<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 29, 2000
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- 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 of (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 29, 2000 were 18,091,815 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 29, 2000 January 29, 2000
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary cash investments $ 5,101 $ 4,920
Accounts receivable, net 9,732 12,942
Inventories 209,860 194,624
Prepayments and other 4,061 3,339
Deferred income taxes 5,292 5,084
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TOTAL CURRENT ASSETS 234,046 220,909
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PROPERTY AND EQUIPMENT:
Gross property and equipment 128,682 125,454
Less accumulated depreciation and amortization 67,818 61,222
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NET PROPERTY AND EQUIPMENT 60,864 64,232
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OTHER ASSETS:
Goodwill, net 1,432 1,453
Other 177 191
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TOTAL OTHER ASSETS 1,609 1,644
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TOTAL ASSETS $ 296,519 $ 286,785
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 91,537 $ 103,505
Accrued expenses 18,491 20,970
Accrued income taxes -- 2,092
Current portion of long-term debt 26,621 470
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TOTAL CURRENT LIABILITIES 136,649 127,037
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LONG TERM DEBT 35,972 35,936
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DEFERRED INCOME TAXES 2,520 2,407
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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,
18,091,815 and 18,080,646 shares issued and outstanding at July 29, 2000 and January 29, 2000,
respectively 181 181
Additional paid-in capital 70,634 70,564
Treasury stock at cost (81,600 shares at July 29, 2000 and January 29, 2000) (252) (252)
Retained earnings 50,815 50,912
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TOTAL STOCKHOLDERS' INVESTMENT 121,378 121,405
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TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 296,519 $ 286,785
========= =========
</TABLE>
See accompanying notes
2
<PAGE> 3
BOOKS-A-MILLION, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------------------- ---------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 93,629 $ 89,878 $ 186,728 $ 175,005
Cost of products sold (including warehouse
distribution and store occupancy costs)(1) 69,285 66,514 137,684 129,284
--------- --------- --------- ---------
GROSS PROFIT 24,344 23,364 49,044 45,721
Operating, selling and administrative expenses 20,350 18,793 39,607 36,291
Depreciation and amortization 3,652 3,375 7,302 6,717
--------- --------- --------- ---------
OPERATING INCOME 342 1,196 2,135 2,713
Interest expense, net 1,258 1,165 2,292 2,182
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (916) 31 (157) 531
Provision (Benefit) for income taxes (348) 12 (60) 202
--------- --------- --------- ---------
NET INCOME (LOSS) $ (568) $ 19 $ (97) $ 329
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC 18,010 17,984 18,008 17,965
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE - BASIC $ (0.03) $ 0.00 $ (0.01) $ 0.02
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED 18,010 18,231 18,008 18,273
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE - DILUTED $ (0.03) $ 0.00 $ (0.01) $ 0.02
========= ========= ========= =========
</TABLE>
(1) Inventory purchases from related parties were $7,605, $6,165, $17,506 and
$14,841, 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 29, 2000 JULY 31, 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (97) $ 329
--------- ---------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 7,302 6,717
Loss on disposal of property and equipment 704 71
Change in deferred income taxes (95) (349)
Changes in current assets and liabilities:
Accounts receivable 3,210 4,271
Inventories (15,236) (19,367)
Prepayments and other (741) (1,041)
Accounts payable (11,968) (9,847)
Accrued income taxes (2,092) (476)
Accrued expenses (2,483) (1,096)
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Total adjustments (21,399) (21,117)
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Net cash used in operating activities (21,496) (20,788)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,622) (3,270)
Proceeds from sales of equipment 42 1,720
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Net cash used in investing activities (4,580) (1,550)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under credit facilities 26,187 22,251
Proceeds from sale of common stock, net 70 283
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Net cash provided by financing activities 26,257 22,534
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Net increase in cash and temporary cash investments 181 196
Cash and temporary cash investments at beginning of period 4,920 4,322
--------- ---------
Cash and temporary cash investments at end of period $ 5,101 $ 4,518
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,197 $ 2,036
Income Taxes, net of refunds $ 3,068 $ 1,436
========= =========
</TABLE>
See accompanying notes
4
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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 29, 2000 and July 31, 1999, have been
prepared in accordance with U.S. 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 U.S. 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 29,
2000, included in the Company's 2000 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
29, 2000, and the results of its operations and cash flows for the thirteen and
twenty-six week periods then ended. Certain prior year amounts have been
reclassified to conform to current year presentation.
