<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: July 31, 1999
-------------
- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transaction period from to
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COMMISSION FILE NUMBER 0-20664
BOOKS-A-MILLION, INC.
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 63-0798460
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(State or other jurisdiction (IRS Employer Identification No.)
incorporation or organization)
402 INDUSTRIAL LANE, BIRMINGHAM, ALABAMA 35211
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(Address of principal executive offices) (Zip Code)
(205) 942-3737
--------------
(Registrant's phone number including area code)
NONE
----
(Former name, former address and former fiscal year, if changed since last
period)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's common stock,
as of the latest practicable date: Shares of common stock, par value $.01 per
share, outstanding as of July 31, 1999 were 18,076,846 shares.
<PAGE> 2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
July 31, 1999 January 30, 1999
------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary cash investments $ 4,518 $ 4,322
Accounts receivable, net 8,865 12,282
Related party receivable 3,144 3,998
Inventories 194,578 175,211
Prepayments and other 3,931 2,938
Deferred income taxes 4,081 3,715
--------- ---------
TOTAL CURRENT ASSETS 219,117 202,466
--------- ---------
PROPERTY AND EQUIPMENT:
Land 628 628
Buildings 5,379 7,142
Equipment 34,153 33,087
Furniture and fixtures 34,567 34,416
Leasehold improvements 42,157 41,434
Construction-in-process 666 299
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117,550 117,006
Less-accumulated depreciation and amortization 55,357 49,629
--------- ---------
NET PROPERTY AND EQUIPMENT 62,193 67,377
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OTHER ASSETS:
Goodwill, net 1,474 1,495
Other 230 213
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TOTAL OTHER ASSETS 1,704 1,708
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TOTAL ASSETS $ 283,014 $ 271,551
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable:
Trade $ 85,247 $ 94,249
Related party 8,034 9,014
Accrued expenses 13,746 14,705
Accrued income taxes -- 476
Notes payable 22,251 --
--------- ---------
TOTAL CURRENT LIABILITIES 129,278 118,444
--------- ---------
LONG TERM DEBT 36,944 36,944
--------- ---------
DEFERRED INCOME TAXES 1,158 1,141
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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,
18,076,846 and 18,016,525 shares issued and outstanding at
July 31, 1999 and January 30, 1999 respectively 181 180
Additional paid-in capital 70,406 70,124
Treasury stock at cost (81,600 shares at July 31, 1999) (252) (252)
Retained earnings 45,299 44,970
--------- ---------
TOTAL STOCKHOLDERS' INVESTMENT 115,634 115,022
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 283,014 $ 271,551
========= =========
</TABLE>
See accompanying notes
2
<PAGE> 3
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------ ---------------------------------
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
NET SALES $89,878 $ 77,955 $175,005 $152,424
Cost of products sold (including warehouse
distribution and store occupancy costs) (1) 66,514 58,542 129,284 114,016
------- ------- -------- --------
GROSS PROFIT 23,364 19,413 45,721 38,408
Operating, selling and administrative expenses 18,793 15,870 36,291 30,587
Depreciation and amortization 3,375 3,192 6,717 6,335
------- ------- -------- --------
OPERATING INCOME 1,196 351 2,713 1,486
Interest expense, net 1,165 1,179 2,182 2,298
------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 31 (828) 531 (812)
Provision (Benefit) for income taxes 12 (314) 202 (308)
------- ------- -------- --------
NET INCOME (LOSS) $ 19 $ (514) $ 329 $ (504)
======= ======= ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC 17,984 17,444 17,965 17,440
======= ======= ======== ========
NET INCOME (LOSS) PER SHARE - BASIC $ 0.00 $ (0.03) $ 0.02 $ (0.03)
======= ======= ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED 18,231 17,444 18,273 17,440
======= ======= ======== ========
NET INCOME (LOSS) PER SHARE - DILUTED $ 0.00 $ (0.03) $ 0.02 $ (0.03)
======= ======= ======== ========
</TABLE>
(1) Inventory purchases from related parties were $6,165, $8,660, $14,841 and
$17,384, respectively, for each of the periods presented.
