UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 2, 2008

[	] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from

Commission File No. 0-20664

BOOKS-A-MILLION, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE

63-0798460

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification No.)

402 Industrial Lane

Birmingham, Alabama

35211

(Address of principal executive offices)

(Zip Code)

Registrant's telephone number, including area code:

(205) 942-3737

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o

No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o

No x

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer o Accelerated Filer x

Non-Accelerated Filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The aggregate market value of the voting stock held by non-affiliates of the Registrant (assuming for these purposes, but without conceding, that all executive officers and directors are "affiliates" of the Registrant) as of

August 3, 2007 (based on the closing sale price as reported on the NASDAQ National Market on such date), was $205,491,377.

The number of shares outstanding of the Registrant's Common Stock as of March 28, 2008 was 15,809,683.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Stockholders for the fiscal year ended February 2, 2008 are incorporated by reference into Parts I and II of this report.

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 29, 2008 are incorporated by reference into Part III of this report.

BOOKS-A-MILLION, INC. AND SUBSIDIARIES

10-K INDEX

PART I
Item I.	Business	4
Item IA.	Risk Factors	7
Item IB.	Unresolved Staff Comments	11
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters To A Vote of Security Holders	11
PART II
Item 5.	Market For Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 8.	Financial Statements and Supplementary Data	13
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	13
Item 9A.	Controls and Procedures	13
Item 9B.	Other Information	14
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	14
Item 11.	Executive Compensation	15
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	16
Item 13.	Certain Relationships and Related Transactions, and Director Independence	16
Item 14.	Principal Accountant Fees and Services	16
PART IV
Item 15.	Exhibits and Financial Statement Schedules	16

	Signatures
	Certifications

PART I

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; 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 initiative; the factors described in ITEM 1A. RISK FACTORS herein; 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 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.

ITEM 1. BUSINESS

General

Books-A-Million, Inc. is a leading book retailer in the southeastern United States. The Company was founded in 1917 and operates both superstores and traditional bookstores. Superstores, the first of which was opened in 1987, range in size from 8,000 to 36,000 square feet and operate under the names "Books-A-Million" and “Books and Co.” Traditional bookstores are smaller stores operated under the names “Bookland,” and “Books-A-Million”. These stores range in size from 2,000 to 7,000 square feet and are located primarily in enclosed malls. All store formats generally offer an extensive selection of best sellers and other hardcover and paperback books, magazines, and newspapers. In addition to the retail store formats, we offer our products over the Internet at Booksamillion.com.

We were founded in 1917, originally incorporated under the laws of the State of Alabama in 1964 and reincorporated in Delaware in September 1992. Our principal executive offices are located at 402 Industrial Lane, Birmingham, Alabama 35211, and our telephone number is (205) 942-3737. Unless the context otherwise requires, references to “we,” “our” or “the Company” include our wholly owned subsidiaries, American Wholesale Book Company, Inc. ("American Wholesale"), American Internet Service, Inc. (“AIS”) and Books-A-Million Card Services, Inc. (“Card Services”).

Our periodic and current reports filed with the SEC are made available on our website at www.booksamillioninc.com as soon as reasonably practicable. Our code of conduct and key committee charters are also available on our website. These reports are available free of charge to stockholders upon written request. Such requests should be directed to Douglas G. Markham, our Chief Financial Officer. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street N.E, Room 1850, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us, at http: //www.sec.gov.

Business Segments

We have two reportable segments: retail trade and electronic commerce trade. In the retail trade segment we are engaged in the retail trade of primarily book merchandise. The retail trade segment includes our distribution center operations which predominantly supplies merchandise to our retail stores. In the electronic commerce trade segment we transact business over the Internet primarily. This segment is managed separately due to divergent technology and marketing requirements. For additional information on our reportable business segments, see Note 8 “Business Segments” in the Notes to Consolidated Financial Statements in the Annual Report to Stockholders for the fiscal year ended February 2, 2008 incorporated herein by reference.

Retail Stores

We opened our first Books-A-Million superstore in 1987. We developed 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. We operated 184 superstores as of February 2, 2008.

Our superstores emphasize selection, value and customer service. Each of our superstores offers an extensive selection of best sellers and other hardcover and paperback books, magazines and gifts and dedicates space to bargain books that are sold at a discount from publishers' originally suggested retail prices. Each superstore has a 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 our superstores also include a Joe Muggs café, serving Joe Muggs coffee and assorted pastries. Our superstores are conveniently located on major, high-traffic roads and in enclosed malls or strip shopping centers with adequate parking, and generally operate for extended hours up to 11:00 pm local time.

Our traditional stores are tailored to the size, demographics and competitive conditions of the particular market area. Traditional stores are located primarily in enclosed malls and generally feature a wide selection of books, magazines and gift items. We had 24 traditional stores as of February 2, 2008.

Merchandising

We employ several value-oriented merchandising strategies. Books on our best-seller list, which is developed by us based on the sales and customer demand in our stores, are generally sold in the Company's superstores below publishers' suggested retail prices. In addition, customers can join the Millionaire's Club and save 10% on all purchases in any of our stores, including already discounted best-sellers. Our point-of-sale computer system provides data designed to enable us to anticipate consumer demand and customize store inventory selection to reflect local customer interest.

Marketing

We promote our bookstores principally through the use of traditional and electronic direct mail advertising, as well as point-of-sale materials posted and distributed in the stores. In certain markets, television and newspaper advertising is also used on a selective basis. We also arrange for special appearances and book autograph sessions with recognized authors to attract customers and to build and reinforce customer awareness of our stores. A substantial portion of our 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, we apply standardized site selection criteria that

takes into account numerous factors, including the local demographics, desirability of available leasing arrangements, proximity to our existing operations and overall level of retail activity. In general, stores are located on major high-traffic roads convenient to customers and have adequate parking. We generally negotiate short-term leases with renewal options. We also periodically review the profitability trends and prospects of each of our stores and evaluate whether or not any underperforming stores should be closed, converted to a different format or relocated to more desirable locations.

Internet Operations

Through our wholly owned subsidiary, AIS, we sell a broad range of products over the Internet under the names Booksamillion.com and Joemuggs.com. On Booksamillion.com we sell a wide selection of books, magazines and gift items similar to those sold in our Books-A-Million superstores. We also operate an online café under the name Joemuggs.com where we offer a wide selection of whole bean coffee, confections and related gift items for purchase over the Internet.

Internet development efforts are assisted through a wholly owned subsidiary of AIS, NetCentral, Inc., which is based in Nashville, Tennessee. Net Central provides all web development and maintenance for all of our internet sites and networking initiatives.

Purchasing

Our purchasing decisions are made by our merchandising department on a centralized basis. Our buyers negotiate terms, discounts and cooperative advertising allowances for all of our bookstores and decide which books to purchase, in what quantity and for which stores. The buyers use current inventory and sales information provided by our in-store point-of-sale computer system to make reorder decisions.

We purchase merchandise from over 1,500 vendors. We purchase the majority of our collectors' supplies from Anderson Press and substantially all of our magazines from Anderson Media, each of which is a related party (see “Transactions with Related Persons” on page20 of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 29, 2008). No one vendor accounted for over 13.0% of our overall merchandise purchases in the fiscal year ended February 2, 2008. In general, in excess of 80% of our inventory may be returned for credit, which substantially reduces our risk of inventory obsolescence.

Distribution Capabilities

American Wholesale receives a substantial portion of our inventory shipments, including substantially all of our books, at its two facilities located in Florence and Tuscumbia, Alabama. Orders from our 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 our 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 we have. We compete directly with national bookstore chains, independent bookstores, booksellers on the Internet and certain mass merchandisers. Our largest competitors are Barnes and Noble, Inc., Borders Group, Inc. and Amazon.com Inc. We also compete indirectly with retail specialty stores that offer books in a particular area of specialty as well as mass merchants that primarily sell best sellers. We believe that the key competitive factors in the retail book industry are convenience of location, selection, customer service and price.

Seasonality

Similar to many retailers, our business is seasonal, with the highest retail sales, gross profit and net income

historically occurring in our fourth fiscal quarter. This seasonal pattern reflects the increased demand for books and gifts 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 our business. As a result, our 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 effect on our results of operations for the full year. In addition to seasonality, our 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 our results of operations for that quarter.

Trademarks

“Books-A-Million,” “BAM!,” “Bookland,” “Books & Co.,” “Millionaire’s Club,” “Sweet Water Press,” “Thanks-A-Million,” “Big Fat Coloring Book,” “Up All Night Reader,” “Read & Save Rebate,” “Readables Accessories for Readers,” “Kids-A-Million,” “Teachers First,” “The Write-Price,” “Bambeanos,” “Book$mart,” “BAMM,” “BAMM.com,” “BOOKSAMILLION.com,” “Chillatte,” “Joe Muggs Newsstand,” “Page Pets,” “JOEMUGGS.com,” “Laser Line,” “FAITHPOINT.com,” “Joe Muggs,” “Anderson’s Bookland,” “Snow Joe,” “The Testaments Shoppe” and “NetCentral” are the primary registered trademarks of the Company.

Employees

As of fiscal year end, we employed approximately 3,200 full-time associates and 2,100 part-time associates. The number of part-time associates employed fluctuates based upon seasonal needs. None of our associates are covered by a collective bargaining agreement. We believe that relations with our associates are good.

ITEM 1A. RISK FACTORS

The following risk factors and other information included in this Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected.

Intense competition from traditional retail sources and the Internet may adversely affect our business.

The retail book business is highly competitive, and competition within the industry is fragmented. We face direct competition from other superstores, such as Barnes & Noble and Borders, and we also face competition from mass merchandisers, such as Wal-Mart and Costco, and online retailers such as Amazon, Barnes and Noble, Borders and Wal-Mart. Our bookstores also compete with specialty retail stores that offer books in particular subject areas, independent single store operators, variety discounters, drug stores, warehouse clubs, mail order clubs and other retailers offering books. In addition, our bookstores may face additional competition from the expanding market for electronic books and from other categories of retailers entering the retail book market.

Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition, and significantly greater financial, marketing, and other resources than we have. They may be able to secure merchandise from vendors on more favorable terms and may be able to adopt more aggressive pricing policies. Competitors in both the retail and electronic commerce trade also may be able to devote more resources to technology development, fulfillment, and marketing than we are able to.

Competition in electronic commerce trade may intensify. The online market is rapidly evolving and intensely competitive, with few barriers to entry. Companies in the retail and electronic commerce trade may enter into business combinations or alliances that strengthen their competitive positions. This increased competition may reduce our sales, operating profits, or both.

Our business is highly seasonal.

Our business is highly seasonal with sales and earnings generally highest in the fourth quarter and lowest in the first quarter. Our results of operations depend significantly upon the holiday selling season in the fourth quarter. During the fiscal year ended February 2, 2008, approximately 31% of our sales and approximately 72% of our operating income were generated in the fourth quarter. If we do not stock popular products in sufficient amounts or fail to have sources to timely restock popular products during the busy holiday period such that we fail to meet customer demand, it could significantly affect our revenue and earnings and our future growth. In addition, if we experience less than satisfactory net sales during the fourth quarter, we may not be able to sufficiently compensate for any losses which may be incurred during the first three quarters of the year.

Our business is dependent upon consumer spending patterns.

Sales of books may depend upon discretionary consumer spending, which may be affected by general economic conditions, consumer confidence and other factors beyond our control. Weather, among other things, can

affect comparable store sales, because inclement weather can require us to close certain stores temporarily and thus reduce store traffic. Even if stores are not closed, customers may decide to avoid going to stores in bad weather. In addition, sales are dependent in part on the strength of new release titles offered by vendors. A decline in consumer spending on books could have a material adverse effect on our financial condition and results of operations.

Our business may be affected by our relationships with suppliers and delays in product shipments.

We rely heavily upon our suppliers to provide us with new products as quickly as possible. The loss of any of our suppliers could reduce our product offerings, which could cause us to be at a competitive disadvantage. In addition, we depend upon the business terms we can obtain from suppliers, including competitive prices, unsold product return policies, new release title quantity allocations, advertising and market development allowances, freight charges and payment terms. Our failure to maintain favorable business terms with our suppliers could adversely affect our ability to offer products to consumers at competitive prices. To the extent that our suppliers rely on overseas sources for a large portion of their products, any event causing a disruption of imports, including the imposition of import restrictions in the form of tariffs or quotas and currency fluctuations, could hurt our business.

Our vendor relationships subject us to a number of risks, and we heavily rely on one supplier for magazine purchases that is a related party.

Although we purchase merchandise from over 1,500 vendors and no one vendor accounted for more than 13% of our inventory purchases in the fiscal year ended February 2, 2008, we have significant vendors that are important to us. If our current vendors were to stop selling merchandise to us on acceptable terms, we may not be able to acquire merchandise from other suppliers in a timely and efficient manner and on acceptable terms. We have entered into and may, in the future, enter into various transactions and agreements with entities wholly or partially owned by certain stockholders or directors (including certain officers) of the Company. We believe that the transactions and agreements that we have entered into with related parties are on terms that are at least as favorable to us as could reasonably have been obtained at such time from third parties.

If we do not successfully optimize inventory and manage our distribution, our business could be harmed

If we do not successfully optimize our inventory and operate our distribution centers, it could significantly limit our ability to meet customer demand. Because it is difficult to predict demand, we may not manage our facilities in an optimal way, which may result in excess or insufficient inventory or warehousing, fulfillment, or distribution capacity. Additionally, if we open new stores in new geographic areas where we don’t currently have a presence, we may not be able to provide those stores with efficient distribution and fulfillment services which may impact our stores in those markets. We may be unable to adequately staff our fulfillment and customer service centers to meet customer demand. There can be no assurance that we will be able to operate our network effectively.

We rely heavily on the American Wholesale warehouse distribution facilities for merchandise distribution functions and to maintain inventory stock for our retail stores. Our ability to distribute merchandise to our stores and maintain adequate inventory levels may be materially impacted by any material damage incurred at our warehouse facilities caused by inclement weather, fire, flood, power loss, earthquakes, acts of war or terrorism, acts of God and similar factors.

We also rely heavily on American Wholesale’s dedicated transportation fleet for deliveries of inventory. As a result, our ability to receive inbound inventory efficiently may be negatively affected by inclement weather, fire, flood, power loss, earthquakes, labor disputes, acts of war or terrorism, acts of God and similar factors.

Any of the inventory risk factors set forth above may adversely affect our financial condition, operating results and cash flows.

Failure to retain key personnel

Our continued success depends to a significant extent upon the efforts and abilities of our senior management. The failure to retain our senior managers could have a material adverse effect on our business and our results of operations. We do not maintain “key man” life insurance on any of our senior managers.

Failure to attract and retain qualified associates and other labor issues could adversely affect our financial performance.

Our ability to continue to expand our operations depends on our ability to attract and retain a large and growing number of qualified associates. Our ability to meet our labor needs generally while controlling our associate wage and related labor costs is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force, unemployment levels, prevailing wage rates, changing demographics, health and other insurance costs and changes in employment legislation. If we are unable to locate, attract and retain qualified personnel or if our costs of labor or related costs increase significantly, our financial performance could be affected adversely.

We rely extensively on communication and computer systems to process transactions, summarize results and manage our business. Disruptions in these systems could harm our ability to run our business.

Given the number of individual transactions we have each year, it is critical that we maintain uninterrupted operation of our computer and communications hardware and software systems. Our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, catastrophic events such as acts of God, fires, tornadoes, hurricanes, floods, earthquakes, power losses, telecommunications failures, acts of war or terrorism, physical or electronic break-ins, and similar events or disruptions, and usage errors by our employees. If our systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer interruptions in our operations in the interim. Any material interruption in our computer operations may have a material adverse effect on our business or results of operations.

Our electronic commerce trade faces business risks, which include:

•

risks associated with a limited operating history;

•

competition from other Internet-based companies and traditional retailers;

•

risks associated with a failure to manage growth effectively;

•

risks of the Internet as a medium for commerce, including internet security risks;

•

risks associated with the need to keep pace with rapid technological change;

•

risks of system failure or inadequacy; and

•

risks associated with the maintenance of domain names.

If any of these risks materializes, it could have an adverse effect on our electronic commerce trade.

Government regulation of the Internet and E-commerce is evolving and unfavorable changes could harm our business.

We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet and e-commerce. Such existing and future laws and regulations may impede the growth of the Internet or other online services. These regulations and laws may cover taxation, privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment services, unencumbered Internet access to our services, and the characteristics and quality of products and services. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, libel, and personal privacy apply to the Internet and e-commerce. Unfavorable resolution of these issues may harm our business.

We could be liable for breaches of security on our website.

A fundamental requirement for e-commerce is the secure storage and transmission of confidential information. Although we have developed systems and processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches, failure to prevent or mitigate such fraud or breaches may adversely affect our operating results.

We are subject to a number of risks related to payments we accept.

We accept payments by a variety of methods, including credit card, debit card, gift cards, direct debit from a customer’s bank account, physical bank check and cash. For certain payment transactions, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower our profit margins. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be adversely affected. If one or more of these agreements are terminated and we are unable to replace them on similar terms, or at all, it could adversely affect our operating results. In addition, as we offer new payment options to our customers, we may be subject to additional regulations and compliance requirements and a greater risk of fraud.

We may be unable to protect our intellectual property, which could harm our brand and reputation.

To protect our proprietary rights in our intellectually property, we rely generally on copyright, trademark and trade secret laws. Although we do not believe that our trademarks and other intellectual property are materially important to the continuation of our operations, our failure or inability to maintain or protect our proprietary rights could materially decrease their value, and our brand and reputation could be impaired as a result.

We are subject to certain legal proceedings that may affect our financial condition and results of operation.