The Company has experienced, and expects to continue to experience,
significant variability in sales and net income from quarter to quarter.
Therefore, the results of the interim periods presented herein are not
necessarily indicative of the results to be expected for any other interim
period or the full year.
2. NET INCOME PER SHARE
Basic net income per share ("EPS") 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 29, 2000 July 31, 1999
-----------------------------------------------
<S> <C> <C>
Weighted average shares outstanding:
Basic 18,010 17,984
Dilutive effect of stock options outstanding 0 247
-----------------------------------------------
Diluted 18,010 18,231
-----------------------------------------------
<CAPTION>
For the Twenty-Six Weeks Ended
(in thousands)
July 29, 2000 July 31, 1999
-----------------------------------------------
<S> <C> <C>
Weighted average shares outstanding:
Basic 18,008 17,965
Dilutive effect of stock options outstanding 0 308
-----------------------------------------------
Diluted 18,008 18,273
-----------------------------------------------
</TABLE>
Options outstanding of 1,522,435 and 1,537,152 for the thirteen weeks
and twenty-six weeks ended July 29, 2000 and outstanding options of 457,540 and
429,600 for the thirteen and twenty-six weeks ended July 31, 1999 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
(Unaudited)
3. PENDING ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, which 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 SFAS 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 Books-A-Million, Inc.).
In June 2000, FASB Statement No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, was issued. SFAS No. 138 amends
the accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and certain hedging activities. Management is in the process of
evaluating the impact of these statements on the consolidated financial
statements; however, the adoption of these statements could increase volatility
in earnings.
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 areas; inflation; economic
conditions in general and in the Company's specific market areas; the number of
store openings and closings; the profitability of certain product lines, capital
expenditures and future liquidity; liability and other claims asserted against
the Company; uncertainties related to the Internet and the Company's Internet
initiatives; and other factors referenced herein. In addition, such
forward-looking statements are necessarily dependent upon the assumptions,
estimates and dates that may be incorrect or imprecise and involve known and
unknown risks, uncertainties and other factors. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized. Given these uncertainties, shareholders
and prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
RESULTS OF OPERATIONS
Net sales increased 4.2% to $93.6 million in the thirteen weeks ended
July 29, 2000, from $89.9 million in the thirteen weeks ended July 31, 1999. Net
sales increased 6.7% to $186.7 million in the twenty-six weeks ended July 29,
2000, from $175.0 million in the twenty-six weeks ended July 31, 1999. For the
thirteen and twenty-six weeks ended July 29, 2000, the increase in net sales
resulted from new store sales combined with comparable store sales increases of
1.2% and 3.6% for the thirteen and twenty-six weeks ended July 29, 2000,
respectively. During the thirteen weeks ended July 29, 2000, four superstores
were opened and two Bookland stores were closed.
Gross profit increased $0.9 million or 4.2% to $24.3 million in the
thirteen weeks ended July 29, 2000 from $23.4 million in the thirteen weeks
ended July 31, 1999, and in the twenty-six weeks ended July 29, 2000, gross
profit increased 7.3% to $49.0 million from $45.7 million in the same period
last year. Gross profit as a percentage of net sales for the thirteen weeks
ended July 29, 2000 was 26.0% versus 26.0% in the same period last year. Gross
profit as a percentage of net sales for the twenty-six weeks ended July 29, 2000
was 26.3% versus 26.1% in the same period last year. The increase as a
percentage of net sales for the twenty-six week period was due to lower
warehouse distribution costs as a percentage of net sales.
Operating, selling and administrative expenses increased $1.6 million
or 8.3% to $20.4 million in the thirteen weeks ended July 29, 2000, from $18.8
million in the thirteen weeks ended July 31, 1999, and in the twenty-six weeks
ended July 29, 2000, operating, selling and administrative expenses increased
9.1% to $39.6 million from $36.3 million in the same period last year.