See accompanying notes
3
<PAGE> 4
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------------------
JULY 31, 1999 AUGUST 1, 1998
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 329 $ (504)
-------- --------
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 6,717 6,335
Loss on disposal of property and equipment 71 65
Change in deferred income taxes (349) (162)
(Increase) decrease in current assets:
Accounts receivable 3,417 2,031
Related party receivable 854 3,706
Inventories (19,367) (21,537)
Prepayments and other (1,041) (1,155)
Increase (decrease) in current liabilities:
Accounts payable (9,982) 5,598
Accrued income taxes (476) (2,730)
Accrued expenses (961) (2,532)
-------- --------
Total adjustments (21,117) (10,381)
-------- --------
Net cash used in operating activities (20,788) (10,885)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,270) (7,094)
Proceeds from sale of equipment 1,720 86
-------- --------
Net cash used in investing activities (1,550) (7,008)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 89,021 78,060
Repayments under credit facilities (66,770) (60,570)
Proceeds from sale of common stock, net 283 78
-------- --------
Net cash provided by financing activities 22,534 17,568
-------- --------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 196 (325)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 4,322 3,909
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 4,518 $ 3,584
======== ========
</TABLE>
See accompanying notes
4
<PAGE> 5
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Books-A-Million, Inc. and its Subsidiaries (the "Company") for the thirteen and
twenty-six week periods ended July 31, 1999 and August 1, 1998, have been
prepared in accordance with generally accepted accounting principles for interim
financial information and are presented in accordance with the requirements of
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. These financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto for the fiscal year ended January 30, 1999, included in the Company's
1999 Annual Report on Form 10-K. In the opinion of management, the consolidated
financial statements included herein contain all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation of
the Company's financial position as of July 31, 1999, and the results of its
operations and cash flows for the thirteen and twenty-six week periods then
ended.
The Company has experienced, and expects to continue to experience,
significant variability in sales and net income from quarter to quarter.
Therefore, the results of the interim periods presented herein are not
necessarily indicative of the results to be expected for any other interim
period or the full year.
PRIOR YEAR RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. NET INCOME PER SHARE
Basic net income per share ("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 has
been computed based on the average number of shares outstanding including the
effect of outstanding stock options, if dilutive, in each respective thirteen
and twenty-six week period. A reconciliation of the weighted average shares for
basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
(in thousands)
July 31, 1999 August 1, 1998
------------- --------------
<S> <C> <C>
Weighted average shares outstanding:
Basic 17,984 17,444
Dilutive effect of stock options outstanding 247 0
------------- --------------
Diluted 18,231 17,444
------------- --------------
</TABLE>
<TABLE>
<CAPTION>
For the Twenty-Six Weeks Ended
(in thousands)
July 31, 1999 August 1, 1998
------------- --------------
<S> <C> <C>
Weighted average shares outstanding:
Basic 17,965 17,440
Dilutive effect of stock options outstanding 308 0
------------- --------------
Diluted 18,273 17,440
------------- --------------
</TABLE>
Options outstanding of 457,540 and 429,600 for the thirteen weeks and
twenty-six weeks ended July 31, 1999 and outstanding options of 1,532,670 and
1,531,970 for the thirteen and twenty-six weeks ended August 1, 1998 were not
included in the table above as they were anti-dilutive.
5
<PAGE> 6
BOOKS-A-MILLION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PENDING ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, which was originally to be
adopted by the year 2000. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, the FASB
issued Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, which
amends FASB Statement No. 133 to be effective for all fiscal years beginning
after June 15, 2000 (February 4, 2001, for the Company). The Company has not yet
quantified the impact of adopting this statement on its financial statements;
however, the adoption is not expected to have a material impact on the Company's
financial statements.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This statement
requires capitalization of certain costs of internal-use software. This
statement was adopted in fiscal 2000 and did not have a significant impact on
the Company's financial statements.