We are involved in a number of legal proceedings. 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 our financial condition or results of operations. However, we can give no assurances that certain lawsuits either now or in the future will not materially affect our financial condition or results of operations.

Our stock price may be subject to volatility.

The trading price of our common stock may fluctuate in response to a number of events and factors, many of which are beyond our control, such as:

•

general economic conditions;

•

changes in interest rates;

•

conditions or trends in the retail book and electronic commerce trade industries;

•

fluctuations in the stock market in general;

•

quarterly variations in operating results;

•

new products, services, innovations, and strategic developments by our competitors or us, or business combinations and investments by our competitors or us;

•

changes in financial estimates by us or securities analysts and recommendations by securities analysts;

•

changes in regulation;

•

changes in our capital structure, including issuance of additional debt or equity to the public;

•

corporate restructurings, including layoffs or closures of facilities;

•

changes in the valuation methodology of, or performance by, others in the retail book and electronic trade industries; and

•

transactions in our common stock by major investors, and analyst reports, news, and speculation.

Any of these events may cause our stock price to rise or fall and may adversely affect our financial condition or results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our bookstores are generally located either in enclosed malls or strip shopping centers. All of our stores are leased. Generally, these leases have terms ranging from five to ten years and require that we 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).

Our principal executive offices are located in a 20,550 square foot leased building located in Birmingham, Alabama. We also lease a 37,000 square foot building located in Irondale, Alabama for additional corporate office space. Both leases involve related parties (see “Transactions with Related Persons” on page 20 of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 29, 2008). The Birmingham, Alabama office space is leased month-to-month. The Irondale, Alabama office space is leased month-to-month. In addition, we lease approximately 4,025 square feet of office space in Nashville, Tennessee for the offices of NetCentral. The NetCentral space is leased month-to-month. We believe that the loss of any office space currently leased on a month-to-month basis would not have a material adverse effect on our business, financial condition or results of operations.

American Wholesale owns its wholesale distribution center located in an approximately 290,000 square foot facility in Florence, Alabama. During fiscal 1995 and 1996, we financed the acquisition and construction of the wholesale distribution facility through loans obtained from the proceeds of an industrial development revenue bond (the “Bond”). We also lease on a month to month basis, from a related party, a second 210,000 square foot warehouse facility located in Tuscumbia, Alabama. We believe that the failure to extend the lease for this warehouse facility currently leased on a month-to-month basis would not have a material adverse effect on our business, financial condition or results of operations. In addition we lease all of the tractors that pull the company-owned trailers, which comprise our transportation fleet.

ITEM 3. LEGAL PROCEEDINGS

We are a party to various legal proceedings incidental to our 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 our financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The information under the heading “Market and Dividend Information” on page 37 of the Annual Report to Stockholders for the year ended February 2, 2008, is incorporated herein by reference.

The following table provides information with respect to purchases by the Company of shares of its common stock during the fourth quarter of the fiscal year ended February 2, 2008.

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans
November 4, 2007 – December 1, 2007	196,733	$	13.28	196,733	$	13,614,026
December 2, 2007 – January 5, 2008	78,303	$	11.15	78,303	$	12,741,161
January 6, 2008 – February 2, 2008	204,629	$	10.73	204,629	$	10,545,898

Total	479,665	$	11.84	479,665

ITEM 6. SELECTED FINANCIAL DATA

The information under the heading "Selected Consolidated Financial Data" for the years ended January 31, 2004 through February 2, 2008 on page 3 of the Annual Report to Stockholders for the year ended February 2, 2008, is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The information under the heading "Management's Discussion & Analysis of Financial Condition & Results of Operations" on pages 4 through 14 of the Annual Report to Stockholders for the year ended February 2, 2008, is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to interest rate fluctuations involving our credit facilities. In prior periods, we used fixed interest rate hedges to manage this exposure. We entered into a $7.5 million interest rate swap in May 1996 that expired on June 7, 2006 and effectively fixed the interest rate on the Bond during that period at 8.73% (the “Bond Hedge”). We did not replace the Bond Hedge when it expired.

To illustrate the sensitivity of our results of operations to changes in interest rates on our debt, we estimate that a 66% increase in LIBOR rates would have increased interest expense by approximately $577,000 for the fiscal year ended February 2, 2008 due to average debt of $27,807,000. The average debt under our credit agreement and the Bond was $20.7 million and $7.1 million, respectively, for the fiscal year ended February 2, 2008. Likewise, a 66% decrease in LIBOR rates would have decreased interest expense by $577,000 for the fiscal year ended February 2, 2008. This hypothetical change in LIBOR rates was calculated based on the fluctuation in LIBOR in 2002, which was the maximum LIBOR fluctuation in the last ten years.

The information in note 3 “Debt and Lines of Credit” in the Notes to Consolidated Financial Statements on pages 28 and 29 of the Annual Report to Stockholders for the fiscal year ended February 2, 2008 is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements of the Registrant and its subsidiaries included in the Annual Report to Stockholders for the year ended February 2, 2008 are incorporated herein by reference:

Consolidated Balance Sheets as of February 2, 2008 and February 3, 2007.

Consolidated Statements of Income for the Fiscal Years Ended February 2, 2008, February 3, 2007, and January 28, 2006.

Consolidated Statements of Changes in Stockholders' Equity for the Fiscal Years Ended February 2, 2008, February 3, 2007, and January 28, 2006.

Consolidated Statements of Cash Flows for the Fiscal Years Ended February 2, 2008, February 3, 2007, and January 28, 2006.

Notes to Consolidated Financial Statements.

Reports of Independent Registered Public Accounting Firm

The information in footnote 13, Summary of Quarterly Results (Unaudited) on page 35 of the Annual Report to Stockholders for the Fiscal Years Ended February 2, 2008 and February 3, 2007 is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We are committed to maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Executive Chairman, Chief Executive Officer, Chief Financial Officer and the Board of Directors, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures and implementing controls and procedures based on the application of management’s judgment.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, management, with the participation of our Executive Chairman, Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon their evaluation and subject to the foregoing, the Executive Chairman, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Management’s Report on Internal Control over Financial Reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material affect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including the Executive Chairman , Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of the end of the period covered by this report based on the “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this evaluation, we concluded that our internal control over financial reporting was effective as of the end of the period covered by this report.

The independent registered public accounting firm, Grant Thornton LLP has audited the consolidated financial statements as of and for the year ended February 2, 2008 and has also issued their report on the effectiveness of the Company’s internal control over financial reporting, as included in pages 15 and 16 of the Annual Report to Stockholders for the fiscal year ended February 2, 2008 which is incorporated herein by reference.

(c) Changes in Internal Control over Financial Reporting

There have been no other changes in our disclosure controls and procedures, or our internal control over financial reporting, during the fourth quarter of the fiscal year ended February 2, 2008 that have materially affected, or are reasonably likely to materially affect, our disclosure controls and procedures or our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors

The sections under the heading “Proposal I-Election of Directors” titled “Nominees for Election - Term Expiring 2011,” “Incumbent Directors - Term Expiring 2009,” and “Incumbent Directors - Term Expiring 2010” on pages 2 and 3 of the Proxy Statement for the Annual Meeting of Stockholders to be held May 29, 2008, are incorporated herein by reference for information on the directors of the Registrant. The information under the heading “Information Concerning the Board of Directors” on pages 8 through 10 of the Proxy Statement for the Annual Meeting of Stockholders to be held May 29, 2008 is incorporated herein by reference. The information under the heading “Beneficial Ownership of Common Stock – Compliance with Section 16(a) of the Securities Exchange Act of 1934” on page 14 of the Proxy Statement for the Annual Meeting of Stockholders to be held May 29, 2008 is incorporated herein by reference.

Executive Officers

All of our executive officers are elected annually by and serve at the discretion of the Board of Directors. Our current executive officers are listed below:

Name	Age	Position with the Company
Clyde B. Anderson	47	Executive Chairman of the Board
Sandra B. Cochran	49	President, Chief Executive Officer
Terrance G. Finley	54	President Books-A-Million, Inc. Merchandising Group
Douglas G. Markham	52	Chief Financial Officer and Secretary

Clyde B. Anderson has served as Executive Chairman of the Board since February 2004 and has served as a director of the Company since August 1987. Mr. Anderson served as the Chairman of the Board from January 2000 until February 2004 and also served as the Chief Executive Officer of the Company from July 1992 until February 2004. Mr. Anderson also served as the President of the Company from November 1987 to August 1999. From November 1987 to March 1994, Mr. Anderson also served as the Company’s Chief Operating Officer. Mr. Anderson serves on the Board of Directors of Hibbett Sports, Inc., a sporting goods retailer. Mr. Anderson is the brother of Terry C. Anderson, a member of the Company’s Board of Directors.

Sandra B. Cochran has served as Chief Executive Officer of the Company since February 2004, and as President since August 1999. She served as Secretary from June 1998 until March 2008. Ms. Cochran served as the Company’s Executive Vice President from February 1996 to August 1999 and as its Chief Financial Officer from September 1993 to August 1999. Ms. Cochran has served as a director of the Company since June 2006. Ms. Cochran previously served as Vice President and Assistant Secretary of the Company from August 1992 to September 1993. 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. Sandra B. Cochran serves as an officer and a board member of certain affiliated companies.

Terrance G. Finley has served as President Books-A-Million, Inc. Merchandising Group of the Company since October 2001 and as the President of American Internet Service, Inc. since December 1998. Mr. Finley served in various other capacities in the merchandising department from April 1994 to December 1998. 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. Finley was appointed to the Board of Directors of Hibbett Sports, Inc., a sporting goods retailer on March 14, 2008.

Douglas G. Markham has served as the Chief Financial Officer of the Company since July 2006 and Secretary since March 2008. Prior to joining the Company, Mr. Markham served as the Sr. Vice President – Controller (as well as other capacities) for Saks Department Stores for more than ten years.

The section under the heading “Code of Business Conduct and Ethics” on page 11 of the Proxy Statement for the Annual Meeting of Stockholders to be held May 29, 2008 is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The sections under the heading "Compensation Discussion and Analysis," other than those titled "Compensation Committee Report", "Compensation Committee Interlocks and Insider Participation", and "Transactions with Related Persons", on pages 15 through 19 of the Proxy Statement for the Annual Meeting of Stockholders to be held May 29, 2008 are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The sections under the heading "Information Concerning the Board of Directors" titled "Beneficial Ownership of Common Stock", and under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” on pages 12 through 14 and on page 8, respectively, of the Proxy Statement for the Annual Meeting of Stockholders to be held May 29, 2008 is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The sections under the heading "Compensation Discussion and Analysis" titled "Compensation Committee Interlocks and Insider Participation" and "Transactions with Related Persons" on pages 19 through 20 of the Proxy Statement for the Annual Meeting of Stockholders to be held May 29, 2008 are incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The section under the heading “Proposal 3 – Ratification of Appointment of Independent Registered Public Accounting Firm” titled “Auditor Fees and Services” on page 25 of the Proxy Statement for the Annual Meeting of Stockholders to be held May 29, 2008 is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

Financial Statements:

The following Consolidated Financial Statements of Books-A-Million, Inc. and its subsidiaries, included in the Registrant's Annual Report to Stockholders for the fiscal year ended February 2, 2008 are incorporated by reference in Part II, Item 8:

Consolidated Balance Sheets as of February 2, 2008 and February 3, 2007.

Consolidated Statements of Income for the Fiscal Years Ended February 2, 2008, February 3, 2007 and January 28, 2006.

Consolidated Statements of Changes in Stockholders' Equity for the Fiscal Years Ended February 2, 2008, February 3, 2007 and January 28, 2006.

Consolidated Statements of Cash Flows for the Fiscal Years Ended February 2, 2008, February 3, 2007 and January 28, 2006.

Notes to Consolidated Financial Statements.

Reports of Independent Registered Public Accounting Firm.

Financial Statement Schedule:

The following consolidated financial statement schedule of Books-A-Million, Inc. is attached

hereto:

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule.

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.

Exhibits

Exhibit Number

3.1	--	Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1, File No. 33-52256, originally filed September 21, 1992 (the “S-1 Registration Statement”)).


3.2	--	Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the S-1 Registration Statement).

4.1	--	See Exhibits 3.1 and 3.2 hereto incorporated herein by reference to the Exhibits of the same number to the S-1 Registration Statement.

10.1	--	Lease Agreement between First National Bank of Florence, Alabama, as Trustee, and Bookland Stores, Inc. (which is a predecessor of the Registrant), an Alabama corporation, dated January 30, 1991 (incorporated by reference to Exhibit 10.1 to the S-1 Registration Statement).

10.2	--	Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 10.2 to Annual Report on Form 10-K for the fiscal year ended January 30, 1999, File No. 0-20664, filed on April 30, 1999).**

10.3	--	Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.7 to the S-1 Registration Statement).**

10.4	--	Amendment to Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.6 to Annual Report on Form 10-K for the fiscal year ended January 29, 1994, File No. 0-20664, filed on April 29, 1994).**

10.5	--	1999 Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to Annual Report on Form 10-K for the fiscal year ended January 29, 2000, File No. 0-20664, filed on April 28, 2000).**

10.6	--	401 (k) Plan adopted September 15, 2003, with SunTrust Bank as Trustee (incorporated by reference to Exhibit 10.6 to Annual Report on Form 10-K for the fiscal year ended January 31, 2004, File No. 0-20664, filed April 27, 2004).**

10.7	--	Shareholders Agreement dated as of September 1, 1992 (incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the fiscal year ended January 31, 1993, File No. 0-20664, filed May 3, 1993).

10.8	--	Executive Incentive Plan (incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for the fiscal year ended January 28, 1995, File No. 0-20664, filed April 28, 1995).

10.20	--	Credit agreement dated as of July 1, 2002, between the Company and Bank of America, N.A., SunTrust Bank, N.A., Wells Fargo Bank, N.A., SouthTrust Bank, N.A. and AmSouth Bank, N.A.(incorporated by reference to Exhibit 10.20 to Form 10-Q for the quarter ended August 3, 2002).

10.21	--	First Amendment to the Credit Agreement dated as of June 14, 2004, between the Company and Bank of America, N.A., SunTrust Bank, N.A., Wells Fargo Bank, N.A., SouthTrust Bank, N.A., and AmSouth Bank, N.A. (incorporated by reference to Exhibit 10.21 to Annual Report on Form 10-K for the fiscal year ended January 29, 2005).

10.22	--	Second Amendment to the Credit Agreement dated as of June 20, 2005 between the company and Bank of America, N. A., SunTrust Bank, N.A., Wells Fargo Bank, N.A., SouthTrust Bank N.A., and AmSouth Bank, N.A. (incorporated by reference to Exhibit 99 (B)(3) to Tender Offer Statement by Issuer on Form SC TO-I for the Tender Offer closed on June 23, 2005).

10.23	--	2005 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to form 8-K for adoption of the plan on June 1, 2005, File No. 333-126008, filed June 29, 2005).**.

10.24	--	Lease Agreement between First National Bank of Florence, Alabama, as Trustee, and Bookland Stores, Inc. (which is a predecessor of the Registrant), an Alabama corporation, dated January 30, 1991 (incorporated by reference to Exhibit 10.1 to the S-1 Registration Statement).

10.25	--	Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 10.2 to Annual Report on Form 10-K for the fiscal year ended January 30, 1999, File No. 0-20664, filed on April 30, 1999).**

10.26	--	Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.7 to the S-1 Registration Statement).**

10.27	--	Amendment to Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.6 to Annual Report on Form 10-K for the fiscal year ended January 29, 1994, File No. 0-20664, filed on April 29, 1994).**

10.28	--	1999 Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to Annual Report on Form 10-K for the fiscal year ended January 29, 2000, File No. 0-20664, filed on April 28, 2000).**

10.29	--	401 (k) Plan adopted September 15, 2003, with SunTrust Bank as Trustee (incorporated by reference to Exhibit 10.6 to Annual Report on Form 10-K for the fiscal year ended January 31, 2004, File No. 0-20664, filed April 27, 2004).**

10.30	--	Shareholders Agreement dated as of September 1, 1992 (incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the fiscal year ended January 31, 1993, File No. 0-20664, filed May 3, 1993).

10.31	--	Executive Incentive Plan (incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for the fiscal year ended January 28, 1995, File No. 0-20664, filed April 28, 1995).**

10.32	--	Credit agreement dated as of July 1, 2002, between the Company and Bank of America, N.A., SunTrust Bank, N.A., Wells Fargo Bank, N.A., SouthTrust Bank, N.A. and AmSouth Bank, N.A. (incorporated by reference to Exhibit 10.20 to Form 10-Q for the quarter ended August 3, 2002).

13	--	Portions of the Annual Report to Stockholders for the year ended February 2, 2008 that are expressly incorporated by reference into Parts I and II of this Report.

21	--	Subsidiaries of the Registrant

23.1	--	Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm.

31.1	--	Certification of Clyde B. Anderson, Executive Chairman of the Board of Books-A-Million, Inc., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, filed under Exhibit 31 of Item 601 of Regulation S-K.

31.2	--	Certification of Douglas G. Markham, Chief Financial Officer of Books-A-Million, Inc., Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, filed under Exhibit 31 of Item 601 of Regulation S-K.

31.3	--	Certification of Sandra B. Cochran, President and Chief Executive Officer of Books-A-Million, Inc., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, filed under Exhibit 31 of Item 601 of Regulation S-K.

32.1	--	Certification of Clyde B. Anderson, Executive Chairman of the Board of Books-A-Million, Inc., pursuant to 18 U.S.C. Section 1350, filed under Exhibit 32 of Item 601 of Regulation S-K.

32.2	--	Certification of Douglas G. Markham, Chief Financial Officer of Books-A-Million, Inc., pursuant to 18 U.S.C. Section 1350, filed under Exhibit 32 of Item 601 of Regulation S-K.

