRUST
BANK, ATLANTA, a Georgia banking corporation (collectively, the "Assignors" or
individually, an "Assignor") and SOUTHTRUST BANK, NATIONAL ASSOCIATION, a
national banking association (the "Assignee").
RECITALS
WHEREAS, the Assignors (or their predecessors) have heretofore entered
into that certain Credit Agreement dated October 27, 1995, as amended by a First
Amendment to Credit Agreement dated June 4, 1997 (together and as amended from
time to time, the "Credit Agreement"), whereby the Assignors agreed to extend
Credit to BOOKS-A-MILLION, INC., a Delaware corporation, and AMERICAN WHOLESALE
BOOK COMPANY, INC., an Alabama corporation (together, the "Borrowers"), such
Credit being generally described as a $90,000,000 line of credit for Syndicated
Loans and Competitive Bid Loans, all as more particularly described in the
Credit Agreement;
WHEREAS, the Assignee wishes to purchase an interest in the Credit
extended by the Assignors to the Borrowers under the Credit Agreement, as more
fully set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and of other
good and valuable consideration, the sufficiency and receipt of which is hereby
acknowledged, the Assignors and the Assignee hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms
used in this Agreement and in the foregoing recitals shall have the meanings
assigned to them in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. On and as of the Effective Date (as
defined below), each Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from each Assignor, WITHOUT RECOURSE, that
portion of each Assignor's individual rights and obligations as a Lender under
the Credit Agreement and the other Loan Documents that is equivalent to a
5.5555% interest in and to all of the rights and obligations of all of the
Lenders, collectively, under the Credit Agreement and the other Loan Documents,
such that after giving effect to this Agreement, the Assignee shall have the
Page 1 of 9
<PAGE> 11
Applicable Commitment Percentage, the Commitment Amount, and the amount of
outstanding Syndicated Loans indicated "On and After the Effective Date" beneath
its signature on the attached signature page, and said rights and obligations
shall include, without limitation, (i) a percentage interest equal to Assignee's
Applicable Commitment Percentage in funded Syndicated Loans owing to the
Assignors on the Effective Date, (ii) the obligation to participate in future
Advances of Syndicated Loans to the Borrowers in accordance with the Assignee's
Applicable Commitment Percentage, and (iii) the right, but not the obligation,
to offer to make Competitive Bid Loans to the Borrowers as described in Article
2 of the Credit Agreement.
3. REPRESENTATIONS AND WARRANTIES OF ASSIGNORS. Each Assignor (i)
represents and warrants that, as of the Effective Date, its Commitment Amount,
Applicable Commitment Percentage and the aggregate outstanding principal amount
of the Syndicated Loans owing to it (without giving effect to assignments
thereof set forth in this Agreement) are correctly set forth beneath each
Assignor's signature on the attached signature pages under the heading "Before
the Effective Date"; (ii) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (iii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or any of the Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or any
of the Loan Documents or any other instrument or document furnished pursuant
thereto; and (iv) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrowers or the
performance or observance by Borrowers of any of their obligations under the
Credit Agreement or any of the Loan Documents or any other instrument or
document furnished pursuant thereto.
4. REPRESENTATIONS AND WARRANTIES OF ASSIGNEE. The Assignee (i)
confirms that it has received a copy of the Credit Agreement, together with
copies of the financial statements provided most recently by the Borrowers under
Section 7.3 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Agreement; (ii) agrees that it will, independently and without reliance upon the
Agent or the Assignors (individually or collectively) and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) appoints and authorizes the Agent to take such actions on its
behalf and to exercise such powers under the Credit Documents as are delegated
to the Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (iv) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Credit Agreement are
required to be performed by the Lenders; and (v) specifies as its address for
notices and its Applicable Lending Office, until otherwise specified in writing,
the office set forth beneath its name on the attached signature page.
5. NOTES. Each Assignor (i) attaches its Amended and Restated
Syndicated Promissory Note dated June 4, 1997 and requests that the Agent
exchange such note for a Second Amended and Restated Syndicated Note, executed
by the Borrowers, dated the Effective Date,
Page 2 of 9
<PAGE> 12
and made payable to each Assignor in a maximum principal amount equal to such
Assignor's Commitment Amount "On and After the Effective Date" as set forth
beneath its signature on the attached signature pages and (ii) requests that the
Agent deliver to the Assignee two promissory notes, each executed by the
Borrowers, dated the Effective Date, and made payable to the Assignee as
follows: a Syndicated Promissory Note in a maximum principal amount equal to the
Assignee's Commitment Amount "On and After the Effective Date" set forth beneath
its signature on the attached signature pages and a Competitive Bid Note in the
maximum principal amount of $90,000,000.
6. EFFECTIVE DATE. The effective date for this Agreement shall be
November 7, 1997 (the "Effective Date"). Following the execution of this
Agreement, it will be delivered to the Agent for acceptance and recording by the
Agent.
7. EFFECT OF AGREEMENT. Upon such acceptance and recording, on and as
of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Agreement, have the rights and obligations
of a Lender thereunder and under the Loan Documents and (ii) the Assignors
shall, only to the extent provided in this Agreement, relinquish their rights
and be released from their obligations under the Credit Agreement.
8. PAYMENTS AND CREDITS. Upon such acceptance and recording, on and
after the Effective Date, the Agent shall make all payments under the Credit
Agreement and Notes in respect of the interest assigned hereby (including,
without limitation, all payments of principal, interest, commitment fees with
respect thereto) to the Assignors and Assignee in accordance with their
respective Applicable Commitment Percentages "On and After the Effective Date"
as set forth beneath their signatures on the attached signature pages. The
Assignors and Assignee shall make all appropriate adjustments in payments under
this Agreement, the Credit Agreement and the Notes for periods prior to the
Effective Date directly between themselves.
9. MISCELLANEOUS. This Agreement shall be governed by and construed in
accordance with, the laws of the State of Alabama. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
and all of which when taken together shall constitute one and the same
instrument. The covenants and agreements contained in this Agreement shall apply
to and inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. If any provision of this Agreement
is held prohibited or unenforceable in a particular jurisdiction, such provision
shall be ineffective only in the applicable jurisdiction and only in such
jurisdiction and only to the extent of such prohibition or unenforceability
without invalidating or affecting the enforceability of the remaining provisions
of this Agreement.
[Remainder of this page intentionally blank.]
Page 3 of 9
<PAGE> 13
IN WITNESS WHEREOF, each of the Assignors, the Assignee and the Agent
has caused this Agreement to be executed and delivered by its duly authorized
corporate officer as of the day and year first above written.