The AICPA has issued SOP 98-5, Reporting on the Costs of Start-up
Activities. This statement provides guidance on the financial reporting of
start-up costs and organization costs, and requires these costs to be expensed
as incurred. This statement was adopted in fiscal 2000 and did not have a
significant impact on the Company's financial statements.
4. CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. In the opinion of management, after consultation with legal counsel,
the ultimate liability, if any, with respect to those proceedings is not
presently expected to materially affect the financial position or results of
operations of the Company.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This document contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to, the competitive environment in the book retail industry
in general and in the Company's specific market area; inflation; economic
conditions in general and in the Company's specific market areas; the number of
store openings and closings; the profitability of certain product lines, capital
expenditures and future liquidity; liability and other claims asserted against
the Company; uncertainties related to Year 2000 issues; uncertainties related to
the Internet and the Company's Internet initiative; and other factors referenced
herein. In addition, such forward-looking statements are necessarily dependent
upon the assumptions, estimates and dates that may be incorrect or imprecise and
involve known and unknown risks, uncertainties and other factors. Accordingly,
any forward-looking statements included herein do not purport to be predictions
of future events or circumstances and may not be realized. Given these
uncertainties, shareholders and prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligations to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
RESULTS OF OPERATIONS
Net sales increased 15.3% to $89.9 million in the thirteen weeks ended
July 31, 1999, from $78.0 million in the thirteen weeks ended August 1, 1998.
Net sales increased 14.8% to $175.0 million in the twenty-six weeks ended July
31, 1999, from $152.4 million in the twenty-six weeks ended August 1, 1998. For
the thirteen and twenty-six weeks ended July 31, 1999, the increase in net sales
resulted from new store sales combined with comparable store sales increases of
5.4% and 5.1% for the thirteen and twenty-six weeks ended July 31, 1999,
respectively. During the thirteen weeks ended July 31, 1999, one superstore was
opened.
Gross profit increased $4.0 million or 20.4% to $23.4 million in the
thirteen weeks ended July 31, 1999 from $19.4 million in the thirteen weeks
ended August 1, 1998, and in the twenty-six weeks ended July 31, 1999, gross
profit increased 19.0% to $45.7 million from $38.4 million in the same period
last year. Gross profit as a percentage of net sales for the thirteen weeks
ended July 31, 1999 was 26.0% versus 24.9% in the same period last year. Gross
profit as a percentage of net sales for the twenty-six weeks ended July 31,
1999, was 26.1% versus 25.2% in the same period last year. The increase as a
percentage of net sales for both the thirteen and twenty-six week periods was
due to lower warehouse distribution and occupancy costs as a percentage of net
sales.
Operating, selling and administrative expenses increased $2.9 million
or 18.4% to $18.8 million in the thirteen weeks ended July 31, 1999, from $15.9
million in the thirteen weeks ended August 1, 1998, and in the twenty-six weeks
ended July 31, 1999, operating, selling and administrative expenses increased
18.7% to $36.3 million from $30.6 million in the same period last year.
Operating, selling and administrative expenses as a percentage of net sales for
the thirteen weeks ended July 31, 1999, increased to 20.9% from 20.4% in the
same period last year. For the twenty-six week period operating, selling and
administrative expenses as a percentage of net sales increased to 20.7% from
20.1% in the same period last year. The increase in this percentage for the
thirteen and twenty-six week periods was primarily due to additional expenses
for Internet operations.
Depreciation and amortization increased $0.2 million or 5.7% to $3.4
million in the thirteen weeks ended July 31, 1999, from $3.2 million in the
thirteen weeks ended August 1, 1998, and in the twenty-six week period
depreciation and amortization increased $0.4 million or 6.0% to $6.7 million
from $6.3 million in the same period last year. The increase in depreciation and
amortization is primarily the result of the increased number of superstores
operated by the Company.