32.3	--	Certification of Sandra B. Cochran, President and Chief Executive Officer of Books-A-Million, Inc., pursuant to 18 U.S.C. Section 1350, filed under Exhibit 32 of Item 601 of Regulation S-K.

Indicates a management contract or compensatory plan or arrangement

(b)

See Item 15(a) (3), the Exhibit Index and the Exhibits attached hereto.

See Item 15(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

Executive Chairman of the Board

Date: April 14, 2008

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

Executive Chairman of the Board

Date: April 14, 2008

Principal Financial and Accounting Officer:

/s/ Douglas G. Markham

Douglas G. Markham

Chief Financial Officer

Date: April 14, 2008

Directors:

/s/ Clyde B. Anderson

Clyde B. Anderson

Date: April 14, 2008

/s/ Ronald G. Bruno

Ronald G. Bruno

Date: April 14, 2008

Directors:

/s/ J. Barry Mason

J. Barry Mason

Date: April 14, 2008

/s/ Terry C. Anderson

Terry C. Anderson

Date: April 14, 2008

/s/ Albert C. Johnson

Albert C. Johnson

Date: April 14, 2008

/s/ William H. Rogers, Jr.

William H. Rogers, Jr.

Date: April 14, 2008

/s/ Sandra B. Cochran

Sandra B. Cochran

Date: April 14, 2008

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON FINANCIAL STATEMENT SCHEDULE

Board of Directors and

Shareholders of Books-A-Million, Inc.

We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Books-A-Million, Inc. and subsidiaries (the “Company”) referred to in our report dated April 15, 2008, which is included in the annual report to stockholders and incorporated by reference in Part II of this form. As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" effective February 4, 2007 and adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” effective January 29, 2006. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2), which is the responsibility of the Company’s management. In our opinion, this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ GRANT THORNTON LLP

Atlanta, Georgia

April 15, 2008

S-1

Schedule II.

Books-A-Million, Inc.

Valuation And Qualifying Accounts

For The Years Ended January 28, 2006, February 3, 2007 and February 2, 2008

Charged/

Balance at

(Credited)

(Deductions)/

Beginning

to Costs

Recoveries

of Year

and Expenses

Net

End of Year

For the year ended January 28, 2006:

Allowance for doubtful accounts

580,552

218,493

41,086

840,131

For the year ended February 3, 2007:

Allowance for doubtful accounts

840,131

438,634

(567,348)

711,417

For the year ended February 2, 2008:

Allowance for doubtful accounts

711,417

430,453

(401,039)

740,831

S-2

2008 Annual Report

Exhibit 13

COMPANY PROFILE

Books-A-Million is one of the nation’s leading book retailers and sells on the Internet at www.booksamillion.com. The Company presently operates more than 200 stores in 20 states and the District of Columbia. The Company operates two distinct store formats, including large superstores operating under the names Books-A-Million and Books & Co. and traditional bookstores operating under the names Books-A-Million and Bookland.

FIVE-YEAR HIGHLIGHTS


	For the Fiscal Year Ended:
(In thousands, except per share amounts)	2/2/08	2/3/07⁽¹⁾	1/28/06	1/29/05	1/31/04
Statement of Income Data	52 weeks	53 weeks	52 weeks	52 weeks	52 weeks
Net revenue	$535,128	$520,416	$ 503,751	$ 474,099	$ 457,234
Net income	16,522	18,887	13,067	10,199	7,126
Earnings per share – diluted	1.01	1.12	0.77	0.59	0.42
Weighted average shares – diluted	16,302	16,805	16,888	17,178	16,789
Capital investment	16,878	14,907	11,297	14,923	10,402
Dividends per share - declared	3.36	0.33	0.23	0.23	0.00

Balance Sheet Data
Property and equipment, net	$53,514	$ 51,471	$ 51,001	$ 55,946	$ 59,892
Total assets	284,833	304,037	311,659	300,812	296,398
Long-term debt	6,975	7,100	7,200	7,500	20,640
Stockholders’ equity	99,051	157,034	145,009	134,859	131,001

Other Data
Working capital	$58,785	$117,737	$ 106,637	$ 95,382	$ 104,723
Debt to total capital ratio	0.26	0.04	0.05	0.05	0.14

Operational Data
Total number of stores	208	206	205	206	202
Number of superstores	184	179	173	168	163
Number of traditional stores	24	27	32	38	39

(1)

The year ended February 3, 2007 included an extra week and $2.3 million of gift card breakage from prior periods.

2008 Annual Report

TO OUR STOCKHOLDERS:

Fiscal Year 2008 was a year of stark contrasts. The summer brought the unprecedented success of the publication of the final book in the Harry Potter series and the fall brought a difficult holiday sales environment and the beginnings of what we now know to be a significant economic slowdown. Despite the tough environment we were able to control costs, manage our inventory and deliver solid earnings.

Our core book department business was down slightly for the year, however several categories performed well. Fiction sales were very strong, driven by commercial fiction and the January publication of John Grisham’s The Appeal and Stephen King’s Duma Key. The biography category experienced the phenomenal success of Elizabeth Gilbert’s memoir, Eat, Pray, Love. We also built on the positive sales trends in teen, graphic novels and our Faithpoint inspirational book category. Children’s books were an obvious bright spot with sales of Harry Potter and The Deathly Hallows setting new records and the ongoing growth of the broader category.

Our stores also produced solid gains in bargain books and gifts with toys and games emerging as an exciting growth opportunity. Our investment in new fixtures in the gift departments paid off and we continue to adjust our store model to exploit the growth areas of our business.

We opened 9 new stores during the year and were pleased with their performance. We intend to grow somewhat faster in the year ahead with an eye toward both filling in our existing real estate footprint and expanding to high growth markets.

We see a challenging year ahead as we face the economic headwinds that have developed in recent months. We remain focused on the fundamentals of our business and committed to a disciplined approach to delivering results.

Clyde B. Anderson

Sandra B. Cochran

Executive Chairman of the Board

President, Chief Executive Officer and Secretary

FINANCIAL HIGHLIGHTS	Fiscal Year Ended
(In thousands, except per share amounts)	2/2/08	2/3/07
Net revenue	$535,128	$520,416
Operating profit	27,420	30,099
Net income	16,522	18,887
Net income per share – diluted	1.01	1.12
Dividends per share – declared	3.36	0.33

	As of
(In thousands)	2/2/08	2/3/07
Working capital	$58,785	$117,737
Total assets	284,833	304,037
Stockholders’ equity	99,051	157,034

2008 Annual Report

SELECTED CONSOLIDATED FINANCIAL DATA
	Fiscal Year Ended
(In thousands, except per share data)	2/2/08	2/3/07	1/28/06	1/29/05	1/31/04
Statement of Operations Data:	52 weeks	53 weeks	52 weeks	52 weeks	52 weeks
Net revenue	$535,128	$520,416	$503,751	$474,099	$457,234
Cost of products sold, including warehouse distribution and store occupancy costs	376,580	363,688	357,166	339,012	330,150
Gross profit	158,548	156,728	146,585	135,087	127,084
Operating, selling and administrative expenses	117,139	112,560	109,160	99,207	93,974
Gain on insurance recovery		--	1,248	--	--
Depreciation and amortization	13,989	14,069	15,636	17,788	18,065
Operating profit	27,420	30,099	23,037	18,092	15,045
Interest expense, net	1,346	105	1,441	1,874	2,909
Income from continuing operations before income taxes	26,074	29,994	21,596	16,218	12,136
Provision for income taxes	9,552	11,107	8,545	6,001	4,613
Income from continuing operations	16,522	18,887	13,051	10,217	7,523

Discontinued operations:
(Loss) income from discontinued operations (including impairment charge)	--	--	27	(29)	(641)
Income tax provision (benefit)	--	--	11	(11)	(244)
(Loss) income from discontinued operations	--	--	16	(18)	(397)
Net income	$16,522	$ 18,887	$ 13,067	$ 10,199	$ 7,126

Net income per common share:
Basic:
Income from continuing operations	$1.03	$ 1.16	$ 0.80	$ 0.62	$ 0.46
Loss from discontinued operations	--	--	--	--	(0.02)
Net income per share	$1.03	$ 1.16	$ 0.80	$ 0.62	$ 0.44
Weighted average number of shares outstanding - basic	16,089	16,352	16,275	16,453	16,279

Diluted:
Income from continuing operations	$1.01	$ 1.12	$ 0.77	$ 0.59	$ 0.45
Loss from discontinued operations	--	--	--	--	(0.03)
Net income per share	$1.01	$ 1.12	$ 0.77	$ 0.59	$ 0.42
Weighted average number of shares outstanding - diluted	16,302	16,805	16,888	17,178	16,789

Dividends per share – declared	$3.36	$ 0.33	$ 0.23	$ 0.23	--

Balance Sheet Data:
Property and equipment, net	$53,514	$ 51,471	$ 51,001	$ 55,946	$ 59,892
Total assets	284,833	304,037	311,659	300,812	296,398
Long-term debt	6,975	7,100	7,200	7,500	20,640
Stockholders’ investment	99,051	157,034	145,009	134,859	131,001

Other Data:
Working capital	$58,785	$117,737	$106,637	$ 95,382	$104,723

2008 Annual Report

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

General

The Company was founded in 1917 and currently operates 208 retail bookstores concentrated primarily in the southeastern United States. Of the 208 stores, 184 are superstores that operate under the names Books-A-Million and Books & Co., and 24 are traditional stores that operate under the Bookland and Books-A-Million names. In addition to the retail store formats, the Company offers its products over the Internet at www.booksamillion.com . As of February 2, 2008, the Company employed approximately 5,000 full and part-time employees.

The Company’s growth strategy is focused on opening superstores in new and existing market areas, particularly in the Southeast. In addition to opening new stores, management intends to continue its practice of reviewing the profitability trends and prospects of existing stores and closing or relocating under-performing stores. During fiscal 2008, the Company opened nine stores, closed seven stores and relocated three stores.

The Company’s performance is partially measured based on comparable store sales, which is similar to most retailers. Comparable store sales are determined each fiscal quarter during the year based on all stores that have been open at least 12 full months as of the first day of the fiscal quarter. Any stores closed during a fiscal quarter are excluded from comparable store sales as of the first day of the quarter in which they close. The factors affecting the future trend of comparable store sales include, among others, overall demand for products the Company sells, the Company’s marketing programs, pricing strategies, store operations and competition.

Executive Summary

The purpose of this section is to provide a brief summary overview of the 52-week period ended February 2, 2008. Additional detail about the income statement and balance sheet is provided in the pages following this summary.

Income Statement

For the 52-week period ended February 2, 2008, Books-A-Million reported net income of $16.5 million. This represents a 12.5% reduction from the 53-week period ended February 3, 2007. The decrease is primarily attributable to two events that occurred in fiscal year 2007. First, the 2007 fiscal year included one week more than fiscal year 2008. This additional week produced $9.0 million in net sales. Secondly, the 2007 fiscal year included one-time additional sales income of $2.3 million related to the recognition of gift card breakage from prior years. Without these two items, fiscal year 2007 net income would have been $16.8 million or $0.3 million higher than fiscal year 2008.

Consolidated net revenue increased $25.9 million, or 5.1% in the 52-week ended February 2, 2008, compared to the 52-week period ended February 3, 2007 (which excludes the $9.0 million of additional sales from the 53rd week and the one-time additional sales income of $2.3 million from prior year gift card breakage recorded in fiscal year 2007). Comparable store sales increased 1.4% in fiscal year 2008 compared to the 52 week period ended February 3, 2007. The increase is primarily due to increased sales in best sellers and promotional items.

Gross profit, which includes cost of sales, distribution costs and occupancy costs, increased $1.8 million, or 1.2%, in the 52-week period ended February 2, 2008, compared to the 53-week period ended February 3, 2007. Excluding the additional week and one-time sales income associated with prior year gift card breakage recorded in fiscal year 2007, gross profit increased $7.1 million or 4.7% in fiscal year 2008. Gross profit as a percentage of sales decreased over the same period. The decrease is attributable to higher occupancy costs offset by higher club card membership income and lower markdowns and inventory shrinkage.

Balance Sheet

Current assets decreased $21.6 million in fiscal year 2008 compared to fiscal year 2007. The decrease is primarily attributable to the $28.5 million decrease in cash and cash equivalents. This is partially offset by a $6.6 million increase in inventory. The decrease in cash and cash equivalents is primarily the result of the increase in shares repurchased, and the increase in dividends paid during fiscal 2008, and the reduction in sales during the fourth quarter. The increase in inventory is primarily due to the sales shortfall in the fourth quarter.

2008 Annual Report

Current liabilities increased $37.4 million in fiscal year 2008 compared to fiscal year 2007. The increase is primarily attributable to the $28.0 million increase in short-term borrowings and a $4.8 million increase in accounts payable. Accounts payable increased primarily due to a change in payment practices to more effectively meet vendor payment guidelines. The increase in short-term borrowings is the result of the increase in shares repurchased and the increase in dividends paid.

Critical Accounting Policies

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements require management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company believes that the likelihood is remote that materially different amounts will be reported related to actual results for the estimates and judgments described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

Property and Equipment

Property and equipment are recorded at cost. Depreciation on equipment and furniture and fixtures is provided on the straight-line method over the estimated service lives, which range from three to seven years. Depreciation of buildings and amortization of leasehold improvements, including remodels, is provided on the straight-line basis over the lesser of the assets estimated useful lives (ranging from five to 40 years) or, if applicable, the periods of the leases. Determination of useful asset life is based on several factors requiring judgment by management and adherence to generally accepted accounting principles for depreciable periods. Judgment used by management in the determination of useful asset life could relate to any of the following factors: expected use of the asset; expected useful life of similar assets; any legal, regulatory, or contractual provisions that may limit the useful life; and other factors that may impair the economic useful life of the asset. Maintenance and repairs are charged to expense as incurred. Improvement costs are capitalized to property accounts and depreciated using applicable annual rates. The cost and accumulated depreciation of assets sold, retired or otherwise disposed of are removed from the accounts, and the related gain or loss is credited or charged to income.

Other Long-Lived Assets

The Company’s other long-lived assets consist of property and equipment which includes leasehold improvements. At February 2, 2008, the Company had $53.5 million of property and equipment, net of accumulated depreciation, accounting for approximately 18.8% of the Company’s total assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, the Company will first compare the carrying amount of the assets to the individual store’s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying amount of the assets, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the assets to the individual store’s fair value based on its estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value. Impairment losses totaled $0.1 million, $0.3 million and $0.2 million in fiscal 2008, 2007 and 2006, respectively, and were recorded in selling, general and administrative costs. For all years presented, the impairment losses related to the retail trade business segment.

Goodwill

At February 2, 2008, the Company had $1.4 million of goodwill, accounting for approximately 0.5% of the Company’s total assets. SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that goodwill and other unamortizable intangible assets no longer be amortized, but instead be tested for impairment at least annually or earlier if there are impairment indicators. The Company performs a two-step process for impairment testing of goodwill as required by SFAS No. 142. The first step of this test, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount. The second step (if necessary) measures the amount of the impairment. The Company completed its annual impairment test on the goodwill during the fourth quarter of fiscal 2008 and determined that no impairment charge was necessary. The Company has noted no subsequent indicators of impairment. Changes in market conditions, among other factors, could have a material impact on these estimates.

Closed Store Expenses

Management considers several factors in determining when to close or relocate a store. Some of these factors are: decreases in store sales from the prior year, decreases in store sales from the current year budget, annual measurement of individual store pre-tax future net cash flows, indications that an asset no longer has an economically useful life, remaining term of an individual store lease, or other factors that would indicate a store in the current location cannot be profitable.

2008 Annual Report

When the Company closes or relocates a store, the Company charges unrecoverable costs to expense. Such costs include the net book value of abandoned fixtures and leasehold improvements, lease termination costs, costs to transfer inventory and usable fixtures, other costs in connection with vacating the leased location, and a provision for future lease obligations, net of expected sublease recoveries. Costs associated with store closings of $599,810, $418,000 and $40,000 during fiscal 2008, 2007 and 2006, respectively, are included in selling and administrative expenses in the accompanying consolidated statements of income.

Inventories

Inventories are taken throughout the fiscal year. Store inventory counts are performed by an independent inventory service, while warehouse inventory counts are performed internally. All physical inventory counts are reconciled to the Company’s records. The Company’s accrual for inventory shortages is based upon historical inventory shortage results.

Cost is assigned to store and warehouse inventories using the retail inventory method. Using this method, store and warehouse inventories are valued by applying a calculated cost-to-retail ratio to the retail value of inventories. The retail method is an averaging method that is widely used within the retail industry. Inventory costing also requires certain significant management estimates and judgments involving markdowns, the allocation of vendor allowances and shrinkage. These practices affect ending inventories at cost as well as the resulting gross margins and inventory turnover ratios.

The Company utilizes the last-in, first-out (LIFO) method of accounting for inventories. The cumulative difference between replacement and current cost of inventory over stated LIFO value is $2.5 million as of February 2, 2008 and $2.1 million as of February 3, 2007. The estimated replacement cost of inventory is the current FIFO value of $209.3 million.

Vendor Allowances

The Company receives allowances from its vendors from a variety of programs and arrangements, including merchandise placement and cooperative advertising programs. Effective February 3, 2002, the Company adopted the provisions of Emerging Issues Task Force (“EITF”) No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, which addresses the accounting for vendor allowances. As a result of the adoption of this statement, vendor allowances in excess of incremental direct costs are reflected as a reduction of inventory costs and recognized in cost of products sold upon the sale of the related inventory.

