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 the actual results, performance or achievements of Books-A-Million, Inc. (the "Company") or the results of its industry 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 or deflation; economic conditions in general and in the Company's specific market areas, including the length of time that the United States economy remains in the current economic downturn; 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; the impact of electronic books and e-content; uncertainties related to the Internet and the Company's Internet operations; the factors described in PART I, ITEM 1A, RISK FACTORS in our Annual Report on Form 10-K for the year ended January 28, 2012; and other factors referenced herein. In addition, such forward-looking statements are necessarily dependent upon 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, stockholders and prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation 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.

General

We were founded in 1917 and, as of October 27, 2012, operated 258 retail bookstores, including 201 superstores, concentrated primarily in the eastern United States.

Our growth strategy consists of expanding product offerings and opening stores in new and existing market areas. 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 under-performing stores or converting stores to different formats. From October 29, 2011 to October 27, 2012, we opened 43 stores, closed 6 stores and relocated one store, increasing our store count from 221 to 258.

Comparable store sales are determined each fiscal quarter during the year based on all stores that have been open at least 12 full fiscal months as of the first day of the fiscal quarter. Any stores closed during a fiscal quarter are included in comparable store sales until they close. Remodeled and relocated stores are also included as comparable stores. The factors affecting the future trend of comparable store sales include, among others, overall demand for products that the Company sells, the Company's marketing programs, pricing strategies, store operations and competition.

The Company's business, like that of many retailers, is seasonal, with a large portion of sales and operating profit realized during the fourth fiscal quarter, which includes the holiday selling season.

Results of Operations

The following table sets forth statement of operations data expressed as a
percentage of net sales for the periods presented.



                                            Thirteen Weeks Ended                           Thirty-Nine Weeks Ended
                                    October 27,              October 29,            October 27,               October 29,
                                        2012                    2011                    2012                     2011
Net sales                                   100.0 %                 100.0 %                 100.0 %                  100.0 %
Gross profit                                 26.3 %                  25.6 %                  27.2 %                   27.2 %
Operating, selling and
administrative expenses                      26.6 %                  29.9 %                  25.8 %                   28.6 %
Depreciation and amortization                 3.9 %                   4.3 %                   3.7 %                    3.9 %
Operating loss from
continuing operations                        (4.3 )%                 (8.6 )%                 (2.3 )%                  (5.3 )%
Interest expense, net                         0.4 %                   0.4 %                   0.4 %                    0.3 %
Loss from continuing
operations, before income
taxes                                        (4.7 )%                 (9.0 )%                 (2.7 )%                  (5.6 )%
Income tax benefit                           (2.2 )%                 (5.0 )%                 (1.1 )%                  (2.2 )%
Net (loss) income on equity
method investment                            (0.2 )%                  0.0 %                  (0.1 )%                   0.1 %
Net loss from continuing
operations                                   (2.6 )%                 (4.0 )%                 (1.7 )%                  (3.3 )%
Loss from discontinued
operations                                     -                     (0.2 )%                   -                      (0.1 )%
Net loss                                     (2.6 )%                 (4.2 )%                 (1.7 )%                  (3.4 )%

The following table sets forth net sales data by segment for the periods presented:

Segment Information (dollars in thousands)



Net Sales                                                  Thirteen Weeks Ended                                             Thirty-Nine Weeks Ended
                                         October 27,        October 29,          $             %           October 27,        October 29,          $             %
                                            2012               2011            Change       Change            2012               2011            Change       Change
Retail Trade                            $     100,853      $      91,725      $  9,128        10.0  %     $     329,707      $     292,494      $ 37,213         12.7 %
Electronic Commerce Trade                       5,939              6,298          (359 )       (5.7 )%           18,794             19,449          (655 )       (3.4 )%
Intersegment Sales Elimination                 (2,075 )           (3,649 )       1,574        (43.1 )%          (10,265 )          (10,357 )          92         (0.9 )%

Total Net Sales                         $     104,717      $      94,374      $ 10,343        11.0  %     $     338,236      $     301,586      $ 36,650         12.2 %

As discussed above, from October 29, 2011 to October 27, 2012, we opened 43 stores, closed 6 stores and relocated one store, increasing our store count from 221 to 258. Reflecting that increase, net sales increased $10.3 million, or 11.0%, to $104.7 million during the thirteen weeks ended October 27, 2012 from $94.4 million during the thirteen weeks ended October 29, 2011. Sales at comparable stores (as defined above) decreased 3.6% for the same period. For the thirty-nine weeks ended October 27, 2012, sales increased $36.7 million, or 12.2%, to $338.2 million from $301.6 million for the prior period. Sales at comparable stores decreased 2.4% for this period.