Interest expense was constant at $1.2 million for the thirteen weeks
ended July 31, 1999 and August 1, 1998. Interest expense was relatively constant
at $2.2 million for the twenty-six week period ended July 31, 1999 versus $2.3
million in the year earlier period.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the first twenty-six weeks of fiscal 2000, the Company's cash
requirements have been funded with net cash from operations and with borrowings
under the Company's credit facilities. Similar to many retailers, the Company's
business is seasonal, with its highest retail sales, gross profits and net
income traditionally occurring during the fourth fiscal quarter, reflecting the
increased demand for books and gifts during the year-end, holiday selling
season. Working capital requirements are generally highest during the third
fiscal quarter and the early part of the fourth fiscal quarter due to the
seasonality of the Company's business.
The Company has a revolving credit facility that allows borrowings up
to $90 million for which no principal repayments are due until the facility
expires on June 18, 2003, and an unsecured working capital line of credit for
$10 million, which is subject to annual renewal. As of July 31, 1999, $51.7
million was outstanding under these facilities combined. Both credit facilities
have certain financial and non-financial covenants with which the Company is in
compliance. Additionally, as of July 31, 1999, the Company has outstanding
borrowings associated with the issuance of an industrial revenue bond totaling
$7.5 million.
The Company's capital expenditures totaled $3.3 million during the
first twenty-six weeks of fiscal 2000. These expenditures were primarily used to
open new stores, perform renovations and improvements to existing stores and
invest in management information systems and general corporate purposes.
Management estimates that capital expenditures for the remainder of fiscal 2000
will be approximately $13.6 million, and that such amounts will be used
primarily for new stores, renovations and remodeling of certain existing stores
and investments in management information systems. Management believes that
existing cash reserves and net cash from operating activities, together with
borrowings under the Company's credit facilities, will be adequate to finance
the Company's planned capital expenditures and to meet the Company's working
capital requirements for the remainder of fiscal 2000.
When necessary, the Company establishes certain reserves for the
closing of under-performing stores. Management feels that this year's activity
will not significantly vary from the number of closings in the prior year.
RELATED PARTY ACTIVITIES
Certain principal stockholders of the Company have controlling
ownership interests in other entities with which the Company conducts business.
Significant transactions between the Company and these various other entities
(described as "related parties") are summarized in the following paragraph.
The Company purchases a portion of its inventories for resale from
related parties; such purchases were $14.8 million in the twenty-six weeks ended
July 31, 1999, versus $17.4 million in the twenty-six weeks ended August 1,
1998. The decrease in related party purchases is primarily due to lower cost of
purchases. The Company sells a portion of its inventories to related parties;
such sales amounted to $0.9 million and $1.7 million in the twenty-six weeks
ended July 31, 1999 and August 1, 1998, respectively. This decrease in related
party sales is primarily due to decreased sales of bargain books to related
parties. Management believes these related party activities do not have a
significant impact on gross profit.
FINANCIAL POSITION
During the twenty-six weeks ended July 31, 1999, the Company opened
seven superstores. Inventory and debt balances at July 31, 1999 increased as
compared to January 30, 1999 due to seasonal fluctuations in inventory levels
and the seven new superstores opened during the first half of fiscal 2000.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT PROMOTIONS
On August 25, 1999, the Company announced that Sandra B. Cochran has
been promoted to President from Executive Vice President and Chief Financial
Officer. Cochran joined Books-A-Million in 1992 as Vice President-Finance. She
was promoted to Chief Financial Officer in 1993 and became Executive Vice
President in 1996.
Richard S. Wallington has been promoted to Chief Financial Officer from
his present position as the Company's Vice President and Controller. Wallington,
who is a CPA, joined Books-A-Million in 1993 as Controller.