Accrued Expenses

On a monthly basis, certain material expenses are estimated and accrued to properly record those expenses in the period incurred. Such estimates include those made for payroll and employee benefits costs, occupancy costs and advertising expenses among other items. Certain estimates are made based upon analysis of historical results. Differences in management’s estimates and assumptions could result in accruals that are materially different from the actual results.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that result in temporary differences between the amounts recorded in its financial statements and tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Results of Operations

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

	Fiscal Year Ended
	2/2/08	2/3/07	1/28/06
	52 weeks	53 weeks	52 weeks

Net revenue	100.0%	100.0%	100.0%
Gross profit	29.6%	30.1%	29.1%
Operating, selling, and administrative expenses	21.9%	21.6%	21.7%
Gain on insurance recoveries	0.0%	0.0%	(0.3%)
Depreciation and amortization	2.6%	2.7%	3.1%
Operating profit	5.1%	5.8%	4.6%
Interest expense, net	0.3%	0.0%	0.3%
Income from continuing operations before income taxes	4.9%	5.8%	4.3%
Provision for income taxes	1.8%	2.2%	1.7%
Income from continuing operations	3.1%	3.6%	2.6%
(Gain)/loss from discontinued operations (including impairment charge), net of tax	0.0%	0.0%	0.0%
Net income	3.1%	3.6%	2.6%

2008 Annual Report

Fiscal 2008 Compared to Fiscal 2007

Consolidated net revenue increased $14.7 million, or 2.8%, to $535.1 million for the 52-week period ended February 2, 2008 from $520.4 million for the 53-week period ended February 3, 2007. Two events occurred in the year ended February 3, 2007 that increased total net revenue when compared to the year ended February 2, 2008. First, the 2007 fiscal year included one more week than the 2008 fiscal year. This additional week produced $9.0 million in net sales. Second, the 2007 fiscal year included one-time additional sales income of $2.3 million related to the recognition of gift card breakage from prior years. Consolidated net revenue increased $25.9 million, or 5.1%, to $535.1 million for the 52-week period ended February 2, 2008, when compared with $509.3 million during the period ending February 3, 2007 on a 52-week operating basis (which excludes the $9.0 million of additional sales from the 53^rd week of the 2007 fiscal year and the one-time additional sales income of $2.3 million in fiscal 2007 related to gift card breakage from prior years).

Comparable store sales for the 52-week period ended February 2, 2008 increased 1.4% when compared to the same 52-week period in the prior fiscal year. The increase in comparable store sales was primarily attributable to a strong performance in our best sellers and promotional items. During the second quarter of the year ended February 2, 2008, Harry Potter and the Deathly Hallows was released and added to our comparable store sales increase.

Consolidated net revenue included $1.4 million of gift card breakage income for the 52-week period ended February 2, 2008 compared to $3.2 million for the 53-week period ended February 3, 2007. The 53-week period ended February 3, 2007 included $2.3 million, $1.4 million net of taxes, of gift card breakage income related to periods prior to fiscal 2007. In fiscal 2007 the Company formed a gift card subsidiary, Books-A-Million Card Services (“Card Services”), and began recording gift card breakage income for those cards for which the likelihood of redemption is deemed to be remote (after 24 months of inactivity) and which there is no legal obligation to remit the value of such redeemed gift cards to the relevant jurisdictions. The primary function of Card Services is to administer the Company’s gift card program and to provide a more advantageous legal structure. The $2.3 million related to periods prior to fiscal 2007 represents a change in estimate in the escheat liability due to operational changes related to the creation of Card Services.

Our core book department business was down slightly for the year. However, several categories performed well. Fiction sales were very strong, driven by commercial fiction and the January publication of John Grisham’s The Appeal and Stephen King’s Duma Key. The biography category experienced the success of Elizabeth Gilbert’s memoir, Eat, Pray Love. We also built on the positive sales trends in teen, graphic novels and our Faithpoint inspirational book category. Children’s books sales increased over prior year due to sales of Harry Potter and The Deathly Hallows setting new records and the ongoing growth of the broader category. Our stores produced solid gains in bargain books and gifts with toys and games experiencing gains over prior periods.

The Company opened nine new stores during fiscal 2008 resulting in partial year sales of $6.4 million and closed seven stores during fiscal 2008 with partial year sales of $1.2 million. The Company also converted one traditional store to a superstore during fiscal 2008 with partial year sales of $1.0 million.

Net sales for the retail trade segment increased $15.6 million, or 3.0%, to $528.6 million in the 52-week period ended February 2, 2008, from $513.0 million in the 53-week period ended February 3, 2007. When compared to the same 52-week period last year, the retail trade segment increased $23.8 million, or 4.7%. In addition to the factors discussed above, the increase in net sales for the retail trade segment was primarily due to new stores opened in fiscal 2008.

Net sales for the electronic commerce segment increased $1.0 million, or 3.6%, to $27.0 million in the 52-week period ended February 2, 2008, from $26.0 million in the 53-week period ended February 3, 2007. When compared to the same 52-week period last year, the electronic commerce segment increased $1.7 million, or 6.7%. The increase in net sales for the electronic commerce segment was primarily due to increased business to business sales.

Gross profit, which includes cost of sales, distribution costs and occupancy costs (including rent, common area maintenance, property taxes, utilities and merchant association dues), increased $1.8 million, or 1.2%, to $158.5 million in the 52-week period ended February 2, 2008, from $156.7 million in the 53-week period ended February 3, 2007. Gross profit as a percentage of net sales decreased to 29.6% in the 52-week period ended February 2, 2008 from 30.1% in the 53-week period ended February 3, 2007. Excluding the extra week and gift card breakage recorded in fiscal 2007, gross profit as a percentage of net sales decreased 0.2% in fiscal 2008. The decrease is primarily the result of higher occupancy and warehouse costs partially offset by lower promotional discounts, lower markdowns, improvements in store inventory shrinkage and higher club card membership income.

2008 Annual Report

Operating, selling and administrative expenses increased $4.5 million, or 4.1%, to $117.1 million in the 52-week period ended February 2, 2008, from $112.6 million in the 53-week period ended February 3, 2007. Operating, selling and administrative expenses as a percentage of net sales remained relatively flat at 21.9% in the 52-week period ending February 2, 2008 compared to 21.6% in the 53-week period ended February 3, 2007. Excluding the extra week recorded in fiscal 2007, operating, selling and administrative expenses as a percentage of net sales increased 0.2% in fiscal 2008. The increase was primarily due to an increase in health care expense, promotional expense for our club card program and a revision of the franchise tax estimate.

Depreciation and amortization decreased $0.1 million, or 0.6%, to $14.0 million in fiscal 2008, from $14.1 million in fiscal 2007. Depreciation and amortization as a percentage of net sales decreased to 2.6% in fiscal 2008, from 2.7% in fiscal 2007, due to the impact of certain assets becoming fully depreciated during the prior year.

Consolidated operating profit was $27.4 million for the 52-week period ended February 2, 2008, compared to $30.1 million for the 53-week period ended February 3, 2007. Excluding the extra week and gift card breakage recorded in fiscal 2007, operating profit increased $0.6 million during fiscal 2008. This increase was primarily attributable to increased store sales for the reasons set forth above, which resulted in higher gross profit for fiscal 2008. Operating profit as a percentage of sales was 5.1% for fiscal 2008. Excluding the extra week and the gift card breakage recorded in fiscal 2007, operating profit was 5.3% of sales for fiscal 2007. The decrease as a percentage of sales from fiscal 2007 is attributable to the decrease in gross margin as a percent of sales plus the increase in operating, selling and administrative expenses offset by the reduction in depreciation as outlined above. The operating profit for the electronic commerce segment was $1.5 million, compared to $1.4 million in fiscal 2007. The improvement in operating results was primarily due to higher gross margin partially offset by higher customer service payroll, an adjustment to our gift card reserves, software maintenance and bad debt.

Net interest expense increased $1.2 million, or 1185.8%, to $1.3 million in fiscal 2008, from $0.1 million in fiscal 2007, primarily due to borrowing from our revolving credit facility primarily as a result of the special dividend paid on July 5, 2007 and our share repurchase program. During fiscal 2008, the Company purchased 1.4 million shares of its common stock at a total cost of $20.0 million under its share repurchase program.

The effective rate for income tax purposes was 36.64% for fiscal 2008 and 37.0% for fiscal 2007. The decrease in the effective tax rate was due to federal tax credits for prior year returns taken in fiscal 2008.

The Company closed two stores in fiscal 2008 in a market where the Company does not expect to retain the closed stores’ customers at another store in the same market. The store’s sales and operating results for fiscal 2008 have not been included in discontinued operations because the impact on the financial statements was immaterial. The Company continues to report in discontinued operations for prior year stores closed where the Company does not expect to retain the closed stores’ customers at another store. One such store was closed in fiscal 2007. The financial impact of these closings was reported as discontinued operations in the financial statements, but had a minimal impact on the financial results of the Company.

Presented below is certain financial information for the fiscal year ended February 3, 2007 on a 52-week “operating basis,” the effect of which is to exclude the financial results for the final week of the fiscal period and to exclude the effect of prior year gift card breakage income. This information is presented because the fiscal year ended February 3, 2007 was one week longer than the fiscal year ended February 2, 2008 and included gift card breakage income related to periods prior to fiscal 2007.

Management uses these non-GAAP financial measures because it believes that they are important to investors in comparing the Company’s financial performance in one fiscal period against a prior fiscal period in circumstances where the fiscal periods are of a different duration or include a material non-recurring item such as a change in estimate. As noted above, the fiscal year ended February 3, 2007, was one week longer than the fiscal year ended February 2, 2008 and included $2.3 million, $1.4 million net of taxes, of prior year gift card breakage income.

These non-GAAP financial measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for results determined in accordance with GAAP. Additionally, other companies in the retail industry may not exclude portions of a fiscal period from the financial results for such period, limiting their usefulness as a comparative measure. The following table reconciles the non-GAAP measures from the fiscal year ended February 3, 2007, with the comparable financial measure calculated and presented in accordance with GAAP.

2008 Annual Report

BOOKS-A-MILLION, INC.
Unaudited Consolidated Statements of Income
(In thousands, except per share data)
Year-to-Date FY 2008

	Year Ended February 2, 2008	Year Ended February 3, 2007
	GAAP Basis	GAAP Basis	Adjustments	Operating Basis
	(52 weeks)	(53 weeks)	Adjustments	(52 weeks)
NET SALES	$535,128	$520,416	$11,244	$509,172
Cost of sales (including warehouse, distribution and store occupancy costs)	376,580	363,688	6,005	357,683
	376,580	363,688	6,005	357,683

GROSS PROFIT	158,548	156,728	5,239	151,489
Operating, selling and administrative expenses	117,139	112,560	1,892	110,668
Depreciation and amortization	13,989	14,069	-	14,069

OPERATING INCOME	27,420	30,099	3,347	26,752
Interest expense (income), net	1,346	105	-	105

INCOME BEFORE INCOME TAXES	26,074	29,994	3,347	26,647
Income tax provision	9,552	11,107	1,239	9,868

NET INCOME	$ 16,522	$ 18,887	$ 2,107	$ 16,780

NET INCOME PER COMMON SHARE:
Basic:
Net income	$ 1.03	$ 1.16	$ 0.13	$ 1.03
Weighted average shares outstanding	16,089	16,353	16,353	16,353

Diluted:
Net income	$ 1.01	$ 1.12	$ 0.12	$ 1.00
Weighted average shares outstanding	16,302	16,805	16,805	16,805
Weighted average shares outstanding	16,302	16,805	16,805	16,805

Fiscal 2007 Compared to Fiscal 2006

Consolidated net revenue increased $16.6 million, or 3.3%, to $520.4 million for the 53-week period ended February 3, 2007, from $503.8 million for the 52-week period ended January 28, 2006. Sales for the 52-week period ended January 27, 2007 increased 1.6%. Comparable store sales for the 52-week period ended January 27, 2007 decreased 0.6% when compared to the same 52-week period in the prior year. The decrease in comparable store sales was primarily attributable to a decrease in magazines sales and café sales, with book and gift sales primarily flat with the previous year. The café business is increasingly competitive with saturation of the market from new competitor store openings. Magazines sales continued to experience negative comparable sales as book retailers’ shares declined due to grocery and convenience store offerings.

2008 Annual Report

Included in fiscal 2007 net revenue is $3.2 million of gift card breakage income of which $2.3 million relates to periods prior to fiscal 2007. In fiscal 2007 the Company formed a gift card subsidiary, Books-A-Million Card Services (“Card Services”), and began recording gift card breakage income for those cards for which the likelihood of redemption is deemed to be remote (after 24 months of inactivity) and which there is no legal obligation to remit the value of such unredeemed gift cards to the relevant jurisdictions. The primary function of Card Services is to administer the Company’s gift card program and to provide a more advantageous legal structure. The $2.3 million represents a change in estimate in the escheat liability due to operational changes related to the creation of Card Services.

Several categories of book sales showed increases during fiscal 2007, including adventure books, inspirational books, fiction, the gift category, social sciences, pets, teen reading, and cooking. These increases were offset by lower sales in the children’s book category driven by the phenomenal sales of The Chronicles of Narnia and Harry Potter and the Half Blood Prince in the prior year. John Grisham’s non-fiction bestseller, Innocent Man, drove sales in the social science category. The gift category experienced growth from import book accessories. The pet category increases were driven by sales of two titles-Marley and Me and Caesar’s Way. Teen fiction continued to experience dynamic growth, predominately as a result of interest in a wide ranging number of fiction titles and Food Network stars Paula Deen and Rachael Ray dominated the cookbook category. A diet book, You: On A Diet, proved to be a surprise fourth-quarter bestseller in the cookbook category.

The Company opened nine new stores during fiscal 2007 resulting in partial year sales of $12.6 million and closed eight stores during fiscal 2007 with partial year sales of $3.9 million. The stores in Biloxi, Mississippi, and Deerfield Beach, Florida, which were temporarily closed due to the hurricanes in the prior year, were reopened in fiscal 2007.

Net sales for the retail trade segment increased $16.4 million, or 3.3%, to $513.0 million in fiscal 2007, from $496.6 million in fiscal 2006. In addition to the factors discussed above, the increase in net sales for the retail trade segment was primarily due to new stores opened during fiscal 2007 and the additional selling week in fiscal 2007.

Net sales for the electronic commerce segment decreased $1.6 million, or 5.6%, to $26.0 million in fiscal 2007, from $27.6 million in fiscal 2006. The decrease in net sales for the electronic commerce segment for fiscal 2007 was primarily due to sales of Harry Potter and the Half Blood Prince during fiscal 2006, which were not replaced in fiscal 2007.

Gross profit, which includes cost of sales, distribution costs and occupancy costs (including rent, common area maintenance, property taxes, utilities and merchant association dues), increased $10.1 million, or 6.9%, to $156.7 million in fiscal 2007, from $146.6 million in fiscal 2006. Gross profit as a percentage of net sales increased to 30.1% in fiscal 2007, from 29.1% in fiscal 2006, partially due to gift card breakage income discussed above as well as increased sales of proprietary product which has a higher gross profit than regular product. Also, the Company was able to generate higher sales in fiscal 2007 with less promotional discounting.

Operating, selling and administrative expenses increased $3.4 million, or 3.1%, to $112.6 million in fiscal 2007, from $109.2 million in fiscal 2006. Operating, selling and administrative expenses as a percentage of net sales remained relatively flat at 21.6% in fiscal 2007 compared to 21.7% in fiscal 2006. Higher stock based compensation expense in fiscal 2007 was offset by a reduction in costs incurred for Sarbanes-Oxley compliance, other corporate expenses and the non-recurrence of costs associated with the NASDAQ de-listing hearing in October 2005.

In fiscal 2006 the Company recognized an insurance gain of $754,000, net of taxes, related to insurance recoveries for hurricane damage suffered at certain stores in fiscal 2005. The insurance recovery amount was finalized with the insurance company during the third quarter of fiscal 2006 (for stores damaged by hurricanes in fiscal 2005), and therefore the gain was recorded in the respective period.

Depreciation and amortization decreased $1.5 million, or 10.0%, to $14.1 million in fiscal 2007, from $15.6 million in fiscal 2006. Depreciation and amortization as a percentage of net sales decreased to 2.7% in fiscal 2007 from 3.1% in fiscal 2006, due to lower capital expenditures in fiscal 2007, as well as the impact of certain assets becoming fully depreciated during the prior year.

Consolidated operating profit was $30.1 million for fiscal 2007, compared to $23.0 million in fiscal 2006. Operating profit for the retail trade segment was $29.2 million in fiscal 2007, versus $22.4 million in fiscal 2006. This increase was partially attributable to increased store sales for the reasons set forth above, which resulted in higher gross profit for fiscal 2007. Also, gross profit improved as a percentage of sales due to increased gift card breakage income, increased sales of proprietary product which has a higher gross profit, as well as less promotional discounting. These increases were partially offset by higher operating, selling and administrative expenses due to higher store selling costs and other corporate expenses. The operating profit for the electronic commerce segment was $1.4 million, compared to $1.0 million in fiscal 2006. The improvement in operating results was primarily due to lower costs incurred for shipping and warehouse handling

2008 Annual Report

Net interest expense decreased $1.3 million, or 92.7%, to $0.1 million in fiscal 2007 from $1.4 million in fiscal 2006, primarily due to lower average debt levels and increased short term investments during fiscal 2007.

The effective rate for income tax purposes was 37.0% for fiscal 2007 and 39.6% for fiscal 2006. The decrease in the effective tax rate was due to a lower state effective tax rate in fiscal 2007.

The Company closed one store in fiscal 2007 in a market where the Company does not expect to retain the closed stores’ customers at another store in the same market. The store’s sales and operating results for fiscal 2007 have not been included in discontinued operations because the impact on the financial statements was immaterial. The Company continues to report in discontinued operations for prior year stores closed where the Company does not expect to retain the closed stores’ customers at another store. Two such stores were closed in fiscal 2006. The financial impact of these closings was reported as discontinued operations in the financial statements, but had a minimal impact on the financial results of the Company.