The increase in net sales for the retail trade segment for the thirteen weeks ended October 27, 2012, compared to the thirteen weeks ended October 29, 2011, resulted from a net increase in sales from new stores (as discussed above), less sales from closed stores, offset by lower comparable store sales. Comparable store sales for the retail trade segment for the thirteen weeks ended October 27, 2012 decreased 2.7% when compared to the same thirteen week period for the prior year. The decrease in comparable store sales for the thirteen week period ended October 27, 2012 was due to decreased sales in certain book categories, offset somewhat by increased sales in general merchandise. The increase in net sales for the retail trade segment for the thirty-nine weeks ended October 27, 2012, compared to the thirty-nine weeks ended October 29, 2011, resulted from increased sales due to the net increase in stores (as discussed above), offset somewhat by lower comparable store sales. Comparable store sales for the retail trade segment for the thirty-nine weeks ended October 27, 2012 decreased 1.6% when compared to the same thirty-nine week period for the prior year. The decrease in comparable store sales for the thirty-nine week period ended October 27, 2012 was due to lower sales resulting from the continuing transition of certain book categories to an electronic format, offset somewhat by increased sales in general merchandise. The decrease in net sales for the electronic commerce trade segment for both the thirteen weeks and thirty-nine weeks ended October 27, 2012 was due primarily to lower sales of eReader devices.

Gross profit increased $3.4 million, or 13.9%, to $27.5 million for the thirteen weeks ended October 27, 2012, when compared with $24.1 million in the same thirteen week period for the prior year, due to the net increase in sales from new stores (as discussed above) and an improvement in the gross profit percentage. Gross profit as a percentage of net sales for the thirteen weeks ended October 27, 2012 and October 29, 2011 was 26.3% and 25.6%, respectively. The increase in gross profit percentage of net sales for the thirteen week period ended October 27,

2012 was due to lower shrink expense, warehouse costs and occupancy costs offset by higher markdowns. Gross profit increased $9.8 million, or 12.0%, to $91.8 million for the thirty-nine weeks ended October 27, 2012, when compared with $82.0 million in the same thirty-nine week period for the prior year, due to a net increase in sales. Gross profit as a percentage of net sales for the thirty-nine weeks ended October 27, 2012 and October 29, 2011 was flat at 27.2%, as lower warehouse costs and shrink expense were offset by higher occupancy costs and markdowns.

Operating, selling and administrative expenses were $27.8 million for the thirteen weeks ended October 27, 2012, compared to $28.2 million during the same period last year. The decrease in operating, selling and administrative expenses was primarily due to lower store closing and opening costs in the current period compared to the prior year period, during which we closed 22 stores, opened 13 stores and prepared to open 38 stores that opened in the subsequent quarter. The reduced store closing and opening costs, along with effective store expense cost control measures, caused operating, selling and administrative expenses as a percentage of net sales for the thirteen weeks ended October 27, 2012 to decrease to 26.6% versus 29.9% from the same period last year. Operating, selling and administrative expenses were $87.2 million for the thirty-nine weeks ended October 27, 2012, compared to $86.3 million during the same period last year. The increase in operating, selling and administrative expenses for the thirty-nine week period compared to the same period last year was due to an increase in expenses resulting from the net increase in stores, partially offset by lower health insurance costs. Operating, selling and administrative expenses as a percentage of net sales for the thirty-nine weeks ended October 27, 2012 decreased to 25.8% from 28.6% from the same period last year due to the cost control measures as described above, less store closing and opening costs as described above and the leverage of these lower costs over a larger store base and higher sales volume.