"ASSIGNOR:"
AMSOUTH BANK
By: /s/ David A. Simmons
------------------------------------------
Its Senior Vice President
Before the Effective Date:
-------------------------
Commitment Amount: $32,000,000
Applicable Commitment Percentage: 35.556%
Outstanding Syndicated Loans: $7,111,120
On and After the Effective Date:
-------------------------------
Commitment Amount: $27,000,000
Applicable Commitment Percentage: 30.000%
Outstanding Syndicated Loans: $6,000,000
Page 4 of 9
<PAGE> 14
"ASSIGNOR:"
NATIONSBANK, N.A.
By: /s/ Nancy S. Goldman
------------------------------------------
Its: Vice President
-----------------------------------------
Before the Effective Date:
-------------------------
Commitment Amount: $29,000,000
Applicable Commitment Percentage: 32.222%
Outstanding Syndicated Loans: $6,444,440
On and After the Effective Date:
-------------------------------
Commitment Amount: $24,000,000
Applicable Commitment Percentage: 26.667%
Outstanding Syndicated Loans: $5,333,400
Page 5 of 9
<PAGE> 15
"ASSIGNOR:"
SUNTRUST BANK, ATLANTA
By: /s/ David J. Edge
------------------------------------------
Its: Vice President
-----------------------------------------
By: /s/ John R. Frazer
------------------------------------------
Its: Vice President
-----------------------------------------
Before the Effective Date:
-------------------------
Commitment Amount: $29,000,000
Applicable Commitment Percentage: 32.222%
Outstanding Syndicated Loans: $6,444,440
On and After the Effective Date:
-------------------------------
Commitment Amount: $24,000,000
Applicable Commitment Percentage: 26.667%
Outstanding Syndicated Loans: $5,333,400
Page 6 of 9
<PAGE> 16
"ASSIGNEE:"
SOUTHTRUST BANK, NATIONAL ASSOCIATION
By: /s/ J. Burton McDonald, Jr.
------------------------------------------
Its: Vice President
-----------------------------------------
Before the Effective Date:
-------------------------
Commitment Amount: $00.00
Applicable Commitment Percentage: zero
Outstanding Syndicated Loans: $00.00
On and After the Effective Date:
-------------------------------
Commitment Amount: $15,000,000
Applicable Commitment Percentage: 16.666%
Outstanding Syndicated Loans: $3,333,200
Lending Office and Hand Delivery Address:
----------------------------------------
6th Floor, SouthTrust Tower
420 North 20th Street
Birmingham, Alabama 35203
FAX: (205) 254-5911
Attention: J. Burton McDonald, Jr.
Mailing Address:
Post Office Box 2554
Birmingham, Alabama 35290
Attention: J. Burton McDonald, Jr.
Page 7 of 9
<PAGE> 17
"AGENT:"
Accepted this 7th day of November, 1997
-----
AMSOUTH BANK, as Agent
By: /s/ David A. Simmon
------------------------------------------
Its: Senior Vice President
Page 8 of 9
<PAGE> 18
CONSENT TO MASTER ASSIGNMENT AND ACCEPTANCE AGREEMENT:
"BORROWERS:"
BOOKS-A-MILLION, INC., a Delaware corporation
By: /s/ Sandra B. Cochran
------------------------------------------
Name: Sandra B. Cochran
-------------------------------------
Title: Executive Vice President
------------------------------------
AMERICAN WHOLESALE BOOK COMPANY, INC., an Alabama corporation
By: /s/ Sandra B. Cochran
------------------------------------------
Name: Sandra B. Cochran
-------------------------------------
Title: Vice President
------------------------------------
Page 9 of 9
<PAGE> 1
EXHIBIT 10.12
SECOND AMENDMENT
TO SHORT-TERM CREDIT AGREEMENT
THIS SECOND AMENDMENT TO SHORT-TERM CREDIT AGREEMENT dated June 4, 1997
("this Amendment") is entered into by BOOKS-A-MILLION, INC., a Delaware
corporation ("BAM"), AMERICAN WHOLESALE BOOK COMPANY, INC., an Alabama
corporation ("AWBC"; BAM and AWBC are sometimes together referred to as the
"Borrowers") and AMSOUTH BANK OF ALABAMA, an Alabama banking corporation (the
"Lender").
RECITALS
A. The Borrowers and the Lender have heretofore entered into a
Short-Term Credit Agreement dated as of October 27, 1995, (the "Credit
Agreement") whereby the Lender made available to the Borrowers a revolving
credit facility in an aggregate principal amount outstanding not to exceed
$10,000,000 (the "Revolving Facility"), the proceeds of which were to be used by
the Borrowers for general corporate purposes.
B. The Borrowers and the Lender entered thereafter into a First
Amendment to Short-Term Credit Agreement dated as of November 1, 1996, (the
"First Amendment") whereby the Lender increased the Maximum Credit Amount of the
Revolving Facility to an amount not to exceed $20,000,000 and extended the
Termination Date of the Revolving Facility until June 30, 1997. The Credit
Agreement and the First Amendment shall be collectively referred to as the
"Agreement."
B. The Borrowers have applied to the Lender for an extension of the
Termination Date of the Revolving Facility until June 3, 1998 and for a
reduction in the Maximum Credit Amount of the Revolving Facility to an amount
not to exceed $10,000,000, the proceeds of which will continue to be used by the
Borrowers for general corporate purposes.
C. The Borrowers and the Lender wish to amend the Agreement as
requested by the Borrowers and as further set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the recitals and the mutual
obligations and covenants contained herein, the Borrowers and the Lender hereby
agree as follows:
1. Capitalized terms used in this Amendment and not otherwise defined
herein have the respective meanings attributed thereto in the Agreement.
2. The defined term "Maximum Credit Agreement" set forth in Article I
of the Agreement is hereby deleted in its entirety.
3. The defined term "Maximum Credit Amount" is added to Article I of
the Agreement and shall read as follows:
<PAGE> 2
"Maximum Credit Amount shall mean Ten Million and No/100 Dollars
($10,000,000.00)."
4. The defined term "Revolving Facility" set forth in Article I of the
Agreement is hereby amended to read, in its entirety, as follows:
"Revolving Facility shall mean the credit facility made
available to the Borrowers by the Lender under the terms of Article 2
in an aggregate amount of $10,000,000 as may be reduced by the
Borrowers pursuant to Section 2.6 hereof."
5. The defined term "Termination Date" set forth in Article I of the
Agreement is hereby amended to read, in its entirety, as follows:
"Termination Date" means June 3, 1998, as the same may be
extended from time to time in accordance with Section 2.7 hereof."
6. Section 5.8 set forth in Article 5 is hereby amended to read, in its
entirety, as follows:
SECTION 5.8 ERISA.