Seasonality and Quarterly Results

Similar to many retailers, the Company’s business is seasonal, with its highest retail sales, gross profit and net income historically occurring in the fourth fiscal quarter. This seasonal pattern reflects the increased demand for books and gifts experienced during the year-end holiday selling season. Working capital requirements are generally highest during the third fiscal quarter and the early part of the fourth fiscal quarter due to the seasonality of the Company’s business. 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 impact on the Company’s results of operations for the full year.

In addition, the Company’s results of operations may fluctuate from quarter to quarter as a result of the amount and timing of sales and profits contributed by new stores as well as other factors. New stores require the Company to incur pre-opening expenses and often require several months of operation before generating acceptable sales volumes. Accordingly, the addition of a large number of new stores in a particular quarter could adversely affect the Company’s results of operations for that quarter.

Liquidity and Capital Resources

The Company’s primary sources of liquidity are cash flows from operations, including credit terms from vendors, and borrowings under its credit facilities. The Company has an unsecured revolving credit facility under a credit agreement with a syndicate of banks that allows borrowings up to $100.0 million, which expires in July, 2011. Availability under the facility is reduced by outstanding letters of credit issued under this facility. The credit agreement contains certain financial and non-financial covenants, the most restrictive of which is the maintenance of a minimum fixed charge coverage ratio. The outstanding balance under this credit facility as of February 2, 2008 and February 3, 2007, was $28.0 million and $0, respectively, and the face amount of letters of credit issued under the facility was $2.4 million and $2.9 million, respectively. The maximum and average outstanding borrowings under the credit facility (excluding the face amount of letters of credit issued thereunder) during fiscal 2008 were $55.9 million and $20.7 million, respectively.

During fiscal 1996 and fiscal 1995, the Company acquired and constructed certain warehouse and distribution facilities with the proceeds of loans made pursuant to an industrial development revenue bond (the “Bond”). As of February 2, 2008 and February 3, 2007, there was $7.0 million and $7.1 million of borrowings outstanding, respectively, under these arrangements, which bear interest at variable rates.

The Company’s capital expenditures totaled $16.9 million in fiscal 2008. These expenditures were primarily used for new store openings, renovation and improvements to existing stores, upgrades and expansion of warehouse distribution facilities and

investment in management information systems.

Financial Position

During fiscal 2008, the Company opened nine stores, closed seven stores and re-opened three other stores. The challenging retail environment in the fourth quarter resulted in an increase in inventory balances to $206.8 million at February 2, 2008, as compared to $200.3 million at February 3, 2007. The challenging retail environment resulted in lower sales than anticipated in the fourth quarter which, in turn, increased inventory levels.

Net property and equipment increased due to higher capital expenditures primarily for nine new stores opened and three other stores re-opened in fiscal 2008. Additionally, cash and cash equivalents decreased by $28.5 million as of February 2, 2008 as compared with the balance as of February 3, 2007, primarily due to the special dividend and the share repurchase program. Offsetting the reduced cash balance were higher accounts payable balances of $4.8 million between fiscal years and a $28.0 million increase in short-term borrowings. The increase in accounts payable was primarily due to a change in payment practices to more effectively meet vendor payment guidelines. The increase in short-term borrowings is the result of the special dividend and the share repurchase program.

2008 Annual Report

Future Commitments

The following table lists the aggregate maturities of various classes of obligations and expiration amounts of various classes of commitments related to Books-A-Million, Inc. at February 2, 2008:

	Payments Due Under Contractual Obligations
(in thousands)	Total	FY 2009	FY 2010	FY 2011	FY 2012	FY 2013	Thereafter
Short-term borrowings⁽¹⁾	$27,967	$27,967	$ --	$ --	$ --	$ --	$ --
Long-term debt-industrial revenue bond	6,975	--	--	--	6,975	--	--
Subtotal of debt	34,942	27,967	--	--	6,975	--	--
Operating leases	133,101	30,297	24,752	19,991	14,730	11,521	31,810
Total of obligations	$168,043	$58,264	$24,752	$19,991	$21,705	$11,521	$31,810

(1)	Short term borrowings represent borrowings under the $100 million credit facility that are due in 12 months or less.

Guarantees

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

Cash Flows

Operating activities provided cash of $34,493,000, $21,306,000 and $36,713,000 in fiscal 2008, 2007 and 2006 respectively, and included the following effects:

•

Cash used by inventories in fiscal 2008 of $6,559,000 was the result of the sales shortfall in the fourth quarter. Cash provided by inventories was $4,512,000 and $5,481,000 in fiscal 2007 and 2006 respectively. This was primarily the result of increased sales and improved inventory management during the respective years.

•

Cash provided by accounts payable (including related party payables) in fiscal 2008 of $4,800,000 was the result of a deliberate change in our payment practices to more effectively meet vendor payment guidelines, and improved accounts payable leveraging with vendors. Cash used by accounts payable (including related party payables) in fiscal 2007 of $14,455,000 was due to the timing of vendor payments for fourth quarter merchandise versus the prior year end and lower inventory levels for fiscal 2007. Cash used by accounts payable (including related party payables) in fiscal 2006 of $5,914,000 was due to lower inventory levels for fiscal 2006 which resulted in lower accounts payable balances.

•

Depreciation and amortization expenses were $13,989,000, $14,069,000 and $15,651,000 in fiscal 2008, 2007 and 2006, respectively. The decrease in fiscal 2008 and 2007 was primarily due to the impact of certain assets becoming fully depreciated during the prior years.

•

Cash provided by accrued expenses was $4,537,000 in fiscal 2008 and was primarily due to unused gift card reserve, accrued payroll taxes and the adoption of FASB Staff Position FIN 48-1. Cash used by accrued expenses was $3,090,000 in fiscal 2007 and was primarily due to a lower gift card liability due to the recognition of gift card breakage, lower capital expenditure accruals and lower audit fee accruals. Cash provided by accrued expenses was $5,519,000 in fiscal 2006 and was primarily due to increases in deferred revenues related to the Company’s discount card, deferred rent related to landlord allowances and higher bonus accruals due to the Company’s improved earnings performance.

2008 Annual Report

Cash used in investing activities in fiscal 2008, 2007 and 2006 reflected a net use of cash of $16,878,000, $16,176,000 and $11,286,000, respectively. Cash was used to fund capital expenditures for new store openings, renovation and improvements to existing stores, warehouse distribution purposes and investments in management information systems.

Financing activities used cash of $46,141,000 in fiscal 2008 primarily to purchase stock ($20,054,000) and for dividend payments ($56,824,000), offset by proceeds from the issuance of stock upon the exercise of stock options ($1,257,000) and related tax benefits ($1,638,000). Financing activities used cash of $8,528,000 in fiscal 2007 primarily to purchase stock ($7,460,000) and for dividend payments ($5,303,000), offset by proceeds from the issuance of stock upon the exercise of stock options ($1,768,000). Financing activities used cash of $4,467,000 in fiscal 2006 primarily to purchase stock ($5,324,000) and for dividend payments ($3,273,000), offset by proceeds from the issuance of stock upon the exercise of stock options ($4,431,000).

Dividends

The Company paid $56.8 million in dividends in fiscal 2008 and $5.3 million in dividends in fiscal 2007. See the table below for summary of dividends declared each quarter. On June 4, 2007, the Company’s board of directors declared a special one-time cash dividend of $3.00 per common share. The dividend was paid on July 5, 2007 to stockholders of record at the close of business on June 20, 2007. A total of $50.9 million was paid on the Company’s 16,958,000 outstanding shares of common stock as a result of the special dividend.

	Dividends Declared
	Fiscal 2008	Fiscal 2007

First quarter

$0.09

$0.08

Second quarter

$3.09

$0.08

Third quarter

$0.09

$0.08

Fourth quarter

$0.09

Annual Total

$3.36

$0.33

Impact of Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN 48, effective February, 4, 2007. As a result of the adoption of FIN 48, the Company recorded an increase of $1,987,000 in other long-term liabilities in its consolidated balance sheet for unrecognized tax benefits, which was accounted for as a cumulative effect adjustment to the February 4, 2007 balance of retained earnings.

Recently Issued Accounting Pronouncements Not Yet Adopted

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 was issued to provide increased consistency and comparability in fair value measurements. Specifically, SFAS No. 157 creates a significant definition of fair value emphasizing fair value as a market-based measurement. The Company is required to adopt SFAS No. 157 as of the beginning of its fiscal year that begins after November 15, 2007. The adoption of SFAS No. 157 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities: Including an amendment of FASB No. 115” (“SFAS No. 159”). SFAS No. 159 permits all entities to elect to measure many financial instruments and certain other items at fair value with changes in fair value reported in earnings. The fair value option is generally applied on an instrument-by-instrument basis and may be elected for a single item without electing other identical items, even if issued in a single transaction. The Company is required to adopt SFAS No. 159 as of the beginning of its fiscal year that begins after November 15, 2007. The adoption of SFAS No. 159 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48” (“FSP FIN 48-1”). FSP FIN 48-1 amends FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purposes of recognizing previously unrecognized tax benefits. The Company is required to apply the guidance provided in FSP FIN 48-1 upon its adoption of FIN 48 which was as of February 4, 2007. The application of FSP FIN 48-1 has not had a material effect on the Company’s financial position, results of operations, or cash flows.

2008 Annual Report

In June 2007, the Emerging Issues Task Force (EITF) of the FASB ratified their consensus position 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”). EITF 06-11 provides guidance on how a company should recognize the income tax benefit received on dividends that are paid to employees holding equity-classified nonvested shares, equity-classified nonvested share units, or equity-classified outstanding share options charged to retained earnings under FASB Statement 123(R), “Share-Based Payment.” The Company is required to apply the guidance provided in EITF 06-11 prospectively to income tax benefits of dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after September 15, 2007. Early adoption of EITF 06-11 is permitted for the income tax benefit of dividends on equity-classified employee share-based payment awards that are declared in periods for which financial statements have not yet been issued. The Company has elected early adoption of this pronouncement as of the fiscal quarter ending August 4, 2007. The early adoption of EITF 06-11 has not had a material effect on the Company’s financial position, results of operation or cash flows.

In December 2007, the FASB issued SFAS No. 141 revised, Business Combinations. The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141 revised is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Company’s financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. The objective of this Statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the Noncontrolling interest in a subsidiary and for the decosolation of a subsidiary. SFAS 160 is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Company’s financial statements.

In March, 2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Based on current conditions, the Company does not expect the adoption of SFAS 161 to have a significant impact on its results of operations or financial position.

Related Party Activities

As discussed in Note 6 of Notes to Consolidated Financial Statements, the Company conducts business with other entities in which certain officers, directors and principal stockholders of the Company have controlling ownership interests. The most significant related party transactions include inventory purchases from, and sales of merchandise to, related parties. Related party inventory purchases increased by $1.8 million, or 6.2%, to $30.8 million in fiscal 2008, compared to fiscal 2007 purchases of $29.0 million. The increase in related party purchases was primarily due to increased magazine, music and collectibles purchases versus fiscal 2007. Related party sales transactions increased in fiscal 2008 to $3.6 million, an increase of $1.2 million, as a result of increased book merchandise sales. The Company leases certain office, retail and warehouse space from related parties, for which the rents have remained relatively unchanged. Management believes the terms of these related party transactions are substantially equivalent to those available from unrelated parties.

Disclosure Regarding Forward-Looking Statements

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 operations; 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 of the forward-looking statements contained herein to reflect future events or developments.

2008 Annual Report

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS

Board of Directors and Shareholders

Books-A-Million, Inc.

We have audited the accompanying consolidated balance sheets of Books-A-Million, Inc. and subsidiaries (the “Company”) as of February 2, 2008 and February 3, 2007 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended February 2, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 2, 2008 and February 3, 2007, and the results of its operations and its cash flows for each of the years in the periods ended February 2, 2008, February 3, 2007 and January 28, 2006 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, "Accounting for Uncertainty in Income Tax - an interpretation of FASB Statement No. 109" effective February 4, 2007 and adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” effective January 29, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of February 2, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated April 15, 2008 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

Atlanta, Georgia

April 15, 2008

2008 Annual Report

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors and Stockholders

Books-A-Million, Inc.

We have audited Books-A-Million, Inc.'s and subsidiaries (the "Company") internal control over financial reporting as of February 2, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Controls Over Financial Reporting. Our responsibility is to express an opinion on Books-A-Million, Inc.'s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2008, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of the Company as of February 2, 2008 and February 3, 2007, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the years in the periods ended February 2, 2008, February 3, 2007 and January 28, 2006 and our report dated April 15, 2008 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Atlanta, Georgia

April 15, 2008

2008 Annual Report

Consolidated Balance Sheets
	As of
(Dollars in thousands, except per share amounts)	2/2/08	2/3/07
Assets
Current Assets:
Cash and cash equivalents	$5,595	$ 34,121
Accounts receivable, net of allowance for doubtful accounts of $741 and $711, respectively	6,450	7,524
Related party receivables	3,780	2,647
Inventories	206,836	200,277
Prepayments and other	4,678	4,365
Total Current Assets	227,339	248,934

Property and Equipment:
Land	628	628
Buildings	6,915	6,869
Equipment	84,843	77,806
Furniture and fixtures	53,071	51,354
Leasehold improvements	76,653	74,263
Construction in process	398	54
Gross Property and Equipment	222,508	210,974
Less accumulated depreciation and amortization	168,994	159,503
Net Property and Equipment	53,514	51,471

Deferred Income Taxes	2,452	2,031
Other Assets:
Goodwill	1,368	1,368
Other	160	233
Total Other Assets	1,528	1,601
Total Assets	$284,833	$304,037

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable:
Trade	$88,994	$ 83,419
Related party	2,213	2,988
Accrued expenses	41,539	38,584
Accrued income taxes	995	2,714
Deferred income taxes	6,846	3,492
Short-term borrowings	27,967
Total Current Liabilities	168,554	131,197

Long-term Debt	6,975	7,100
Other Long-term Liabilities	10,253	8,706
Commitments and Contingencies
Stockholders’ Equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized, no shares outstanding	-	-
Common stock, $.01 par value; 30,000,000 shares authorized 20,850,611 and 20,461,333 shares issued at February 2, 2008 and February 3, 2007, respectively	209	205
Additional paid-in capital	89,752	85,396
Treasury stock at cost (5,216,951 shares at February 2, 2008 and 3,818,356 shares at February 3, 2007, respectively)	(44,468)	(24,414)
Retained earnings	53,558	95,847
Total Stockholders’ Equity	99,051	157,034
Total Liabilities and Stockholders’ Equity	$284,833	$304,037

The accompanying notes are an integral part of these consolidated statements.

2008 Annual Report

CONSOLIDATED STATEMENTS OF INCOME

	Fiscal Year Ended
(In thousands, except per share data)	2/2/08	2/3/07	1/28/06
	52 weeks	53 weeks	52 weeks
Net revenue	$535,128	$520,416	$503,751
Cost of products sold, including warehouse distribution and store occupancy costs	376,580	363,688	357,166
Gross profit	158,548	156,728	146,585

Operating, selling and administrative expenses	117,139	112,560	109,160
Gain on insurance recoveries (note 10)	--	--	1,248
Depreciation and amortization	13,989	14,069	15,636
Operating profit	27,420	30,099	23,037

Interest expense, net	1,346	105	1,441
Income from continuing operations before income taxes	26,074	29,994	21,596

Provision for income taxes	9,552	11,107	8,545
Income from continuing operations	16,522	18,887	13,051

Discontinued operations:
Income (loss) from discontinued operations before taxes (including impairment charge)	--	--	27
Income tax provision (benefit)	--	--	11
Income (loss) from discontinued operations	--	--	16

Net Income	$16,522	$ 18,887	$ 13,067

Net income per common share:
Basic
Income from continuing operations	$1.03	$ 1.16	$ 0.80
Income (loss) from discontinued operations	--	--	--
Net Income per share	$1.03	$ 1.16	$ 0.80
Weighted average number of shares outstanding – basic	16,089	16,352	16,276

Diluted
Income from continuing operations	$1.01	$ 1.12	$ 0.77
Income (loss) from discontinued operations	--	--	--
Net Income per share	$1.01	$ 1.12	$ 0.77
Weighted average number of shares outstanding – diluted	16,302	16,805	16,888

Dividends per share – declared	$ 3.36	$ 0.33	$ 0.23

The accompanying notes are an integral part of these consolidated statements.