Depreciation and amortization expense was $4.1 million in the thirteen week period ended October 27, 2012, compared to $4.0 million in the thirteen week period ended October 29, 2011. The increase was the result of capital investments made for new stores opened in fiscal 2012. Depreciation and amortization expenses as a percentage of net sales for the thirteen weeks ended October 27, 2012 totaled 3.9%, which was 0.4% lower than the same period last year. Depreciation and amortization expense was $12.4 million in the thirty-nine week period ended October 27, 2012, compared to $11.8 million in the thirty-nine week period ended October 29, 2011, primarily due to the impact of the capital invested in new stores opened in fiscal 2012. Depreciation and amortization expenses as a percentage of net sales for the thirty-nine weeks ended October 27, 2012 totaled 3.7%, which was 0.2% lower than the same period last year.

The following table sets forth operating loss data by segment for the periods presented:

Segment Information (dollars in thousands)



Operating Income (Loss)                                        Thirteen Weeks Ended                                             Thirty-Nine Weeks Ended
                                             October 27,        October 29,          $            %            October 27,        October 29,          $            %
                                                2012               2011           Change        Change            2012               2011           Change        Change
Retail Trade                                $      (4,187 )    $      (8,503 )    $ 4,316          50.8 %     $      (7,703 )    $     (16,541 )    $ 8,838          53.4 %
Electronic Commerce Trade                            (311 )              169         (480 )      (284.0 )%             (690 )              (79 )       (611 )      (773.4 )%
Intersegment Elimination of Certain Costs              35                204         (169 )       (82.8 )%              614                586           28           4.8 %

Operating (loss) income                     $      (4,463 )    $      (8,130 )    $ 3,667          45.1 %     $      (7,779 )    $     (16,034 )    $ 8,255          51.5 %

The operating loss for the retail trade segment decreased $4.3 million for the thirteen weeks and $8.8 million for the thirty-nine weeks ended October 27, 2012, as compared to the same periods in the prior year. These changes were due to the impact of the increase in store count generating higher sales and controlled store and corporate costs. The operating loss of the electronic commerce trade segment increased for the thirteen weeks and thirty-nine weeks ended October 27, 2012 due to lower gross margin as a result of lower sales and increased net shipping costs associated with consumer direct sales.

Net Interest Expense

Net interest expense was $0.4 million, or 0.4% of net sales, for both the thirteen weeks ended October 27, 2012 and October 29, 2011. For the thirty-nine weeks ended October 27, 2012, net interest expense was $1.3 million, or 0.4% of net sales, compared to $0.9 million, or 0.3% of net sales, in the same period last year. This increase was due to higher average outstanding borrowings resulting from increased capital expenditures in the second half of fiscal 2012 related to the stores opened during that period.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations, including credit terms from vendors, and borrowings under our credit facility, as described in Note 9 to the condensed consolidated financial statements. The maximum and average outstanding borrowings under the credit facility (including the face amount of letters of credit issued thereunder) during the thirty-nine week period ended October 27, 2012 were $58.8 million and $44.6 million, respectively.

Cash Flows

Operating activities used cash equal to $35.6 million and $15.6 million in the thirty-nine week periods ended October 27, 2012 and October 29, 2011, respectively, and included the following:

• Cash used in trade and related party accounts payable in the thirty-nine week period ended October 27, 2012 was $10.5 million, and cash provided by trade and related party accounts payable in the thirty-nine week period ended October 29, 2011 was $25.0 million. The change from the prior year was primarily the result of the timing of payment of the inventory added during the thirty-nine weeks ended October 27, 2012 related to the opening of new stores.

• Cash used by inventories was $27.0 million in the thirty-nine week period ended October 27, 2012, compared to $35.7 million cash used by inventories in the prior year. The change from the prior year was primarily the result of the inventory added during the thirty-nine weeks ended October 27, 2012 related to the opening of new stores and timing of inventory receipts.

• The adjustment to reconcile net loss from continuing operations to net cash used in operating activities for deferred income taxes was ($0.6) million in the thirty-nine week period ended October 27, 2012, and cash used for deferred income taxes was ($2.5) million in the thirty-nine week period ended October 29, 2011. The change was primarily the result of the impact of lower state net operating losses.

Cash used in investing activities reflected a $14.4 million and $12.8 million net use of cash for the thirty-nine week periods ended October 27, 2012 and October 29, 2011, respectively. Cash was used in the thirty-nine week period ended October 27, 2012 to fund capital expenditures related to the opening of new stores that had been accrued at year end and real property development.