The Company also announced that Charles C. Anderson plans to retire as
Chairman effective January 29, 2000, the end of the Company's fiscal year. He
will continue to serve as Director. Effective with Mr. Anderson's retirement,
Clyde B. Anderson, Chief Executive Officer of the Company since 1992, will take
on the additional responsibility of Chairman.
YEAR 2000 COMPLIANCE
During the twenty-six weeks ended July 31, 1999, the Company has
continued to evaluate its management information systems to identify and address
Year 2000 issues. As part of this evaluation, the Company has classified its
Year 2000 issues into the following categories:
1. Key information systems that are required for
standard operations (including major merchandising,
financial, distribution and warehouse systems).
2. Other information systems that are important but not
required for daily operations (electronic data
transfer of purchase orders and invoices, selling
cost tracking reports, automated sales tax reporting,
etc.).
3. Non-information systems items (phone system, security
system, heating and air conditioning systems, etc.).
4. Third party compliance (vendors, wholesale customers,
service organizations such as banks and utilities,
etc.).
The Company has reviewed the Year 2000 compliance issues and developed
an implementation program that is classified into the following categories:
1. Evaluation and Initial Assessment
2. Remediation/Reprogramming
3. Testing
4. Contingency Planning
The Company has completed the evaluation, assessment and reprogramming
of all systems and expects to complete Year 2000 remediation and testing of all
systems by the quarter ending October 30, 1999. The Company plans to continue to
rely primarily on internal resources in order to complete these steps. However,
third party services will be employed as necessary to meet deadlines.
The Company's financial systems (excluding sales audit) are third party
vendor software programs which have been upgraded and have been certified as
Year 2000 compliant by the software vendors. These upgrades were previously
planned and were not accelerated due to Year 2000 issues.
The Sales Audit system (an in-house system) evaluation, reprogramming,
testing, and implementation (put into production) were completed during the
quarter ended July 31, 1999.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's distribution systems (excluding the returns system) are
third party vendor software programs which are certified as Year 2000 compliant
by the software vendor.
The returns system was evaluated during fiscal 1999. Few date sensitive
processes were identified in the programs, which mitigates the Year 2000
compliance risk. Reprogramming, testing, and implementation were completed
during the quarter ended July 31, 1999.
The Company's merchandising systems are supported by a combination of
in-house developed software and third party software. All third party
merchandising software programs are certified as Year 2000 compliant by the
software vendor. Evaluation, reprogramming, testing, and implementation of the
in-house programs were completed during the quarter ended July 31, 1999.
The Company's point of sale system operates the cash registers in the
stores. The registers run on a personal computer system using third party
software. Although the point of sale operating system is not Year 2000
compliant, the software has been upgraded in order to accept credit cards with
expiration dates beyond December 31, 1999. The system evaluation, reprogramming
and testing was completed during the quarter ending July 31, 1999. The modified
version (as per the changes stated above) of this system will be active in all
retail store locations by the quarter ending October 30, 1999.
Other information systems that are not critical to daily operations
were assessed during the fourth quarter of fiscal 1999 and will be upgraded, if
necessary, by the quarter ending October 30, 1999.
The Company has not deferred any significant information technology
projects in order to address the Year 2000 issue.
Based on present information, the Company believes that its current
plans as outlined above will substantially mitigate the risk of a material
disruption in the Company's operations due to internal Year 2000 factors.
However, possible consequences of the Company not being Year 2000 compliant
include, but are not limited to, loss of revenues, loss of communication
capability with stores, inability to process or quantify merchandise, and
inability to engage in other operational and financial activities.
The Company expects to consider contingency plans based on the results
of its Year 2000 testing and its assessment of related risks. The Company
intends to have this contingency plan for possible Year 2000 issues completed by
the quarter ending October 30, 1999.
Additionally, the Company is in the process of communicating with third
parties in order to assess their Year 2000 readiness and the extent to which the
Company may be vulnerable to any third parties' failure to remedy their Year
2000 issues. The Company is trying to obtain written confirmation of third
parties Year 2000 compliance. However, the Company cannot assure timely
compliance of third parties and may be adversely affected by failure of a
significant third party to become Year 2000 compliant.