2008 Annual Report

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

							Accumulated
			Additional				Other	Total
	Common Stock		Paid-In	Treasury Stock		Retained	Comprehensive	Stockholders'
(In thousands)	Shares	Amount	Capital	Shares	Amount	Earnings	Income (Loss)	Equity

Balance, January 29, 2005	19,068	$191	$74,024	2,793	$(11,630)	$72,469	$(195)	$134,859

Net income						$13,067		$ 13,067
Unrealized gain on accounting for derivative instruments, net of tax provision of $89							141	141
Reclassification of unrealized loss related to de-designation of cash flow hedge, net of tax benefit of $30							47	47
Subtotal comprehensive income								13,255
Purchase of treasury stock, at cost				494	(5,324)			(5,324)
Dividends paid						(3,273)		(3,273)
Issuance of restricted stock	43	1	(1)					--
Amortization of deferred compensation related to restricted stock			448					448
Issuance of stock for employee stock purchase plan	13		84					84
Exercise of stock options	640	6	4,341					4,347
Tax benefit from exercise of stock options			613					613
Balance, January 28, 2006	19,764	$198	$79,509	3,287	$(16,954)	$82,263	$ (7)	$145,009

Net income						18,887		18,887
Unrealized gain on accounting for derivative instruments, net of tax provision of $4							7	7
Subtotal comprehensive income								18,894
Purchase of treasury stock, at cost				531	(7,460)			(7,460)
Dividends paid						(5,303)		(5,303)
Issuance of restricted stock	148	1	1,558					1,559
Issuance of stock for employee stock purchase plan	9		88					88
Exercise of stock options	540	6	1,674					1,680
Tax benefit from exercise of stock options			2,567					2,567
Balance, February 3, 2007	20,461	$205	$85,396	3,818	$(24,414)	$95,847	$ --	$157,034

Net income						16,522		16,522
Subtotal comprehensive income								16,522
FIN 48 Adjustment						(1,987)		(1,987)
Purchase of treasury stock, at cost				1,399	(20,054)			(20,054)
Dividends paid						(56,824)		(56,824)
Issuance of restricted stock	155	2	1,464					1,466
Issuance of stock for employee stock purchase plan	8		118					118
Exercise of stock options	226	2	1,136					1,138
Tax benefit from exercise of stock options			1,638					1,638
Balance, February 2, 2008	20,850	$209	$89,752	5,217	$(44,468)	$53,558	$ --	$99,051

The accompanying notes are an integral part of these consolidated statements

2008 Annual Report

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal Year Ended
(In thousands)	2/2/08	2/3/07	1/28/06

Cash Flows from Operating Activities:
Net income	$16,522	$18,887	$13,067
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	13,989	14,069	15,651
Stock-based compensation	1,466	1,559	448
Loss on impairment of assets	60	336	215
(Gain) loss on sale of property and equipment	479	228	(4)
Deferred income tax provision	2,933	465	1,281
Excess tax benefit of exercise of stock options	(1,638)	(2,567)	613
Reclassification of unrealized loss from de-designation of cash flow hedge	--	--	47
(Increase) decrease in assets:
Accounts receivable	1,074	2,144	(2,673)
Related party receivables	(1,133)	(1,513)	(1,061)
Inventories	(6,559)	4,512	5,481
Prepayments and other	(315)	(25)	2,571
Noncurrent assets (excluding amortization)	(3)	(124)	1,176
Increase (decrease) in liabilities:
Accounts payable	5,575	(14,752)	986
Related party payables	(775)	297	(6,900)
Accrued income taxes	(1,719)	880	296
Accrued expenses	4,537	(3,090)	5,519
Total adjustments	17,971	2,419	23,646
Net cash provided by operating activities	34,493	21,306	36,713

Cash Flows from Investing Activities:
Capital expenditures	(16,878)	(16,191)	(11,297)
Proceeds from sale of property and equipment	--	15	11
Net cash used in investing activities	(16,878)	(16,176)	(11,286)

Cash Flows from Financing Activities:
Borrowings under credit facilities	174,212	2,850	189,119
Repayments under credit facilities	(146,370)	(2,950)	(189,420)
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan	1,257	1,768	4,431
Purchase of treasury stock	(20,054)	(7,460)	(5,324)
Payment of dividends	(56,824)	(5,303)	(3,273)
Excess tax benefit from exercise of stock options	1,638	2,567	--
Net cash used in financing activities	(46,141)	(8,528)	(4,467)

Net (Decrease) increase in Cash and Cash Equivalents	(28,526)	(3,398)	20,960
Cash and Cash Equivalents at Beginning of Year	34,121	37,519	16,559
Cash and Cash Equivalents at End of Year	$5,595	$34,121	$37,519

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest	$1,907	$ 910	$ 1,607
Income taxes, net of refunds	$6,666	$ 7,199	$ 6,787
Supplemental Disclosures of Non Cash Investing Activities:
Capital expenditures in accrued expenses	$(368)	$(1,284)	$ --

The accompanying notes are an integral part of these consolidated statements.

2008 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Summary of Significant Accounting Policies

Business

Books-A-Million, Inc. and its subsidiaries (the “Company”) are principally engaged in the sale of books, magazines and related items through a chain of retail bookstores. The Company presently operates 208 bookstores in 20 states and the District of Columbia, which are predominantly located in the southeastern United States. The Company also operates a retail Internet website. The Company presently consists of Books-A-Million, Inc. and its three wholly owned subsidiaries, American Wholesale Book Company, Inc. (“American Wholesale”) , American Internet Service, Inc (“AIS”) and Books-A-Million Card Services, Inc. (“Card Services”). All inter-company balances and transactions have been eliminated in consolidation. For a discussion of the Company’s business segments, see Note 8.

Fiscal Year

The Company operates on a 52 or 53-week year, with the fiscal year ending on the Saturday closest to January 31. Fiscal year 2008 was a 52-week period while fiscal year 2007 was a 53-week period. Fiscal year 2006 was a 52-week period.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue from the sale of merchandise at the time the merchandise is sold and the customer takes delivery. Returns are recognized at the time the merchandise is returned and processed. At each period end, an estimate of sales returns is recorded. Sales return reserves are based on historical returns as a percentage of sales activity. The historical returns percentage is applied to the sales for which returns are projected to be received after period end. The estimated returns percentage and return dollars have not materially changed in the last several years. Sales tax collected is recorded net and is not recognized as revenue and is included on the consolidated balance sheets in accrued expenses.

The Company sells its Millionaire’s Club Card, which entitles the customer to receive a ten percent discount on all purchases made during the twelve-month membership period, for a non-refundable fee. The Company recognizes this revenue over the twelve-month membership period based upon historical customer usage patterns. Related deferred revenue is included in accrued expenses.

The Company sells gift cards to its customers in its retail stores. The gift cards do not have an expiration date. Income is recognized from gift cards when: (1) the gift card is redeemed by the customer; or (2) the likelihood of the gift card being redeemed by the customer is remote (gift card breakage) and there is no legal obligation to remit the value of the unredeemed gift cards to the relevant jurisdictions. The gift card breakage rate is determined based upon historical redemption patterns. Based on this historical information, the likelihood of a gift card remaining unredeemed can be determined after 24 months of card inactivity. At that time, breakage income is recognized for those cards for which the likelihood of redemption is deemed to be remote and which there is no legal obligation to remit the value of such unredeemed gift cards to the relevant jurisdictions. In fiscal 2007, the Company formed a gift card subsidiary, Books-A-Million Card Services ("Card Services") to administer the Company’s gift card program and to provide a more advantageous legal structure. During fiscal 2008, the Company recognized $1.4 million of gift card breakage income. Breakage income for fiscal 2007 was $3.2 million of which $2.3 million relates to periods prior to fiscal 2007. The $2.3 million represents a change in estimate in the escheat liability due to operational changes related to the creation of Card Services. Breakage income for fiscal 2006 was $482,000. Gift card breakage income is included in revenue.

Vendor Allowances

The Company receives allowances from its vendors from a variety of programs and arrangements, including placement and co-operative advertising programs. Effective February 3, 2002, the Company adopted the provisions of Emerging Issues Task Force (“EITF”) No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, which addresses the accounting for vendor allowances. As a result of the adoption of this statement, vendor allowances in excess of incremental direct costs are reflected as a reduction of inventory costs and recognized in cost of products sold upon the sale of the related inventory.

Accounts Payable

The Company classifies its checks written but not yet cleared by the bank in Accounts Payable. Checks are only written once approved by management. Amounts included in Accounts Payable as of February 2, 2008 and February 3, 2007 were $24,991,000 and $12,719,000, respectively.

2008 Annual Report

Inventories

Inventories are valued at the lower of cost or market, using the retail method. Market is determined based on the lower of replacement cost or estimated realizable value. Using the retail method, store and warehouse inventories are valued by applying a calculated cost to retail ratio to the retail value of inventories.

The Company currently utilizes the last-in, first-out (LIFO) method of accounting for inventories. The cumulative difference between replacement and current cost of inventory over stated LIFO value is $2.5 million as of February 2, 2008 and $2.1 million as of February 3, 2007. The estimated replacement cost of inventory is the current FIFO value of $209.3 million.

Physical inventory counts are taken throughout the course of the fiscal period and reconciled to the Company’s records. Accruals for inventory shortages are estimated based upon historical shortage results.

Inventories were:

	Fiscal Year Ended
(In thousands)	February 2, 2008	February 3, 2007
Inventories (at FIFO)	$209,314	$202,327
LIFO reserve	(2,478)	(2,050)
Net inventories	$206,836	$200,277

Property and Equipment

Property and equipment are recorded at cost. Depreciation of equipment and furniture and fixtures is provided on the straight-line method over the estimated service lives, which range from three to seven years. Depreciation of buildings and amortization of leasehold improvements, including remodels, is provided on the straight-line basis over the lesser of the assets’ estimated useful lives (ranging from five to 40 years) or, if applicable, the periods of the leases. Determination of useful asset life is based on several factors requiring judgment by management and adherence to generally accepted accounting principles for depreciable periods. Judgment used by management in the determination of useful asset life could relate to any of the following factors: expected use of the asset; expected useful life of similar assets; any legal, regulatory, or contractual provisions that may limit the useful life; and other factors that may impair the economic useful life of the asset. Maintenance and repairs are charged to expense as incurred. Improvement costs, which extend the useful life of an asset, are capitalized to property accounts and depreciated over the asset's expected remaining life. The cost and accumulated depreciation of assets sold, retired or otherwise disposed of are removed from the accounts, and the related gain or loss is credited or charged to income.

Long-Lived Assets

The Company’s long-lived assets consist of property and equipment which includes leasehold improvements. At February 2, 2008, the Company had $53.5 million of property and equipment, net of accumulated depreciation, accounting for approximately 18.8% of the Company’s total assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, the Company will first compare the carrying amount of the assets to the individual store’s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying amount of the assets, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the assets to the individual store’s fair value based on its estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value. Impairment losses totaled $0.1 million, $0.3 million and $0.2 million in fiscal 2008, 2007 and 2006, respectively, and were recorded in selling, general administrative costs. For all years presented, the impairment losses related to the retail trade business segment.

Goodwill

At February 2, 2008, the Company had $1.4 million of goodwill, accounting for approximately 0.5% of the Company’s total assets. SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that goodwill and other indefinite life intangible assets no longer be amortized, but instead be tested for impairment at least annually or earlier if there are impairment indicators. The Company performs a two-step process for impairment testing of goodwill as required by SFAS No. 142. The first step of this test, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount. The second step (if necessary) measures the amount of the impairment. The Company completed its annual impairment test on the goodwill during the fourth quarter of fiscal 2008 and deemed that no impairment charge was necessary. The Company has noted no subsequent indicators of impairment. Changes in market conditions, among other factors, could have a material impact on these estimates.

2008 Annual Report

Deferred Rent

The Company recognizes rent expense by the straight-line method over the lease term, including lease renewal option periods that can be reasonably assured at the inception of the lease. The lease term commences on the date when the Company takes possession and has the right to control use of the leased premises. Also, funds received from the lessor intended to reimburse the Company for the cost of leasehold improvements are recorded as a deferred credit resulting from a lease incentive and are amortized over the lease term as a reduction of rent expense.

Loss from Discontinued Operations

The Company periodically closes under-performing stores. The Company believes that a store is a component under SFAS No. 144. Therefore, each store closure would result in the reporting of a discontinued operation unless the operations and cash flows from the closed store could be absorbed in some part by surrounding Company stores(s) within the same market area. Management evaluates certain factors in determining whether a closed store’s operations could be absorbed by surrounding store(s); the primary factor considered is the distance to the next closest Books-A-Million store. When a closed store results in a discontinued operation, the results of operations of the closed store include store closing costs and any related asset impairments. See Note 7 for discontinued operations disclosures.

In November 2004, the Emerging Issues Task Force ("EITF") issued EITF No. 03-13, "Applying the Conditions in Paragraph 42 of FASB No. 144 in Determining Whether to Report Discontinued Operations." EITF No. 03-13 addresses how an ongoing entity should evaluate whether the operations and cash flows of a disposed component have been or will be eliminated from the ongoing operations of the entity and the types of continuing involvement that constitute significant continuing involvement in the operations of the disposed component. EITF No. 03-13 became effective with the fiscal year beginning January 30, 2005. Prior to the effective date of EITF No. 03-13, the Company was already reporting certain closed stores as discontinued operations (see footnote 7). Therefore, adopting this new guidance did not impact the Company’s financial position, results of operations or cash flows.

Store Opening Costs

Non-capital expenditures incurred in preparation for opening new retail stores are expensed as incurred.

Store Closing Costs

The Company continually evaluates the profitability of its stores. When the Company closes or relocates a store, the Company incurs unrecoverable costs, including net book value of abandoned fixtures and leasehold improvements, lease termination payments, costs to transfer inventory and usable fixtures and other costs of vacating the leased location. Such costs are primarily expensed as incurred and are included in selling, general and administrative costs. During fiscal 2008, 2007 and 2006, the Company recognized store closing costs of $599,810, $418,000 and $40,000, respectively.

Advertising Costs

The costs of advertising are expensed as incurred. Advertising costs, net of applicable vendor reimbursements of $1,756,487, $1,413,000 and $1,647,000, are charged to operating, selling and administrative expenses, and totaled $3,801,000, $3,629,000 and $3,578,000 for fiscal years 2008, 2007 and 2006, respectively.

Insurance Accruals

The Company is subject to large deductibles under its workers’ compensation and health insurance policies. Amounts are accrued currently for the estimated cost of claims incurred, both reported and unreported.

Income Taxes

Accounts Receivable and Allowance for Doubtful Accounts

Receivables represent customer, landlord and other receivables due within one year and are net of any allowance for doubtful accounts. Net receivables were $10,230,000 and $10,171,000 for February 2, 2008 and February 3, 2007, respectively. Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The collectability of trade receivable balances is regularly evaluated based on a combination of factors such as customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment patterns. If it is determined that a customer will be unable to fully meet its financial obligation, such as the case of a bankruptcy filing or other material events impacting its business, a specific reserve for doubtful accounts is recorded to reduce the related receivable to the amount expected to be recovered.

2008 Annual Report

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers all short-term, highly liquid investments with original maturities of 90 days or less to be cash equivalents.

Sales and Use Tax Contingencies

The Company is subject to potential ongoing sales and use tax audits, income tax audits and other tax issues for both its retail and electronic commerce segments. It is the policy of the Company to estimate any potential tax contingency liabilities based on various factors such as ongoing state and federal tax audits, historical results of audits at the state or federal level and specific tax issues. Accruals for potential tax contingencies are recorded by the Company when they are deemed to have a probable likelihood of a liability and the liability can be reasonably estimated.

Stockholders' Equity

Basic net income per share (“EPS”) 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, using the treasury stock method that could occur if stock options are exercised or restricted stock granted to employees vested and resulted in an increase 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 and restricted stock, if dilutive, in each respective year. A reconciliation of the weighted average shares for basic and diluted EPS is as follows:

	Fiscal Year Ended
(In thousands)	2/2/08	2/3/07	1/28/06
Weighted average shares outstanding:
Basic	16,089	16,352	16,276
Dilutive effect of stock options and restricted stock outstanding	213	453	612
Diluted	16,302	16,805	16,888

Weighted options outstanding of 0, 0 and 94,000 for the years ended February 2, 2008, February 3, 2007 and January 28, 2006, respectively, were not included in the table above as they were anti-dilutive in those periods.

In March 2004, the Board of Directors authorized a common stock repurchase program for up to 1.6 million shares, or 10% of the outstanding stock (“The March 2004 Plan”). Under the March 2004 Plan, the Company repurchased a total of 1,452,000 shares at a cost of $13,667,000. This plan is now discontinued.

On June 8, 2006, the Board approved a new stock repurchase program (“The June 2006 Plan”). The program authorized the repurchase of up to $10 million in shares of the Company’s common stock over the next twelve months, but no specific number of shares was approved. This stock repurchase program replaced the March 2004 Plan.

On August 23, 2006, the Board approved an additional stock repurchase program (“The August 2006 Plan”). This program authorized the repurchase of up to additional $25 million in shares of the Company’s common stock over the next eighteen months. This program is in addition to the June 2006 Plan to repurchase up to $10 million in shares of common stock. Under the August 2006 Plan, the Company repurchased 1,399,000 and 300,000 shares at a cost of $20,054,000 and $4,436,000 during the fiscal years ended February 2, 2008 and February 3, 2007, respectively. This plan expired on February 23, 2008. On March 26, 2008, the Board of Directors authorized a new common stock repurchase program for up to $5 million. The plan will expire on April 30, 2009.

Additionally, in June 2005 the Company commenced a modified “Dutch Auction” tender offer (the “Tender Offer”) to purchase up to 4,000,000 shares of its outstanding common stock at a price per share of not less than $8.75 nor in excess of $10.00 per share, for an aggregate purchase price of up to $40.0 million. Pursuant to the Tender Offer, the Company purchased 56,406 shares of common stock at a purchase price of $10.00 per share, plus expenses for completing the Tender Offer, for a total cost of $1,040,000.

Disclosure of Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are reflected in the accompanying financial statements at cost, which approximates fair value because of the short-term maturity of these instruments. Investments are reflected in the accompanying financial statements at current market value. Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities at February 2, 2008 and February 3, 2007, the Company’s debt approximates fair value.

2008 Annual Report

Stock-Based Compensation

On January 29, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share-Based Payment,”which revises SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R) requires the Company to recognize expense related to the fair value of its stock-based compensation awards, including employee stock options.

Prior to the adoption of SFAS No. 123(R), the Company accounted for stock-based compensation awards using the intrinsic value method as required by APB Opinion 25. Accordingly, the Company did not recognize compensation expense in the statement of income for options granted that had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. However, the Company did record compensation expense related to restricted stock units based on the market value of its stock at the date of grant. As required by SFAS No. 123, the Company also provided certain pro forma disclosures for stock-based awards as if the fair-value-based approach of SFAS No. 123 had been applied.