(a) Prohibited Transactions. The execution and delivery of
this Agreement and the issuance and delivery of the Note as
contemplated hereby will not involve any prohibited transaction within
the meaning of ERISA or Section 4975 of the Internal Revenue Code, as
amended.
(b) Compliance. Based on ERISA and the regulations and
published interpretations thereunder, it is in compliance in all
material respects with the applicable provisions of ERISA.
(c) Reportable Events. No "Reportable Event," as defined in
Section 4043(b) of Title IV of ERISA, has occurred with respect to any
plan maintained by it.
(d) Liabilities. Neither BAM nor any Consolidated Entity is
currently or will become subject to any liability (other than routine
Plan expenses or contributions, if timely paid), tax or penalty
whatsoever to any person whomsoever, which liability, tax or penalty is
directly or indirectly related to any Plan including, but not limited
to, any penalty or liability arising under Title I or Title IV of
ERISA, any tax or penalty resulting from a loss of deduction under
Sections 404 or 419 of the Code, or any tax or penalty under Chapter 43
of the Code, except such liabilities, taxes, or penalties (when taken
as a whole) as will not have a material adverse effect on BAM and its
Consolidated Entities taken as a whole, or upon their financial
condition, assets, business, operations, liabilities or prospects; and
(e) Funding. BAM and each ERISA Affiliate has made full and
timely payment of all amounts (i) required to be contributed under the
terms of each Plan and
2
<PAGE> 3
applicable law and (ii) required to be paid as expenses of each Plan.
No Plan would have an "amount of unfunded benefit liabilities" (as
defined in Section 4001(a)(18) of ERISA) if such Plan were terminated
as of the date on which this representation and warranty is made.
7. The reference to the figure "$20,000,000" as it refers to the
defined term "Note" in Section 2.1(a) of the Agreement is hereby amended to
refer instead to the figure "$10,000,000."
8. Notwithstanding the execution of this Amendment, all of the
indebtedness evidenced by the Note shall remain in full force and effect, as
modified hereby, nothing contained in this Amendment shall be construed to
constitute a novation of the indebtedness evidenced by the Note or to release,
satisfy, discharge, terminate or otherwise affect or impair in any manner
whatsoever (a) the validity or enforceability of the indebtedness evidenced by
the Note; (b) the liens, security interests, assignments and conveyances
effected by the Agreement or the Loan Documents, or the priority thereof; (c)
the liability of any maker, endorser, surety, guarantor or other person that may
now or hereafter be liable under or on account of the Note or the Agreement or
the Loan Documents; or (d) any other security or instrument now or hereafter
held by the Lender as security for or as evidence of any of the above-described
indebtedness.
9. All references in the Loan Documents to "Credit Agreement" shall
refer to the Agreement as amended by this Amendment, and as the Agreement may be
further amended from time to time.
10. The Borrowers hereby certify that the organizational documents of
the Borrowers have not been amended since October 27, 1995.
11. The Borrowers hereby represent and warrant to the Lender that all
representations and warranties contained in the Agreement are true and correct
as of the date hereof; and the Borrowers hereby certify that no Event of Default
nor any event that, upon notice or lapse of time or both, would constitute an
Event of Default, has occurred and is continuing.
12. Except as hereby amended, the Agreement shall remain in full force
and effect as written. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which when
taken together shall constitute one and the same instrument. The covenants and
agreements contained in this Amendment shall apply to and inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns.
13. Nothing contained herein shall be construed as a waiver,
acknowledgment or consent to any breach of or Event of Default under the
Agreement and the Loan Documents not expressly waived, acknowledged or consented
to previously by the Lender in writing.
14. This Amendment shall be governed by the laws of the State of
Alabama.
3
<PAGE> 4
[Signatures on following pages]
4
<PAGE> 5
IN WITNESS WHEREOF, each of the Borrowers and the Lender has caused
this Amendment to be executed and delivered by its duly authorized corporate
officer as of the day and year first above written.
BOOKS-A-MILLION, INC.
By:/s/ Sandra B. Cochran
--------------------------------------
Its Executive Vice President
----------------------------------
AMERICAN WHOLESALE BOOK COMPANY,
INC.
By:/s/ Sandra B. Cochran
--------------------------------------
Its Vice President
----------------------------------
Hand Delivery Address:
402 Industrial Lane
Birmingham, Alabama 35211
FAX: (205) 945-1772
Attention: Chief Financial Officer
Mailing Address:
Post Office Box 19768
Birmingham, Alabama 35219
FAX: (205) 945-1772
Attention: Chief Financial Officer
<PAGE> 6
AMSOUTH BANK OF ALABAMA
By:/s/ David A. Simmons
--------------------------------------
Its Senior Vice President
---------------------------------
Hand Delivery Address:
AmSouth-Sonat Tower
1900 Fifth Avenue North
Birmingham, Alabama 35203
FAX: (205) 326-5601
Attention: David A. Simmons
Mailing Address:
P. O. Box 11007
Birmingham, Alabama 35288
FAX: (205) 326-5601
Attention: David A. Simmons
<PAGE> 1
EXHIBIT 13
BOOKS-A-MILLION(R)
<PAGE> 2
EXHIBIT 13
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------
1/31/98 2/1/97 2/3/96 1/28/95 1/29/94
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales $324,762 $278,613 $229,801 $ 172,366 $ 123,263
Cost of products sold 238,342 206,269 164,124 124,107 89,379
-------------------------------------------------------
Gross profit 86,420 72,344 65,677 48,259 33,884
Operating, selling and
administrative expenses 59,260 50,636 43,559 31,580 22,191
Depreciation and
amortization 11,588 9,540 6,833 4,256 2,991
Store closing charge -- -- 2,945 -- --
-------------------------------------------------------
Operating profit 15,572 12,168 12,340 12,423 8,702
Interest expense
(income), net 4,331 2,826 474 (601) (382)
-------------------------------------------------------
Income before income taxes 11,241 9,342 11,866 13,024 9,084
Provision for income taxes 4,272 3,550 4,390 4,949 3,452
-------------------------------------------------------
Net income $ 6,969 $ 5,792 $ 7,476 $ 8,075 $ 5,632
-------------------------------------------------------
Weighted average number of
shares outstanding - basic 17,425 17,405 17,371 17,322 15,272
-------------------------------------------------------
Net income per share - basic (1) $ 0.40 $ 0.33 $ 0.43 $ 0.47 $ 0.37
-------------------------------------------------------
Weighted average number of
shares outstanding - diluted 17,428 17,580 17,641 17,509 15,387
-------------------------------------------------------
Net income per share - diluted(1) $ 0.40 $ 0.33 $ 0.42 $ 0.46 $ 0.37
-------------------------------------------------------
<CAPTION>
As of
-------------------------------------------------------
1/31/98 2/1/97 2/3/96 1/28/95 1/29/94
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 82,771 $ 70,629 $ 54,693 $ 50,193 $ 59,182
Property and equipment, net 65,814 63,147 49,253 35,864 15,599
Total assets 245,816 233,539 190,933 163,403 119,134
Long-term debt 45,240 37,645 14,087 4,600 -
Stockholders' investment 103,485 96,420 90,455 82,444 74,222
</TABLE>
(1) Effective January 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("EPS"), and restated EPS for
all periods presented.