Financing activities provided cash of $44.3 million and $24.9 million in the thirty-nine week periods ended October 27, 2012 and October 29, 2011, respectively. Financing activities provided cash in the thirty-nine week period ended October 27, 2012 from $45.0 million of net borrowings under our Credit Facility to finance operations, capital expenditures related to new store openings that had been accrued at prior year end and share repurchases.

Financial Position

Inventory balances were $228.3 million as of October 27, 2012, compared to $201.3 million as of January 28, 2012. The inventory increase of 13.4% was due to the year over year increase in our number of open stores and seasonal fluctuations in inventory. Trade and related party accounts payable balances were $101.4 million as of October 27, 2012, compared to $112.0 million as of January 28, 2012. The decrease in trade and related party accounts payable was due to timing of payments for inventory, particularly relating to the inventory purchased for the significant number of stores opened in late fiscal 2012. Accrued expenses were $33.5 million as of October 27, 2012, compared to $41.4 million as of January 28, 2012. The decrease in accrued expenses was due to a reduction in accrued capital expenditures and a reduction in gift card liability. The decrease in accrued capital expenditures was the result of payments of amounts previously accrued for capital expenditures related to new store openings in the prior year. The reduction in the gift card liability accrual traditionally occurs in the first quarter of the year due to the redemption of gift cards.

Future Commitments

The following table lists the aggregate maturities of various classes of
obligations and expiration amounts of various classes of commitments of the
Company at October 27, 2012 (in thousands):



                                                         Payments Due Under Contractual Obligations(1)
(in thousands)                      Total       FY 2013      FY 2014      FY 2015      FY 2016      FY 2017       Thereafter
Short-term borrowings(2)          $  45,000     $ 45,000     $     -      $     -      $     -      $     -      $         -
Long-term debt - industrial
revenue bond                          5,445           -            -            -            -         5,445               -

Subtotal of debt                     50,445       45,000           -            -            -         5,445               -
Interest                                243           27           69           69           69            9               -
Operating leases(3)                 175,084       10,567       40,285       36,756       27,606       22,392           37,478

Total of obligations              $ 225,772     $ 55,594     $ 40,354     $ 36,825     $ 27,675     $ 27,846     $     37,478

(1) This table excludes any amounts related to the payment of the $0.7 million of income tax uncertainties, as the Company cannot make a reasonable estimate of the periods of cash settlements with the respective taxing authorities.

(2) Short-term borrowings represent borrowings under the $150.0 million credit facility that are due in 12 months or less.

(3) Excludes obligations under store leases for insurance, taxes and other maintenance costs.

Guarantees

From time to time, we enter into certain types of agreements that require us to indemnify parties against third-party claims. Generally, these agreements relate to: (a) agreements with vendors and suppliers, under which we may provide customary indemnification to our vendors and suppliers in respect of actions that they take at our request or otherwise on our behalf, (b) agreements with vendors who publish books or manufacture merchandise specifically for us to indemnify the vendors against trademark and copyright infringement claims concerning the books published or merchandise manufactured on our behalf,
(c) real estate leases, under which we may agree to indemnify the lessors for claims arising from our use of the property, and (d) agreements with our directors, officers and employees, under which we may agree to indemnify such persons for liabilities arising out of their relationship with us. We maintain a Directors and Officers Liability Insurance Policy, which, subject to the policy's conditions, provides coverage for indemnification amounts payable by us with respect to our directors and officers up to specified limits and subject to certain deductibles.

The nature and terms of these types of indemnities vary. The events or circumstances that would require the Company to perform under these indemnities are transaction and circumstance specific. The overall maximum amount of obligations cannot be reasonably estimated. Historically, the Company has not incurred significant costs related to performance under these types of indemnities. No liabilities have been recorded for these obligations on the Company's balance sheet at October 27, 2012 or January 28, 2012, as such potential liabilities are considered de minimis.

Related Party Activities

See Note 4, Related Party Transactions, to the condensed consolidated financial statements for information regarding related party activities.

Critical Accounting Policies

A summary of our critical accounting policies is included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Form 10-K for the year ended January 28, 2012 filed with the Securities and Exchange Commission. No changes to these policies have occurred during the thirty-nine weeks ended October 27, 2012.

New Accounting Pronouncements

See Note 2, Recent Accounting Pronouncements, to the condensed consolidated financial statements for information regarding new accounting pronouncements.