The Company used the modified prospective transition method as permitted by SFAS No. 123(R) and, therefore, has not restated its financial results for prior periods. Under this transition method, the Company applied the provisions of SFAS No. 123(R) to new awards and to awards modified, repurchased or cancelled after January 29, 2006. In addition, the Company will recognize compensation cost for the portion of awards for which the requisite service has not been rendered (unvested awards) that are outstanding as of January 29, 2006, as the remaining service is rendered. The compensation cost recorded for these awards is based on their grant-date fair value as calculated for the pro forma disclosures required by SFAS No. 123.

Prior to fiscal 2007, the Company accounted for stock-based employee compensation under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost for this plan is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and net income per common share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 148 (“SFAS 148”) “Accounting for Stock-Based Compensation- Transaction and Disclosure – an Amendment of FASB Statement No. 123” to stock-based employee compensation:

	Fiscal Year Ended
(In thousands, except per share amounts)	1/28/06
Net income, as reported	$13,067
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax effects	541
Pro forma net income	$12,526
Net income per common share:
Basic – as reported	$ 0.80
Basic – pro forma	$ 0.76
Diluted – as reported	$ 0.77
Diluted – pro forma	$ 0.74

The Company’s pre-tax compensation cost for stock-based employee compensation was $1,466,000 ($904,000 net of taxes), $1,559,000 ($982,000 net of taxes) and $448,000 ($270,000 net of taxes) for the years ended February 2, 2008, February 3, 2007 and January 28, 2006, respectively.

Prior to the adoption of SFAS No. 123(R), the Company presented all tax benefits resulting from the exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS No. 123(R) requires that cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) be classified as financing cash flows. For the year ended February 2, 2008, $1,638,000 of such excess tax benefits was classified as financing cash flows. Excess tax benefits for the years ended February 3, 2007 and January 28, 2006 were $2,567,000 and $613,000, respectively.

Accounting for Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133,”and SFAS No. 138, “Accounting for Certain Derivatives and Certain Hedging Activities,” and SFAS No.149, “Amendment of SFAS No. 133 on Derivatives and Hedging Activities.” SFAS No. 133 established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. At February 2, 2008 and February 3, 2007, liabilities related to derivatives were classified as other long-term liabilities of $0 and $0, respectively.

2008 Annual Report

Comprehensive Income (Loss)

Comprehensive income (loss) is net income or loss, plus certain other items that are recorded directly to stockholders’ equity. The only such items currently applicable to the Company are the unrealized gains (losses) on the derivative instruments explained in Note 3.

Recent Accounting Pronouncements

2008 Annual Report

2.	Income Taxes

A summary of the components of the income tax provision is as follows (in thousands):

Fiscal Year Ended

2/2/08

2/3/07

1/28/06

Current:

Federal

$6,304

$10,089

$6,495

State

314

553

899

$6,618

$10,642

$7,394

Deferred:

Federal

$2,481

$338

$1,000

State

453

127

162

2,934

465

1,162

Provision for income taxes

$9,552

$11,107

$8,556

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

	Fiscal Year Ended
	2/2/08	2/3/07	1/28/06

Federal statutory income tax rate	35.0%	35.0%	35.0%
State income tax provision	2.1%	1.7%	3.5%
Nondeductible meals and entertainment expense	0.3%	0.2%	0.3%
Other	0.1%	0.1%	0.8%
Federal tax credits	(0.9%)	--	--
Effective income tax rate	36.6%	37.0%	39.6%

Temporary differences (in thousands) which created deferred tax assets (liabilities) at February 2, 2008 and February 3, 2007, are as follows:

2/2/08

As of 2/3/07

Current

Noncurrent

Current

Noncurrent

Depreciation

$ --

$ (628)

$ --

$ (1,215)

Accruals

2,261

--

2,639

--

Inventory

(8,672)

--

(5,769)

--

State net operating loss carry forwards

--

--

--

204

Deferred Rent

695

3,418

822

3,680

Prepaids

(1,435)

--

(1,477)

--

Amortization

--

(358)

--

(303)

Allowance for bad debts

305

--

293

--

State tax

--

19

--

(139)

(6,846)

2,451

(3,492)

2,227

Less: Valuation allowances

--

--

--

(196)

Deferred tax asset (liability)

$(6,846)

$2,451

$ (3,492)

$ 2,031

2008 Annual Report

In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109" ("FIN 48"), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. The Company adopted the provisions of FIN 48 on February 4, 2007. As a result of the implementation of FIN 48, the Company has recognized an increase of $2.0 million in the liability for unrecognized tax benefits, which was accounted for as a decrease to the balance of retained earnings. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $2.0 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


Balance at February 4, 2007	$	2,227
Additions based on tax positions related to current year		350
Expiration of statute of limitation		( 403)

Balance at February 2, 2008	$	2,174

The Company and its subsidiaries are subject to United States federal income tax as well as income tax of multiple state jurisdictions. In many cases these uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. The Company has operations in various state jurisdictions that are currently under audit for years ranging from 2001 through 2006. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-United States, income tax examinations for years prior to 2004.

It is reasonably possible that the amount of unrecognized tax benefits will increase or decrease in the next twelve months. These changes may be the result of settlement of ongoing state audits. It is expected that certain state audits will be completed in the next 12 months resulting in a reduction of the liability for unrecognized tax benefits of $0.1 million. Depending on the outcome of these audits, the reduction of the liability for unrecognized tax benefits discussed above may affect the effective tax rate.

The Company's policy is to record interest and penalties related to income tax matters in income tax expense. Accrued interest and penalties were $0.68 million and $0.68 million as of February 2, 2008 and February 3, 2007, respectively. During fiscal year 2008 the Company recognized interest and penalties of $0.03 million.

A valuation allowance was established at the end of the previous fiscal year for net deferred taxes for a wholly-owned subsidiary. As of February 2, 2008, that entity was merged out of existence into the parent company. As a result, the net operating losses of that subsidiary are no longer available, and a valuation allowance is deemed unnecessary, as the realization of the remaining net operating losses is considered more likely than not.

3.	Debt and Lines of Credit

The Company’s current credit facility allows for unsecured borrowings up to $100 million which expires in July 2011. Availability under the facility is reduced by outstanding letters of credit issued there under. Interest on borrowings under the credit facility is determined based upon applicable LIBOR rates and the Company’s rate spread, which varies depending on the maintenance of certain covenants. The credit facility contains financial and non-financial covenants, the most restrictive of which is the maintenance of a minimum fixed charge coverage ratio. The Company was in compliance with all covenants for fiscal 2008 and as of February 2, 2008. The outstanding balance under this credit facility as of February 2, 2008 and February 3, 2007, was $28.0 million and $0, respectively, and the face amount of letters of credit issued under the facility was $2.4 million and $2.9 million, respectively. The maximum and average outstanding borrowings under the credit facility (excluding the face amount of letters of credit issued there under) during fiscal 2008 were $55.9 million and $20.7 million, respectively. The outstanding amount is considered short-term in the financial statements because all borrowings under the credit facility are due in 12 months or less.

The Company is subject to interest rate fluctuations on borrowings under its credit facility. To manage this exposure, the Company has used interest rate swaps in the past to fix the interest rate on variable debt. The Company entered into two separate $10.0 million swaps on July 24, 2002. Both expired in August 2005 and, prior to the payoff of the debt, effectively fixed the interest rate on $20.0 million of variable debt at 5.13%. The Company did not replace the swaps at expiration.

2008 Annual Report

During fiscal 1996 and fiscal 1995, the Company acquired and constructed certain warehouse and distribution facilities with the proceeds of loans made pursuant to an industrial development revenue bond (the “Bond”), which was secured by a mortgage interest in these facilities. As of February 2, 2008 and February 3, 2007, there was $7.0 million and $7.1 million of borrowings outstanding, respectively, under these arrangements, which bear interest at variable rates (4.25% as of February 2, 2008). The Bond has a maturity date of December 1, 2019, with a purchase provision obligating the Company to repurchase the Bond, unless extended by the bondholder. In fiscal 2007, an unrelated bank purchased the Bond from the existing bondholder, and the new bondholder extended the date of the Company’s purchase obligation of the Bond until July 1, 2011 and did not require a mortgage interest to secure the bond. Such an extension may be renewed annually by the bondholder, at the Company’s request, to a date no more than five years from the renewal date. The Company entered into a $7.5 million interest rate swap in May 1996 that expired on June 7, 2006 and effectively fixed the interest rate on the Bond during that period at 8.73% (the “Bond Hedge”). The Company did not replace the Bond Hedge when it expired.

The Company’s hedges were designated as cash flow hedges because they are interest rate swaps that convert variable payments to fixed payments. Cash flow hedges protect against the variability in future cash outflows of current or forecasted debt and related interest expense. The changes in the fair value of these hedges are reported on the balance sheet with a corresponding adjustment to accumulated other comprehensive income (loss) or in earnings, depending on the type of hedging relationship. Over time, the amounts held in accumulated other comprehensive income (loss) were reclassified to earnings if the hedge transaction became ineffective.

Prior to its expiration, the Bond Hedge was reported as a liability in the accompanying consolidated balance sheets at a fair value of $61,000 as of January 28, 2006. For the fiscal years ending February 3, 2007 and January 28, 2006, adjustments of $7,000, and $141,000 were recorded as unrealized gains in accumulated other comprehensive income (loss), after tax. During fiscal 2006, a portion of the bond hedge no longer qualified for hedge accounting under SFAS No. 133. Therefore, the Company de-designated a portion of the hedge resulting in an expense of $47,000 in fiscal 2006. During fiscal 2005, one of the $10 million interest rate swaps no longer qualified for hedge accounting under SFAS No. 133 and the Company de-designated the hedge resulting in an expense of $27,000 in fiscal 2005.

4.	Leases

The Company leases the premises for its retail bookstores under operating leases, which expire in various years through the year 2022. Many of these leases contain renewal options and require the Company to pay executory costs (such as property taxes, maintenance, and insurance). In addition to fixed minimum rentals, some of the Company’s leases require contingent rentals based on a percentage of sales. The Company also has minimal operating leases for equipment and trailer trucks.

Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of February 2, 2008 are as follows (in thousands):

Fiscal Year	Future Minimum Rent
2009	$ 30,297
2010	24,752
2011	19,991
2012	14,730
2013	11,521
Subsequent years	31,810
Total	$133,101

Rental expense for all operating leases consisted of the following (in thousands):

	Fiscal Year Ended
	2/2/08	2/3/07	1/28/06
Minimum rentals	$35,347	$33,205	$30,944
Contingent rentals	(25)	53	249
Total	$35,322	$33,258	$31,193

5.	Employee Benefit Plans

401(k) Profit-Sharing Plan

The Company and its subsidiaries maintain a 401(k) plan covering all employees who have completed six months of service and who are at least 21 years of age, and permit participants to contribute from 1% to 15% of compensation and participants over 50 years of age are allowed to make catch-up contributions. Limits to contributions by employees are established by the Internal Revenue Code. Company matching and supplemental contributions are made at management’s discretion. Company matching contributions were 50%, 70% and 70% for fiscal 2008, 2007 and 2006, respectively. The employer contributions are made on employee contributions up to a maximum of 6% of the employee’s salary. The expense under this plan was $744,000, $472,000 and $806,000 in fiscal 2008, 2007 and 2006, respectively.

2008 Annual Report

2005 Incentive Award Plan

On June 1, 2005, the stockholders of the Company approved the adoption of the Books-A-Million, Inc. 2005 Incentive Award Plan (the “2005 Plan”) for a total of 300,000 shares. On June 8, 2006, the stockholders of the Company approved an additional 300,000 shares to be awarded under the Plan. An aggregate of 600,000 shares of common stock may be awarded under the 2005 Plan. From June 1, 2005 through February 2, 2008, awards under the 2005 Plan consisted solely of awards of restricted stock. Each year the compensation committee makes awards to the Company’s officers and key employees pursuant to the terms of the plan. In addition, directors who have served eleven consecutive months are eligible for awards as well as new directors appointed to the Board. Shares granted under the 2005 Plan (net of cancellations) were 81,475, 161,800 and 78,933 in fiscal 2008, 2007 and 2006, respectively. The compensation expense related to these grants is being expensed over the vesting period for the individual grants. The Company has recorded $1,425,000 and $643,000 of stock-based compensation for the restricted stock grants in fiscal 2008 and 2007, respectively.

There are two types of restricted stock awards to employees. The first type of restricted stock award is “career based shares.” Career based shares are completely unvested until the last day of the fifth fiscal year after the date of the grant whereupon such career based shares vest in full if the employee who received the grant is then employed by the Company. The compensation expense for these shares is recognized ratably over the five-year requisite service period. The second type of restricted stock award is “performance based shares.” Performance based shares are earned based on the achievement of certain performance goals for the fiscal year in which they are granted. If the performance goals are met, the performance based shares vest in 50% increments at the end of the first and second fiscal years after the fiscal year in which they were granted if the employee who received the grant is then employed by the Company. Compensation expense for these shares is recognized ratably over the period beginning on the date the Company determines that it is probable the performance goals will be achieved and ending on the last day of the vesting period.

Additionally, there are annual restricted stock grants to directors. Each director who has served at least eleven consecutive months as of the Company’s annual meeting of stockholders receives a restricted stock grant, which shares of restricted stock vest in one-third increments on each of the first, second and third anniversaries of the grant date. The expense related to the directors’ grants is recognized ratably over the three-year vesting period.

Executive Incentive Plan

The Company maintains an Executive Incentive Plan (the “Incentive Plan”). The Incentive Plan provides for awards to certain executive officers of either cash or shares of restricted stock. The Company has always issued awards in the form of restricted stock. Issuance of awards under the Incentive Plan is based on the Company achieving pre-established performance goals during a three consecutive fiscal year performance period. Awards issued under the Incentive Plan for a particular performance period vest on the third anniversary of the last day of such performance period if the recipient remains employed by the Company on such vesting date. Awards under the Incentive Plan are expensed ratably over the period from the date that the issuance of such awards becomes probable through the end of the restriction period. Awards granted under the Incentive Plan for the two year performance periods ended February 3, 2007 and January 28, 2006 totaled $100,000 (6,707 shares) and $592,000 (50,824 shares), respectively. The final grant for the Incentive Plan was awarded in March 2006 for the January 28, 2006 three year performance period. There will be no future awards under the Incentive Plan.

Restricted Stock Table

A combined summary of the status of restricted stock grants to employees and directors under the 2005 Incentive Award Plan and the Executive Incentive Plan is as follows (shares in thousands):

	Fiscal Year Ended
	February 2, 2008		February 3, 2007
	Shares	Weighted Average Grant Date Fair Value	Shares	Weighted Average Grant Date Fair Value
Shares at beginning of period	281	$11.56	214	$ 9.70
Shares granted	87	$14.16	169	$12.29
Shares vested	(92)	$11.35	(66)	$ 7.82
Shares forfeited	(5)	$13.14	(36)	$10.72
Shares at end of period	271	$12.44	281 271	$11.56

2008 Annual Report

Stock Option Plan

In April 1999, the Company adopted the Stock Option Plan which provided for option grants to executive officers, directors, and key employees. Upon the approval of the 2005 Incentive Award Plan by the Company’s stockholders at the Company’s annual meeting held in June 2005, the board determined that no more awards would be made under the Stock Option Plan. Options previously issued under the Stock Option Plan remain valid. All options granted prior to January 9, 2001 vested over a five-year period and expired on the sixth anniversary of the date of grant, and all options granted on and after January 9, 2001 vest over a three-year period and expire on the tenth anniversary of the date of grant. All options have exercise prices equal to the fair market value of the common stock on the date of grant. A summary of the status of the Company’s stock option plan is as follows (shares in thousands):

	Fiscal Year Ended
	February 2, 2008		February 3, 2007		January 28, 2006
	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
Outstanding at beginning of year	270	$5.09	814	$3.77	1,506	$ 5.19
Granted	--	--	--	N/A	--	N/A
Exercised	(226)	5.05	(540)	3.11	(640)	6.82
Forfeited	(1)	5.76	(4)	4.80	(52)	7.13
Outstanding at end of year	43	$5.31	270	$5.09	814	$ 3.77
Exercisable at end of year	43	$5.31	268	$5.08	566	$ 3.30

During fiscal years 2008, 2007 and 2006, the Company recognized tax benefits related to the exercise of stock options in the amount of $1,638,000, $2,567,000 and $613,000, respectively. The tax benefits were credited to paid-in capital in the respective years.

The total intrinsic value of stock options exercised during the year ended February 2, 2008 was $2,159,725.

The following table summarizes information about stock options outstanding as of February 2, 2008 (shares in thousands):

	Options Outstanding			Options Exercisable
Range of Exercise Price	Number Oustanding at February 2, 2008	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Number Exercisable at February 2, 2008	Weighted Average Exercise Price
$1.69 - $ 2.37	11	4.81	$2.31	11	$2.31
$2.68 - $ 5.85	7	4.00	$3.04	7	$3.04
$6.13 - $9.62	25	6.21	$7.25	25	$7.25
Totals	43	5.50	$5.31	43	$5.31

The aggregate intrinsic values of outstanding options and exercisable options under the Stock Option Plan at February 2, 2008 were $399,000 and $399,000, respectively.

Other Information

As of February 2, 2008 the Company has $2,436,000 of total unrecognized compensation cost related to non-vested awards granted under our various share-based plans, which it expects to recognize over the following fiscal years:

Fiscal Year		Stock-based Compensation Expense
2009		$ 1,276,000
2010		$ 539,000
2011		$ 405,000
2012		$ 216,000
Total		$ 2,436,000

The Company received cash from options exercised during the fiscal years 2008, 2007 and 2006 of $1,139,000, $1,680,000, and $4,347,000 respectively. The impact of these cash receipts is included in financing activities in the accompanying Consolidated Statements of Cash Flows.