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.
6
<PAGE> 3
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
GENERAL
The Company was founded in 1917 and currently operates over 165 retail
bookstores, including 108 superstores, concentrated in the southeastern United
States.
The Company's growth strategy is focused on opening superstores and
combination stores 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 underperforming stores or converting stores to
different formats.
RESULTS OF OPERATIONS
The following table sets forth statement of income data expressed as a
percentage of net sales for the periods presented.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
1/31/98 2/1/97 2/3/96
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 26.6% 26.0% 28.6%
Operating, selling, and administrative expenses 18.2% 18.2% 18.9%
Depreciation and amortization 3.6% 3.4% 3.0%
Store closing charge - - 1.3%
Operating profit 4.8% 4.4% 5.4%
Interest expense, net 1.3% 1.0% 0.2%
Income before income taxes 3.5% 3.4% 5.2%
Provision for income taxes 1.3% 1.3% 1.9%
Net income 2.2% 2.1% 3.3%
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales increased $46.2 million, or 16.6%, to $324.8 million in fiscal 1998
from $278.6 million in fiscal 1997. Comparable store sales increased 1.4% for
fiscal 1998. The increase in net sales resulted from net sales generated by 21
new stores opened during fiscal 1998 (including 16 superstores), and 18 new
stores opened in the second half of fiscal 1997. In addition, the Company closed
seven underperforming stores in fiscal 1998.
The factors affecting the future trend of comparable store sales include,
among others, overall demand for products the Company sells, the Company's
marketing programs, pricing strategies, store operations and competition.
Gross profit increased $14.1 million, or 19.5%, to $86.4 million in fiscal
1998 from $72.3 million in fiscal 1997. Gross profit as a percentage of net
sales increased to 26.6% in fiscal 1998 from 26.0% in fiscal 1997, primarily due
to decreased promotional activity and lower warehouse distribution costs as a
percentage of net sales.
Operating, selling and administrative expenses increased $8.7 million, or
17.0%, to $59.3 million in fiscal 1998, from $50.6 million in fiscal 1997.
Operating, selling and administrative expenses as a percentage of net sales
remained constant with fiscal 1997 at 18.2%.
Depreciation and amortization increased $2.1 million, or 21.5%, to $11.6
million in fiscal 1998 from $9.5 million in fiscal 1997. Depreciation and
amortization as a percentage of net sales increased to 3.6% in fiscal 1998 from
3.4% in fiscal 1997, primarily as a result of the significant capital
expenditures for new stores during fiscal 1998 and the second half of fiscal
1997.
Net interest expense was $4.3 million in fiscal 1998 versus net interest
expense of $2.8 million in fiscal 1997. The increased interest expense resulted
from long-term borrowings incurred primarily to fund capital expenditures and
inventory purchases related to new stores opened during fiscal 1998.
7
<PAGE> 4
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased $48.8 million, or 21.2%, to $278.6 million in fiscal 1997
from $229.8 million in fiscal 1996. Comparable store sales decreased 2.0% for
fiscal 1997. The increase in net sales resulted from net sales generated by 27
new stores opened during fiscal 1997 (including 25 superstores), and 13 new
stores opened in the second half of fiscal 1996. In addition, the Company closed
seven underperforming stores (see Note 7 of Notes to Consolidated Financial
Statements).
Gross profit increased $6.6 million, or 10.2%, to $72.3 million in fiscal
1997 from $65.7 million in fiscal 1996. Gross profit as a percentage of net
sales decreased to 26.0% in fiscal 1997 from 28.6% in fiscal 1996, due to
increased promotional activity, changes in departmental sales mix and higher
occupancy costs as a percentage of sales.
Operating, selling and administrative expenses increased $7.0 million, or
16.2%, to $50.6 million in fiscal 1997, from $43.6 million in fiscal 1996.
Operating, selling and administrative expenses as a percentage of net sales
decreased to 18.2% in fiscal 1997 from 18.9% in fiscal 1996, primarily due to
strong expense controls related to store selling expenses.
Depreciation and amortization increased $2.7 million, or 39.6%, to $9.5
million in fiscal 1997 from $6.8 million in fiscal 1996. Depreciation and
amortization as a percentage of net sales increased to 3.4% in fiscal 1997 from
3.0% in fiscal 1996, primarily as a result of the significant capital
expenditures for new stores during fiscal 1997 and the second half of fiscal
1996.
Net interest expense was $2.8 million in fiscal 1997 versus net interest
expense of $0.5 million in fiscal 1996. The interest expense resulted from
long-term borrowings incurred primarily to fund capital expenditures and
inventory purchases related to new stores opened during fiscal 1997.
SEASONALITY AND QUARTERLY RESULTS
Similar to many retailers, the Company's business is seasonal, with its
highest retail sales, gross profit and net income historically occurring in the
fourth fiscal quarter. This seasonal pattern reflects the increased demand for
books and gifts experienced 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 addition, the Company's results of operations may fluctuate from quarter
to quarter as a result of the amount and timing of sales and profits contributed
by new stores as well as other factors. New stores require the Company to incur
pre-opening expenses and often require several months of operation before
generating acceptable sales volumes. Accordingly, the addition of a large number
of new stores in a particular quarter could adversely affect the Company's
results of operations for that quarter.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998, the Company increased borrowing availability under its
revolving credit facility (the "Revolving Facility") to $90.0 million from $50.0
million. The Company also amended its short-term credit agreement (the
"Facility") to $10.0 million of borrowing availability from $20.0 million. As of
January 31, 1998, $37.7 million was outstanding under these facilities combined.
Additionally, as of January 31, 1998, the Company has outstanding borrowings
associated with the issuance of an industrial revenue bond totaling $7.5
million.
8
<PAGE> 5
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
The Company's capital expenditures totaled $14.4 million in fiscal 1998.
These expenditures were primarily used to open new stores, perform renovations
and improvements to existing stores, and for investments in management
information systems. Management estimates that capital expenditures for fiscal
1999 will be approximately $22.1 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 fiscal 1999.
