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.
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.
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.
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.
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.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
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.
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.
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.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
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:
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.
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.
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.
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.
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.
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.
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 **
* 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).
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] [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
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
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SCHEDULE II
BOOKS-A-MILLION, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 3, 1996, FEBRUARY 1, 1997 AND JANUARY 31, 1998
S-2
INDEX TO EXHIBITS