Amounts expended to date related to Year 2000 compliance have been
approximately $300,000. The Company currently expects that the total costs of
Year 2000 compliance for the Company's current systems will not exceed $500,000.
These costs are not expected to have a significant impact on the Company's
financial reporting.
The costs associated with Year 2000 compliance are based on
management's current views with respect to future events and may be updated as
additional information becomes available. Please refer to the Special Note
Regarding Forward Looking Statements.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARKET RISK
The Company is subject to market risk from interest rate fluctuations
involving its credit facilities. The average amount of debt outstanding under
the Company's credit facilities was $59.0 million during fiscal 1999. However,
the Company utilizes both fixed and variable debt to manage this exposure. On
February 9, 1998, the Company entered into an interest rate swap agreement that
carries a notional principal amount of $30.0 million. The swap effectively fixes
the interest rate on $30.0 million of variable rate debt at 6.73%. The swap
agreement expires on February 9, 2003. A hypothetical increase or decrease of
10% in interest rates would not have a material impact on the Company's
financial condition and results of operations.
11
<PAGE> 12
II - OTHER INFORMATION
ITEM 1: Legal Proceedings
The Company is a party to various legal proceedings incidental
to its business. In the opinion of management, after
consultation with legal counsel, the ultimate liability, if
any, with respect to those proceedings is not presently
expected to materially affect the financial position or
results of operations of the Company.
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matters of Vote of Security-Holders
None
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 3i Certificate of Incorporation of Books-A-Million,
Inc. (incorporated herein by reference to Exhibit 3.1 in the
Company's Registration Statement on Form S-1 (Capital
Registration No. 33-52256))
Exhibit 3ii By-Laws of Books-A-Million, Inc. (incorporated
herein by reference to Exhibit 3.2 in the Company's
Registration Statement on Form S-1 (Capital Registration No.
33-52256))
Exhibit 27 Financial Data Schedule (for SEC use only)
(B) Reports on Form 8-K
There were no reports filed on Form 8-K during the thirteen
week period ended July 31, 1999
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
BOOKS-A-MILLION, INC.
Date: September 14, 1999
by:/s/ Clyde B. Anderson
---------------------
Clyde B. Anderson
Chief Executive Officer
Date: September 14, 1999
by:/s/ Richard S. Wallington
-------------------------
Richard S. Wallington
Chief Financial Officer
<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 (B) FORM 10-Q FOR THE TWENTY-SIX WEEKS ENDED JULY
31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUL-31-1999
<EXCHANGE-RATE> 1
<CASH> 4,518
<SECURITIES> 0
<RECEIVABLES> 12,890
<ALLOWANCES> 881
<INVENTORY> 194,578
<CURRENT-ASSETS> 219,117<F1>
<PP&E> 117,550
<DEPRECIATION> 55,357
<TOTAL-ASSETS> 283,014<F2>
<CURRENT-LIABILITIES> 129,278
<BONDS> 0<F3>
0<F4>
0
<COMMON> 181
<OTHER-SE> 115,453
<TOTAL-LIABILITY-AND-EQUITY> 283,014
<SALES> 175,005
<TOTAL-REVENUES> 175,005
<CGS> 129,284
<TOTAL-COSTS> 165,575
<OTHER-EXPENSES> 6,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,182
<INCOME-PRETAX> 531
<INCOME-TAX> 202
<INCOME-CONTINUING> 329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329
<EPS-BASIC> 0.02<F5>
<EPS-DILUTED> 0.02<F5>
<FN>
<F1>OTHER CURRENT ASSETS 8,012
<F2>OTHER ASSETS 1,704
<F3>LONG TERM DEBT 36,944
<F4>DEFERRED INCOME TAXES 1,158
<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>