RELATED PARTY ACTIVITIES
As discussed in Note 6 of Notes to Consolidated Financial Statements, the
Company conducts business with other entities in which certain officers,
directors and principal stockholders of the Company have controlling ownership
interests. The most significant related-party transactions include inventory
purchases from, and sales to, related parties. As the Company has expanded, the
related-party inventory purchase transactions and related-party sales
transactions have grown proportionately. 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.
FINANCIAL POSITION
During fiscal 1998, the Company opened 21 new stores, including 16
superstores. The store openings resulted in increased inventory, property and
equipment balances and long-term debt balances at January 31, 1998, as compared
to February 1, 1997.
YEAR 2000 COMPLIANCE
The Company is in the process of evaluating its management and information
systems to identify and address Year 2000 issues. Based on present information,
management does not believe that its related costs of Year 2000 compliance will
be material.
9
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
As of
----------------------
1/31/98 2/1/97
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary cash investments $ 3,909 $ 4,776
Accounts receivable 11,732 13,198
Related party receivables 7,559 5,854
Inventories 151,312 141,430
Prepayments and other 816 584
Deferred income taxes 3,098 2,913
------------------------
TOTAL CURRENT ASSETS 178,426 168,755
------------------------
PROPERTY AND EQUIPMENT:
Land 628 628
Buildings 5,367 5,367
Equipment 28,558 22,690
Furniture and fixtures 31,894 28,535
Leasehold improvements 37,552 32,796
Construction in process 783 804
------------------------
104,782 90,820
Less accumulated depreciation and amortization 38,968 27,673
------------------------
NET PROPERTY AND EQUIPMENT 65,814 63,147
------------------------
OTHER ASSETS:
Goodwill, net 1,538 1,581
Other 38 56
------------------------
TOTAL OTHER ASSETS 1,576 1,637
------------------------
TOTAL ASSETS $ 245,816 $ 233,539
========================
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Accounts payable:
Trade $ 71,439 $ 79,127
Related party 7,493 2,270
Accrued income taxes 2,730 1,961
Accrued expenses 13,993 14,768
------------------------
TOTAL CURRENT LIABILITIES 95,655 98,126
------------------------
LONG-TERM DEBT 45,240 37,645
------------------------
DEFERRED INCOME TAXES 1,436 1,348
------------------------
COMMITMENTS AND CONTINGENCIES -- --
------------------------
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,
17,427,593 and 17,408,535 shares issued and outstanding at
January 31, 1998 and February 1, 1997, respectively 174 174
Additional paid-in capital 62,925 62,829
Retained earnings 40,386 33,417
------------------------
TOTAL STOCKHOLDERS' INVESTMENT 103,485 96,420
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 245,816 $ 233,539
========================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
10
<PAGE> 7
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------
1/31/98 2/1/97 2/3/96
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 324,762 $ 278,613 $ 229,801
Cost of products sold, including warehouse
distribution and store occupancy costs (1) 238,342 206,269 164,124
------------------------------------
GROSS PROFIT 86,420 72,344 65,677
Operating, selling and administrative expenses 59,260 50,636 43,559
Depreciation and amortization 11,588 9,540 6,833
Store closing charge -- -- 2,945
------------------------------------
OPERATING PROFIT 15,572 12,168 12,340
Interest expense, net 4,331 2,826 474
------------------------------------
INCOME BEFORE INCOME TAXES 11,241 9,342 11,866
Provision for income taxes 4,272 3,550 4,390
------------------------------------
NET INCOME $ 6,969 $ 5,792 $ 7,476
------------------------------------
Weighted average number of shares
outstanding - basic 17,425 17,405 17,371
====================================
NET INCOME PER SHARE - BASIC (2) $ 0.40 $ 0.33 $ 0.43
====================================
Weighted average number of shares
outstanding - diluted 17,428 17,580 17,641
====================================
NET INCOME PER SHARE - DILUTED (2) $ 0.40 $ 0.33 $ 0 .42
====================================
</TABLE>
(1) Inventory purchases from related parties were $32,303, $23,120 and $17,919,
respectively, for the periods presented above.
(2) Effective January 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share, and restated EPS for all
periods presented.
The accompanying notes are an integral part of these
consolidated statements.
11
<PAGE> 8
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' INVESTMENT
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 28, 1995 $ 173 $ 62,122 $ 20,149
Net income -- -- 7,476
Issuance of stock for employee
stock purchase plan -- 86 --
Exercise of stock options 1 448 --
----------------------------------
BALANCE, FEBRUARY 3, 1996 174 62,656 27,625
Net income -- -- 5,792
Issuance of stock for employee
stock purchase plan -- 102 --
Exercise of stock options -- 71 --
----------------------------------
BALANCE, FEBRUARY 1, 1997 174 62,829 33,417
Net income -- -- 6,969
Issuance of stock for employee
stock purchase plan -- 96 --
----------------------------------
BALANCE, JANUARY 31, 1998 $ 174 $ 62,925 $ 40,386
==================================
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
12
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
1/31/98 2/1/97 2/3/96
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,969 $ 5,792 $ 7,476
-------------------------------------
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation and amortization 11,588 9,540 6,833
(Gain) loss on sale of property 44 114 (269)
Deferred income tax provision (benefit), net (97) (15) 254
(Increase) decrease in assets:
Accounts receivable 1,466 (4,825) (3,624)
Related party receivables (1,705) (1,506) 1,112
Inventories (9,882) (19,422) (36,469)
Prepayments and other (214) 136 (34)
Increase (decrease) in liabilities:
Accounts payable (2,465) 9,760 7,822
Accrued income taxes 769 1,400 (2,368)
Accrued expenses (718) 1,696 4,540
------------------------------------
Total adjustments (1,214) (3,122) (22,203)
------------------------------------
Net cash provided by (used in)
operating activities 5,755 2,670 (14,727)
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 42 126 3,659
Capital expenditures (14,355) (23,674) (23,901)
------------------------------------
Net cash used in investing activities (14,313) (23,548) (20,242)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 96 173 535
Proceeds from issuance of long-term debt -- -- 2,900
Borrowings under credit facilities 152,296 142,933 56,798
Repayments under credit facilities (144,701) (119,375) (50,211)
------------------------------------
Net cash provided by financing activities 7,691 23,731 10,022
------------------------------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS (867) 2,853 (24,947)
CASH AND TEMPORARY CASH INVESTMENTS AT THE
BEGINNING OF YEAR 4,776 1,923 26,870
------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS AT THE
END OF YEAR $ 3,909 $ 4,776 $ 1,923
====================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,276 $ 2,693 $ 556
Income taxes, net of refunds $ 4,023 $ 2,146 $ 6,362
====================================
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
13
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Books-A-Million, Inc. and its subsidiary (the "Company") are principally
engaged in the sale of books, magazines and related items through a chain of
retail bookstores. The Company presently operates over 165 bookstores in 17
states, which are predominantly located in the southeastern United States. The
Company also serves as a wholesale book distributor for certain other retailers
and wholesalers. The Company presently consists of Books-A-Million, Inc. and its
wholly owned subsidiary, American Wholesale Book Company, Inc. ("American
Wholesale"). All significant intercompany balances and transactions have been
eliminated in consolidation.