Operating, selling and administrative expenses as a percentage of net sales for
the thirteen weeks ended July 29, 2000, increased to 21.7% from 20.9% 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 21.2% from
20.7% in the same period last year. The increase in this percentage for the
thirteen and twenty-six week periods was primarily due to increased corporate
expense.
Depreciation and amortization increased $0.3 million or 8.2% to $3.7
million in the thirteen weeks ended July 29, 2000, from $3.4 million in the
thirteen weeks ended July 31, 1999, and in the twenty-six week period
depreciation and amortization increased $0.6 million or 8.7% to $7.3 million
from $6.7 million in the same period last year. The increase in depreciation and
amortization for the thirteen and twenty-six week periods was primarily the
result of the increased number of superstores operated by the Company.
Interest expense was relatively constant at $1.3 million for the
thirteen weeks ended July 29, 2000 versus $1.2 million in the prior year.
Interest expense was relatively constant at $2.3 million for the twenty-six week
period ended July 29, 2000 versus $2.2 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 29, 2000, $53.7
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 29, 2000, the Company has outstanding
borrowings associated with the issuance of an industrial revenue bond totaling
$7.5 million.
The Company's capital expenditures totaled $4.6 million during the
first twenty-six weeks of fiscal 2001. These expenditures were primarily used
for new store expenditures, warehouse distribution purposes and investment in
management information systems. Management estimates that capital expenditures
for the remainder of fiscal 2001 will be approximately $10.2 million, and that
such amounts will be used primarily for new stores, renovations and improvements
to existing stores and investments in management information systems. Management
believes that existing cash balances and net cash from operating activities,
together with borrowings under the Company's credit facilities, will be adequate
to finance the Company's planned capital expenditures and to meet the Company's
working capital requirements for the remainder of fiscal 2001.
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
("related parties") are summarized in the following paragraph.
The Company purchases a portion of its inventories for resale from
related parties; such purchases were $17.5 million in the twenty-six weeks ended
July 29, 2000, versus $14.8 million in the twenty-six weeks ended July 31, 1999.
The increase in related party purchases is primarily the result of greater
collectors purchases from related parties. The Company sells a portion of its
inventories to related parties; such sales amounted to $1.0 million and $0.9
million in the twenty-six weeks ended July 29, 2000 and July 31, 1999,
respectively. The Company also purchases logistics services from a related
party; such services amounted to $199,000 and $120,000 in the twenty-six weeks
ended July 29, 2000 and July 31, 1999, respectively. Management believes the
terms of these related party transactions are substantially equivalent to those
available from unrelated parties and, therefore, have no significant impact on
gross profit.
FINANCIAL POSITION
During the twenty-six weeks ended July 29, 2000, the Company opened
five superstores, converted one Bookland store to a superstore, closed one
superstore and closed three Bookland stores. Inventory and debt balances at July
29, 2000 increased as compared to January 29, 2000 due to seasonal fluctuations
in inventory levels and the five new superstores opened during the first half of
fiscal 2001.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARKET RISK
The Company is subject to interest rate fluctuations involving its
credit facilities. The average amount of debt outstanding under the Company's
credit facilities was $61.6 million during fiscal 2000. However, the Company
utilizes both fixed and variable debt to manage this exposure. On February 9,
1998, the Company entered into an interest rate swap agreement with a five year
term which carries a notional principal amount of $30.0 million. The swap
effectively fixes the interest rate on $30.0 million of variable rate debt at
6.78%. The swap agreement expires on February 9, 2003. Also, on May 14, 1996,
the Company entered into an interest rate swap agreement with a ten year term
which carries a notional principal amount of $7.5 million. The swap effectively
fixes the interest rate on $7.5 million of variable rate debt at 6.98%. The swap
agreement expires on June 7, 2006. The counter party to the interest rate swaps
is one of the Company's primary banks. The Company believes the credit and
liquidity risk of the counter party failing to meet its obligation is remote as
the company settles its interest position with the bank on a quarterly basis.
9
<PAGE> 10
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 29, 2000
10
<PAGE> 11
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 12, 2000
by: /s/ Clyde B. Anderson
---------------------------
Clyde B. Anderson
Chief Executive Officer
Date: September 12, 2000
by: /s/ Richard S. Wallington
---------------------------
Richard S. Wallington
Chief Financial Officer