BASIS OF PRESENTATION
The Company operates on a 52-53 week year, with the fiscal year ending on the
Saturday closest to January 31. Fiscal year 1996 was a 53-week period, while
fiscal years 1998 and 1997 were 52-week periods.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
on a first-in, first-out ("FIFO") basis and market based on the lower of
replacement cost or estimated realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation on equipment and
furniture and fixtures is provided on the straight-line method over the
estimated service lives, which range from 3 to 7 years. Depreciation of
leasehold improvements is provided on the straight-line basis over the periods
of the applicable leases.
Maintenance and repairs are charged to expense as incurred. Costs of renewals
and betterments are capitalized by charges to property accounts and depreciated
using applicable annual rates. The cost and accumulated depreciation of assets
sold, retired or otherwise disposed of are removed from the accounts, and the
related gain or loss is credited or charged to income.
GOODWILL
The Company amortizes goodwill on a straight-line basis over 40 years. As of
January 31, 1998 and February 1, 1997, accumulated amortization of goodwill was
$167,000 and $124,000 respectively. The Company continually evaluates whether
events or circumstances have occurred that indicate the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
operating profits over the remaining life of the goodwill in measuring
recoverability.
STORE OPENING COSTS
Non-capital expenditures incurred in preparation for opening new retail
stores are expensed in the first full month of the stores' operations.
14
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INSURANCE ACCRUALS
The Company is subject to large deductibles under its workers' compensation
policy. Insurance coverage is maintained for cumulative losses in amounts
management considers adequate. Amounts are accrued currently for the estimated
cost of claims incurred.
INCOME TAXES
The Company accounts for income taxes using Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers all short-term, highly liquid investments with original maturities of
90 days or less to be cash equivalents.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings Per Share. This statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier adoption is not permitted. This statement requires restatement
for all prior-period earnings per share ("EPS") data presented.
SFAS No. 128 simplifies the standards for computing EPS previously found in
Accounting Principles Board ("APB") Opinion No. 15, Earnings Per Share, and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with the presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for the Company.
Basic EPS excludes dilution and 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.
15
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
<TABLE>
<CAPTION>
Net Income Shares Per Share
For the Years Ended (in thousands) (in thousands) Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 31, 1998:
Basic earnings per share $ 6,969 17,425 $ 0.40
Dilutive securities 0 3
-----------------------------------------------------------
Diluted earnings per share $ 6,969 17,428 $ 0.40
-----------------------------------------------------------
February 1, 1997:
Basic earnings per share $ 5,792 17,405 $ 0.33
Dilutive securities 0 175
-----------------------------------------------------------
Diluted earnings per share $ 5,792 17,580 $ 0.33
-----------------------------------------------------------
February 3, 1996:
Basic earnings per share $ 7,476 17,371 $ 0.43
Dilutive securities 0 270
-----------------------------------------------------------
Diluted earnings per share $ 7,476 17,641 $ 0.42
-----------------------------------------------------------
</TABLE>
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
In the opinion of management, the carrying value of all financial instruments
approximates fair value.
LEGAL
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.
PENDING ACCOUNTING STANDARDS
The FASB has issued Statement No. 130, Reporting Comprehensive Income, which
will be effective in fiscal 1999. This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The objective of the statement is to
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners ("comprehensive income"). Comprehensive income is the total of net
income and all other non-owner changes in equity. The company will adopt this
statement in fiscal 1999. Adoption of the Statement is not expected have a
significant impact on the Company's financial reporting.
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 in
fiscal 1999.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures About
Pensions and
16
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Post-retirement Benefits. SFAS No. 132, which supersedes SFAS Nos. 87, 88,
and 106, standardizes the disclosure requirements for pensions and other
post-retirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures that
are no longer as useful as they were when SFAS Nos. 87, 88, and 106 were issued.
The Company will adopt the new rules in fiscal 1999. The new rules are not
expected to have a significant impact on the Company's financial reporting.
PRIOR YEAR RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. INCOME TAXES
A summary of the components of the income tax provision is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------
1/31/98 2/1/97 2/3/96
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 3,831 $3,325 $ 3,481
State 538 240 655
--------------------------------
4,369 3,565 4,136
--------------------------------
Deferred taxes arising from:
Depreciation 61 463 538
Accruals 4 (330) (286)
Inventory (181) (436) 109
Other 19 288 (107)
--------------------------------
(97) (15) 254
--------------------------------
Provision for income taxes $ 4,272 $3,550 $ 4,390
--------------------------------
</TABLE>
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
1/31/98 2/1/97 2/3/96
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.2%
State income tax provision, net 3.2% 3.0% 3.9%
Other 0.8% 1.0% (1.1%)
-----------------------------------
Effective Income Tax Rate 38.0% 38.0% 37.0%
-----------------------------------
</TABLE>
17
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Temporary differences which created deferred tax assets and liabilities at
January 31, 1998, and February 1, 1997, are detailed below (dollars in
thousands):
<TABLE>
<CAPTION>
As of 1/31/98 As of 2/1/97
------------------------------------------------
Current Noncurrent Current Noncurrent
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation $ -- $ (1,326) $ -- $(1,265)
Accruals 2,171 -- 2,175 --
Inventory 790 -- 609 --
Other 137 (110) 129 (83)
------------------------------------------------
Deferred tax asset (liability) $ 3,098 $ (1,436) $ 2,913 $(1,348)
------------------------------------------------
</TABLE>
No valuation allowance is deemed necessary by management, as the realization
of recorded deferred tax assets is considered more likely than not.
INCOME TAX AUDIT
The Internal Revenue Service completed their audit of the Company's tax
returns for the fiscal years 1993, 1994 and 1995. The audit findings did not
have a material adverse impact on the financial position of the Company.
3. DEBT AND LINES OF CREDIT
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. Both credit facilities have certain
financial and non-financial covenants with which the Company is in compliance.
As of January 31, 1998, $37.7 million was outstanding under these credit
facilities. The maximum and average outstanding balances during fiscal 1998 were
$66.6 million and $56.0 million, respectively. The outstanding borrowings as of
January 31, 1998, had interest rates ranging from 6.38% to 6.75%.
During fiscal 1996 and fiscal 1995, the Company financed the acquisition and
construction of certain warehouse and distribution facilities through loans,
obtained from the proceeds of an industrial development revenue bond (the
"Bond"), which are secured by a mortgage interest in these facilities. As of
January 31, 1998 and February 1, 1997, there was $7.5 million of borrowings
outstanding under these arrangements, at variable rates. The Bond has a maturity
date of December 1, 2019, with a purchase provision obligating the Company to
repurchase the Bond on December 1, 2002, unless extended by the bondholder. Such
an extension may be renewed annually by the bondholder, at the Company's
request, to a date no more than five years from the renewal date.
In the opinion of management, the carrying value of all debt instruments at
January 31, 1998 approximates fair value.
4. LEASES
The Company leases the premises for its retail bookstores under operating
leases which expire in various years through the year 2011. Many of these leases
contain renewal options and require the Company to pay executory costs (such as
property taxes, maintenance, and insurance). In addition to fixed minimum
rentals, some of the Company's leases require contingent rentals based on a
percentage of sales.
The Company also leases certain office, warehouse and retail store space from
related parties. Rental expense under these leases was approximately $411,000,
$407,000 and $239,000 in fiscal 1998, 1997 and 1996, respectively. Total minimum
future rental payments under these leases are $405,000.
18
<PAGE> 15
NOTES TO CONSOLIDATED FINANICAL STATEMENTS
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of January 31, 1998, are as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------
<S> <C>
1999 $ 18,762
2000 17,473
2001 16,881
2002 16,058
2003 14,972
Subsequent years 51,759
-----------
$ 135,905
===========
</TABLE>
Rental expense for all operating leases consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------
1/31/98 2/1/97 2/3/96
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 18,171 $ 14,627 $ 10,852
Contingent rentals 690 493 560
---------------------------------
$ 18,861 $ 15,120 $ 11,412
=================================
</TABLE>
5. EMPLOYEE BENEFIT PLANS
401(K) PROFIT-SHARING PLAN
The Company and its subsidiary maintain a 401(k) plan covering all employees
who have completed 12 months of service and who are at least 21 years of age,
and permit participants to contribute from 2% to 15% of compensation to the
plan. Company matching and supplemental contributions are made at management's
discretion. The expense under this plan was $238,000, $341,000 and $214,000 in
fiscal 1998, 1997 and 1996, respectively.
STOCK OPTION PLAN
The Company maintains a stock option plan reserving 1,800,000 shares of the
Company's common stock for grants to executive officers, directors, and key
employees. Options granted generally vest over a five-year period, expire on the
sixth anniversary of the date of grant, and have exercise prices generally equal
to the fair market value of the common stock on the date of grant. A summary of
the status of the Company's stock option plan is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------
January 31, 1998 February 1, 1997
- ---------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,164,060 $ 8.32 834,730 $ 9.61
Granted 458,250 5.80 389,200 5.81
Exercised -- -- (6,600) 7.94
Forfeited (51,180) 9.20 (53,270) 12.13
-------------------------------------------------------
Outstanding at end of year 1,571,130 $ 7.57 1,164,060 $ 8.32
-------------------------------------------------------
Exercisable at end of year 573,448 $ 8.86 408,336 $ 9.35
-------------------------------------------------------
</TABLE>
19
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at
January 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- -------------------------------
Weighted
Number Average Number
Outstanding at Remaining Weighted Exercisable at Weighted
Range of January 31, Contractual Average January 31, Average
Exercise Price 1998 Life (Years) Exercise Price 1998 Exercise Price
- ----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$4.63 to 16.88 1,571,430 4.1 $ 7.57 573,448 $ 8.86
</TABLE>
In October 1995, the FASB issued SFAS No. 123. Accounting for Stock-Based
Compensation. SFAS No. 123 established financial accounting and reporting
standards for stock-based compensation and for transactions in which an entity
issues its equity instruments to acquire goods and services for nonemployees. In
accordance with SFAS No. 123, the Company continues to account for and record
compensation expense under APB No. 25. However, the Company adopted the
disclosure only provisions of SFAS No. 123, as required. If the Company had
recorded compensation expense in accordance with SFAS No. 123 under the fair
value based method, the Company's net income and net income per share would have
been as indicated below:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------
1/31/98 2/1/97 2/3/96
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income-as reported $ 6,969 $ 5,792 $ 7,476
Net income-pro forma 6,788 5,727 7,475
Net income per share-diluted, as reported 0.40 0.33 0.43
Net income per share-diluted, pro forma 0.39 0.33 0.43
</TABLE>
For the purposes of the foregoing calculation, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model. The assumptions used in connection with this model show no expected
dividend yield, a five-year expected life of the options, and an expected stock
price volatility rate of .49 with risk-free interest rates ranging from 5.39% to
6.84%. Based upon these assumptions, the weighted average fair value of options
granted was $2.89, $5.34 and $3.94 in fiscal 1998, 1997 and 1996, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains an employee stock purchase plan under which 100,000
shares of the Company's common stock are reserved for purchase by employees at
85% of the fair market value of the common stock. Of the total reserved shares,
51,868 shares have been purchased as of January 31, 1998.
6. RELATED PARTY TRANSACTIONS
Certain majority stockholders of the Company have controlling ownership
interests in other entities with which the Company conducts business.
Transactions between the Company and these various other entities ("related
parties") are summarized in the following paragraphs and Note 4.
The Company purchases a portion of its inventories for resale from related
parties; such purchases amounted to $32,303,000, $23,120,000, and $17,919,000 in
fiscal 1998, 1997, and 1996, respectively. The Company sells a portion of its
inventories to related parties; such sales amounted to $10,273,000, $ 9,819,000,
and $7,261,000, in fiscal 1998, 1997 and 1996, respectively.
20
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company purchases promotional marketing material from a related party; such
purchases amounted to $202,000, $47,000 and $6,000 in fiscal 1998, 1997 and 1996
respectively.
During fiscal 1996, the Company sold one of its distribution facilities to a
related party. The sales price for the facility was $1,650,000, which resulted
in a gain of $221,000. Management believes the terms of this transaction were
substantially equivalent to those available from unrelated parties.
7. STORE CLOSING CHARGE
During fiscal 1996, the Company recorded a charge of $2.9 million for costs
associated with the anticipated closings of 24 bookstores. The consolidated
statements of income for the fifty-three week period ended February 3, 1996,
reflect this store closing charge. The charge includes amounts for lease
termination costs ($977,000), asset write-downs ($990,000) and other disposition
costs such as warehouse processing and store closing expenses ($978,000). As of
the end of fiscal 1998, all 24 anticipated closings have been completed,
resulting in lease termination costs of $886,000, asset write-downs of
$1,005,000 and other disposition costs of $1,021,000. The remaining balance of
the store closing reserve as of January 31, 1998, was $33,000, which is
reflected in accrued expenses in the accompanying consolidated balance sheet.
The remaining liabilities are expected to be paid or settled within the 1999
fiscal year.
21
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Books-A-Million, Inc.: We have audited the accompanying consolidated
balance sheets of Books-A-Million, Inc. (a Delaware corporation) and its
subsidiary as of January 31, 1998 and February 1, 1997, and the related
consolidated statements of income, stockholders' investment, and cash flows for
each of the three fiscal years in the period ended January 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Books-A-Million, Inc. and its
subsidiary as of January 31, 1998 and February 1, 1997, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended January 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
March 17, 1998
22
<PAGE> 19
SUMMARY OF QUARTERLY RESULTS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended January 31, 1998
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 68,237 $ 71,867 $ 71,613 $ 113,045 $ 324,762
Gross profit 17,541 18,686 17,480 32,713 86,420
Operating profit 1,606 2,024 652 11,290 15,572
Net income (loss) 369 527 (300) 6,373 6,969
Net income (loss) per share - basic (1) 0.02 0.03 (0.02) 0.37 0.40
Net income (loss) per share - diluted (1) 0.02 0.03 (0.02) 0.37 0.40
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended February 1, 1997
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 56,589 $ 60,455 $ 64,505 $ 97,064 $ 278,613
Gross profit 14,689 15,615 15,643 26,397 72,344
Operating profit 1,988 1,482 878 7,820 12,168
Net income 981 508 21 4,282 5,792
Net income per share - basic (1) 0.06 0.03 0.00 0.25 0.33(2)
Net income per share - diluted (1) 0.06 0.03 0.00 0.25 0.33(2)
</TABLE>
(1) Effective January 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share and restated EPS for all
periods presented.
(2) The sum of quarterly net income per share is different from annual net
income per share because of differences in rounding.
23
<PAGE> 20
MARKET AND DIVIDEND INFORMATION
Common Stock
The Common Stock of Books-A-Million, Inc., is traded in the Nasdaq National
Market under the symbol BAMM. The chart below sets forth the high and low stock
prices for each quarter of the fiscal years ended January 31, 1998 and February
1, 1997.
<TABLE>
<CAPTION>
Quarter Ended High Low
- -------------------------------------------------
<S> <C> <C>
January 31, 1998 $7 3/8 $5 3/8
November 1, 1997 7 1/4 4 33/64
August 2, 1997 5 3/8 4 1/2
May 3, 1997 5 7/8 4 1/8
February 1, 1997 7 5/8 5 1/2
November 2, 1996 8 3/8 6 5/8
August 3, 1996 12 1/4 6 1/2
May 4, 1996 11 3/8 9 3/4
</TABLE>
The closing price on April 14, 1998, was $5.69. No cash dividends have been
declared since completion of the Company's initial public offering. As of April
14, 1998, Books-A-Million, Inc., had approximately 6,180 stockholders based on
the number of individual participants represented by security position listings.
<PAGE> 1
EXHIBIT 21
Subsidiary of the Registrant
The Company's sole subsidiary is the following:
American Wholesale Book Company, Inc., an Alabama corporation.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 33-72812 and 33-86980.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
April 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BOOKS-A-MILLION INC. CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF
INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE PERIOD ENDED JANUARY 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,909
<SECURITIES> 0
<RECEIVABLES> 19,647
<ALLOWANCES> 356
<INVENTORY> 151,312
<CURRENT-ASSETS> 178,426<F1>
<PP&E> 104,782
<DEPRECIATION> 38,968
<TOTAL-ASSETS> 245,816<F2>
<CURRENT-LIABILITIES> 95,655
<BONDS> 0<F3>
0<F4>
0
<COMMON> 174
<OTHER-SE> 103,311
<TOTAL-LIABILITY-AND-EQUITY> 245,816
<SALES> 324,762
<TOTAL-REVENUES> 324,762
<CGS> 238,342
<TOTAL-COSTS> 297,602
<OTHER-EXPENSES> 11,588
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,331
<INCOME-PRETAX> 11,241
<INCOME-TAX> 4,272
<INCOME-CONTINUING> 6,969
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,969
<EPS-PRIMARY> 0.40<F5>
<EPS-DILUTED> 0.40<F5>
<FN>
<F1><OTHER CURRENT ASSETS> 3,914 OTHER CURRENT ASSETS
<F2><OTHER ASSETS> 1,576 OTHER ASSETS
<F3><LONG TERM DEBT> 45,240 LONG TERM DEBT
<F4><DEFERRED INCOME TAXES> 1,436 DEFERRED INCOME TAXES
<F5>THE EARNINGS PER SHARE CALCULATIONS HAVE BEEN PREPARED IN ACCORDANCE WITH SFAS
NO. 128 AND BASIC AND DILUTED EARNINGS PER SHARE HAVE BEEN ENTERED IN PLACE OF
PRIMARY AND FULLY DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BOOKS-A-MILLION INC. CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF
INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE PERIOD ENDED FEBRUARY 1, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<EXCHANGE-RATE> 1
<CASH> 4,776
<SECURITIES> 0
<RECEIVABLES> 19,382
<ALLOWANCES> 330
<INVENTORY> 141,430
<CURRENT-ASSETS> 168,755<F1>
<PP&E> 90,820
<DEPRECIATION> 27,673
<TOTAL-ASSETS> 233,539<F2>
<CURRENT-LIABILITIES> 98,126
<BONDS> 0<F3>
0<F4>
0
<COMMON> 174
<OTHER-SE> 96,246
<TOTAL-LIABILITY-AND-EQUITY> 233,539
<SALES> 278,613
<TOTAL-REVENUES> 278,613
<CGS> 206,269
<TOTAL-COSTS> 256,905
<OTHER-EXPENSES> 9,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,826
<INCOME-PRETAX> 9,342
<INCOME-TAX> 3,550
<INCOME-CONTINUING> 5,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,792
<EPS-PRIMARY> 0.33<F5>
<EPS-DILUTED> 0.33<F5>
<FN>
<F1><OTHER CURRENT ASSETS> 3,497 OTHER CURRENT ASSETS
<F2><OTHER ASSETS> 1,637 OTHER ASSETS
<F3><LONG TERM DEBT> 37,645 LONG TERM DEBT
<F4><DEFERRED INCOME TAXES> 1,348 DEFERRED INCOME TAXES
<F5>THE EARNINGS PER SHARE CALCULATIONS HAVE BEEN PREPARED IN ACCORDANCE WITH SFAS
NO. 128 AND BASIC AND DILUTED EARNINGS PER SHARE HAVE BEEN ENTERED IN PLACE OF
PRIMARY AND FULLY DILUTED, RESPECTIVELY.
</FN>
</TABLE>