2008 Annual Report

The number of shares of common stock currently reserved under the 2005 Plan for stock-based compensation programs as of February 2, 2008 is 271,852 shares.

Employee Stock Purchase Plan

The Company maintains an employee stock purchase plan under which 400,000 shares of the Company’s common stock are reserved for purchase by employees at 85% of the fair market value of the common stock at the lower of the market value for the Company’s stock as of the beginning of the fiscal year or the end of the fiscal year. Of the total reserved shares, 276,732, 268,167 and 258,902 shares have been purchased as of February 2, 2008, February 3, 2007 and January 28, 2006, respectively.

Executives’ Deferred Compensation Plan

During fiscal 2006, the Board adopted the Books-A-Million, Inc. Executives’ Deferred Compensation Plan (the “Executives’ Deferred Compensation Plan”). The Executives’ Deferred Compensation Plan provides a select group of management or highly compensated employees of the Company and certain of its subsidiaries (the “Participants”) with the opportunity to defer the receipt of certain cash compensation. Each Participant may elect to defer under the Executives’ Deferred Compensation Plan a portion of his or her cash compensation that may otherwise be payable in a calendar year. A Participant’s compensation deferrals are credited to the Participant’s bookkeeping account (the “Account”) maintained under the Executives’ Deferred Compensation Plan. Each Participant’s Account is credited with a deemed rate of interest and/or earnings or losses depending upon the investment performance of the deemed investment option.

With certain exceptions, a Participant’s Account will be paid after the earlier of: (1) a fixed payment date, as elected by the Participant (if any); or (2) the Participant’s separation from service with Company or its subsidiaries. Participants may generally elect that payments be made in a single sum or installments in the year specified by the Participant or upon their separation from service with the Company. Additionally, a Participant may elect to receive payment upon a Change of Control, as defined in, and to the extent permitted by, Section 409A of the Internal Revenue Code of 1986, as amended.

Directors’ Deferred Compensation Plan

During fiscal 2006, the Board adopted the Books-A-Million, Inc. Directors’ Deferred Compensation Plan (the “Directors’ Deferred Compensation Plan”). The Directors’ Deferred Compensation Plan provides the Non-Employee Directors with the opportunity to defer the receipt of certain amounts payable for serving as a member of the Board (the “Fees”). A Non-Employee Director’s Fee deferrals are credited to the Non-Employee Director’s bookkeeping account (the “Account”) maintained under the Directors’ Deferred Compensation Plan. Each participating Non-Employee Director’s Account is credited with a deemed rate of interest and/or earnings or losses depending upon the investment performance of the deemed investment option.

With certain exceptions, a participating Non-Employee Director’s Account will be paid after the earlier of: (1) a fixed payment date, as elected by the participating Non-Employee Director (if any); or (2) the participating Non-Employee Director's separation from service on the Board. The participating Non-Employee Director may generally elect that payments be made in a single sum or installments in the year specified by the participating Non-Employee Director or upon the Non-Employee Director’s separation from service on the Board. Additionally, a participating Non-Employee Director may elect to receive payment upon a Change of Control, as defined in, and to the extent permitted by, Section 409A of the Internal Revenue Code of 1986, as amended.

6.	Related Party Transactions

Certain stockholders and directors (including certain officers) of the Company have controlling ownership interests in other entities with which the Company conducts business. Transactions between the Company and these various other entities (“related parties”) are summarized in the following paragraphs:

The Company purchases a substantial portion of its magazines as well as certain seasonal music and newspapers from Anderson Media Corporation (“Anderson Media”), an affiliate through common ownership. During fiscal 2008, 2007 and 2006, purchases of these items from Anderson Media totaled $25,514,000, $24,702,000 and $30,746,000, respectively. The Company purchases certain of its collectibles, gifts and books from Anderson Press, Inc. (“Anderson Press”), an affiliate through common ownership. During fiscal 2008, 2007 and 2006, such purchases from Anderson Press totaled $2,284,000, $1,423,000 and $1,272,000, respectively. The Company purchases certain of its greeting cards and gift products from C.R. Gibson, Inc., an affiliate through common ownership. The purchases of these items in fiscal 2008, 2007 and 2006 were $346,000, $447,000 and $223,000, respectively. The Company utilizes import sourcing and consolidation services from Anco Far East Importers, LTD (“Anco Far East”), an affiliate through common ownership. The total paid to Anco Far East was $2,622,000, $2,391,000 and $2,113,000 for fiscal 2008, 2007 and 2006, respectively. These amounts paid to Anco Far East primarily included the actual cost of the product, as well as fees for sourcing and consolidation services. All other costs, other than the sourcing and consolidation service fees, were passed through from other vendors. Anco Far East fees, net of the passed-through costs, for fiscal years 2008, 2007 and 2006 were $184,000, $167,000 and $148,000, respectively.

2008 Annual Report

The Company sold books to Anderson Media in the amounts of $3,653,000, $2,430,000 and $1,017,000 in fiscal 2008, 2007 and 2006, respectively.

The Company leases its principal executive offices from a trust, which was established for the benefit of the grandchildren of Mr. Charles C. Anderson, a former member of the Board of Directors. The lease term is month to month. During fiscal 2008, 2007 and 2006, the Company paid rent of $141,000, $137,000, and $137,000, respectively, to the trust under this lease. Anderson & Anderson LLC (“A&A”), which is an affiliate through common ownership, also leases three buildings to the Company. During fiscal 2008, 2007 and 2006, the Company paid A&A a total of $428,000, $448,000, and $445,000, respectively, in connection with such leases. There were no future minimum rental payments on any of the four leases at February 2, 2008. The Company subleases certain property to Hibbett Sports, Inc. (“Hibbett”), a sporting goods retailer in the southeastern United States. The Company’s Executive Chairman, Clyde B. Anderson, is a member of Hibbett’s board of directors. Effective March 14, 2008, Terry Finley, President Books-A-Million, Inc. Merchandising Group, was appointed to the board of directors of Hibbett. During fiscal 2008, 2007 and 2006, the Company received $236,000, $191,000, and $191,000, respectively, in rental payments from Hibbett.

The Company shares ownership of a plane, which the Company uses in the operations of its business, with an affiliated company. The Company rents the plane to affiliated companies at rates that cover all the variable costs and a portion of the fixed costs of operating the plane. The total amounts received from affiliated companies for use of the plane in fiscal 2008, 2007 and 2006 were $668,000, $388,000 and $146,000, respectively. The Company also occasionally rents a plane from A&A at rates that cover all of the variable costs and a portion of the fixed costs of operating the plane. The amounts paid to A&A for plane rental were $110,000, $47,000 and $70,000 for fiscal 2008, 2007 and 2006, respectively.

7.	Income or (Loss) from Discontinued Operations

The Company closed one store in fiscal 2008 in a market located in Georgia and one store in a market located in Indiana where the Company does not expect another of its existing stores to absorb the closed store customers. The store sales and operating results for fiscal 2008 have not been included in discontinued operations because the impact on the financial statements was immaterial. The Company continues to report in discontinued operations stores closed in prior years where the Company does not expect to retain the closed stores’ customers at another store. For fiscal 2008 the closed stores had sales of $1.5 million and pretax operating loss of $382,000.

The Company closed one store in fiscal 2007 in a market located in Georgia where the Company does not expect another of its existing stores to absorb the closed store customers. The store sales and operating results for fiscal 2007 have not been included in discontinued operations because the impact on the financial statements was immaterial. The Company continues to report in discontinued operations stores closed in prior years where the Company does not expect to retain the closed stores’ customers at another store. For fiscal 2007 the closed store had sales of $139,000 and pretax operating loss of $90,000.

Discontinued operations represent the results for the closed stores for the years presented due to the fiscal 2006 closure of two retail stores in markets located in Tennessee and West Virginia where the Company does not expect another of its existing stores to absorb the closed store customers. For fiscal 2006 the closed stores had sales of $689,000 and pretax operating income of $27,000. Also included in the loss on discontinued operations are store closing costs of $20,000 for fiscal 2006.

2008 Annual Report

8.	Business Segments

The Company has two reportable segments: retail trade and electronic commerce trade. The retail trade segment is a strategic business segment that is engaged in the retail trade of mostly book merchandise and includes the Company’s distribution center operations, which supplies merchandise predominantly to the Company’s retail stores. The electronic commerce trade segment is a strategic business segment that transacts business over the Internet and is managed separately due to divergent technology and marketing requirements. The Company evaluates performance of the segments based on profit and loss from operations before interest and income taxes. Certain intersegment cost allocations have been made based upon consolidated and segment revenues. Shipping income related to internet sales is included in net sales, and shipping expense is included in cost of sales.

		Fiscal Year Ended
Segment information (in thousands)	2/2/08	2/3/07	1/28/06
Net Sales
Retail Trade	$528,606	$512,967	$496,609
Electronic Commerce Trade	26,992	26,048	27,605
Intersegment Sales Elimination	(20,470)	(18,599)	(20,463)
Net Sales	$535,128	$520,416	$503,751

Operating Profit
Retail Trade	$26,911	$ 29,223	$ 22,431
Electronic Commerce Trade	1,462	1,400	1,027
Intersegment Elimination of Certain Costs	(953)	(524)	(421)
Total Operating Profit	$27,420	$ 30,099	$ 23,037

Assets
Retail Trade	$283,452	$303,110	$310,447
Electronic Commerce Trade	1,381	927	1,286
Intersegment Sales Elimination	--	--	(74)
Total Assets	$284,833	$304,037	$311,659

9.	Commitments and 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, results of operations or cash flows of the Company.

From time to time, the Company enters into certain types of agreements that require the Company to indemnify parties against third party claims. Generally, these agreements relate to: (a) agreements with vendors and suppliers, under which the Company may provide customary indemnification to its vendors and suppliers in respect of actions they take at the Company’s request or otherwise on its behalf, (b) agreements with vendors who publish books or manufacture merchandise specifically for the Company to indemnify the vendors against trademark and copyright infringement claims concerning the books published or merchandise manufactured on behalf of the Company, (c) real estate leases, under which the Company may agree to indemnify the lessors for claims arising from the Company’s use of the property, and (d) agreements with the Company’s directors, officers and employees, under which the Company may agree to indemnify such persons for liabilities arising out of their relationship with the Company. The Company has Directors and Officers Liability Insurance, which, subject to the policy’s conditions, provides coverage for indemnification amounts payable by the Company with respect to its 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 each of February 2, 2008 and February 3, 2007, as such liabilities are considered de minimis.

10.

Gain on Insurance Recoveries

2008 Annual Report

11.

Cash Dividend

On March 26, 2008, the Board of Directors declared a quarterly dividend of $0.09 per share to be paid on April 23, 2008 to stockholders of record at the close of business on April 9, 2008. The Company intends to pay quarterly dividends in the future, subject to Board approval.

12.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

	As of 2/2/08	As of 2/3/07
Accrued expenses:
Salaries, wages and employee benefits	$7,756	$ 7,548
Giftcard liabilities to customers	10,273	9,612
Deferred club card income	6,623	5,399
Taxes, other than income	5,734	4,992
Rent	2,237	2,754
Other	8,916	8,279
	$41,539	$38,584

13. Summary of Quarterly Results (Unaudited)

The following tables set forth certain unaudited financial data for the quarters indicated:

	Fiscal Year Ended February 2, 2008
	First	Second	Third	Fourth		Total
(In thousands, except per share amounts)	Quarter	Quarter	Quarter	Quarter		Year
Net revenue	$116,318	$132,802	$117,696	$168,312		$535,128
Gross profit	33,759	37,692	32,095	55,002		158,548
Operating profit (loss)	3,454	4,865	(524)	19,625		27,420
Net income (loss)	2,111	3,100	(555)	11,866		16,522
Net income (loss) per share – basic	0.13	0.19	(0.03)	0.77		1.03
Net income (loss) per share – diluted	0.13	0.19	(0.03)	0.76		1.01

	Fiscal Year Ended February 3, 2007
	First	Second	Third	Fourth (2)	Total
(In thousands, except per share amounts)	Quarter	Quarter	Quarter	Quarter	Year
Net revenue	$113,887	$121,209	$110,692	$174,628	$520,416
Gross profit	32,610	34,918	29,087	60,113	156,728
Operating profit (loss)	2,592	4,053	(314)	23,768	30,099
Net income (loss)	1,512	2,457	(201)	15,119	18,887
Net income (loss) per share – basic ⁽¹⁾	0.09	0.15	(0.01)	0.92	1.16
Net income (loss) per share – diluted	0.09	0.14	(0.01)	0.90	1.12

(1) The sum of the quarterly amounts are different from the annual per share amounts because of differences in the weighted average number of common and common equivalents shares used in the quarterly and annual computations.

(2) The Company changed its estimate of gift card liabilities which resulted in recognition of $2.3 million in gift card breakage income during the fourth quarter of fiscal 2007 as disclosed in note 1.

2008 Annual Report

DIRECTORS AND CORPORATE OFFICERS

Board of Directors	Corporate Officers

Clyde B. Anderson	Clyde B. Anderson
Executive Chairman of the Board	Executive Chairman of the Board

Sandra B. Cochran	Sandra B. Cochran
President, Chief Executive Officer and Secretary	President and Chief Executive Officer

Terry C. Anderson	Terrance G. Finley
Chief Executive Officer and President,	President, Books-A-Million, Inc. Merchandising Group
American Promotional Events, Inc.
	Douglas G. Markham
Ronald G. Bruno	Chief Financial Officer and Secretary
President,
Bruno Capital Management Corporation

Albert C. Johnson
Independent Financial Consultant and Retired Partner, Arthur Andersen LLP

Dr. J. Barry Mason,
Dean, Culverhouse College of Commerce
The University of Alabama

William H. Rogers, Jr.
Executive Vice President,
SunTrust Banks, Inc.

2008 Annual Report

CORPORATE INFORMATION

Corporate Office

Books-A-Million, Inc.

402 Industrial Lane

Birmingham, Alabama 35211

(205) 942-3737

Transfer Agent

Wells Fargo Shareowner Services

(800) 468-9716

Stockholder Inquiries Address:

161 North Concord Exchange

South St. Paul, Minnesota 55075

E-Mail address: stocktransfer@wellsfargo.com

Wells Fargo Stock Transfer Website: www.wellsfargo.com/com/shareowner_services/index

Certificates for Transfer and Address Changes to:

Shareowner Services

Post Office Box 64854

St Paul, Minnesota 55164-0854

Fax: (651) 450-4033

Independent Registered Public Accounting Firm

Grant Thornton LLP

Atlanta, Georgia

Form 10-K and Investor Contact

A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2008, as filed with the Securities and Exchange Commission, as well as key committee charters and code of conduct, are available without charge to stockholders upon written request. Such requests and other investor inquiries should be directed to Douglas G. Markham, the Company’s Chief Financial Officer, or you can view those items at www.booksamillioninc.com.

Market and Dividend Information

Common Stock

The Common Stock of Books-A-Million, Inc., is traded in the NASDAQ Global Select Market under the symbol BAMM. The chart below sets forth the high and low stock prices for each quarter of the fiscal years ending February 2, 2008 and February 3, 2007.

Quarter Ended	High	Low	Dividends Declared
January 2008	$13.72	$10.05	$0.09
October 2007	14.78	11.95	0.09
July 2007	20.37	15.03	3.09
April 2007	19.04	13.88	0.09
January 2007	22.69	18.65	0.09
October 2006	20.11	14.64	0.08
July 2006	18.49	14.00	0.08
April 2006	13.45	10.62	0.08

The closing price on March 28, 2008 was $9.05. As of that date Books-A-Million, Inc. had approximately 6,718 stockholders based on the number of individual participants represented by security position listings.

2008 Annual Report

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*

Among Books-A-Million, Inc., The NASDAQ Composite Index and The NASDAQ Retail Trade Stock Index

The following indexed line graph indicates the Company’s total return to stockholder’s from January 31, 2003 to February 1, 2008, the last trading day prior to the Company’s 2008 fiscal year end, as compared to the total return for the NASDAQ Composite Index and the NASDAQ Retail Trade Stock Index for the same period.

	Jan 31,	Jan 30,	Jan 28,	Jan 27,	Feb 2,	Feb 1,
	2003	2004	2005	2006	2007	2008
Books-A-Million, Inc.	$100	$213	$306	$373	$613	$454
NASDAQ Composite Index	$100	$109	$107	$122	$131	$183
NASDAQ Retail Trade Stocks	$100	$119	$143	$155	$168	$185

This graph is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. This graph shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise noted in such filing.

ANNUAL MEETING OF STOCKHOLDERS

The annual meeting of stockholders will be held on May 29, 2008, at 10:00 a.m. central time, at the corporate offices of the company, 402 Industrial Lane, Birmingham, Alabama 35211. Stockholders of record as of March 28, 2008, are invited to attend this meeting.

2008 Annual Report

402 Industrial Lane

Birmingham, Alabama 35211

www.booksamillioninc.com

	2/2/08				As of 2/3/07
		Current	Noncurrent	Current		Noncurrent
Depreciation		$ --	$ (628)	$ --		$ (1,215)
Accruals		2,261	--	2,639		--
Inventory		(8,672)	--	(5,769)		--
State net operating loss carry forwards		--	--	--		204
Deferred Rent		695	3,418	822		3,680
Prepaids		(1,435)	--	(1,477)		--
Amortization		--	(358)	--		(303)
Allowance for bad debts		305	--	293		--
State tax		--	19	--		(139)
		(6,846)	2,451	(3,492)		2,227
Less: Valuation allowances		--	--	--		(196)
Deferred tax asset (liability)		$(6,846)	$2,451	$ (3,492)		$ 2,031

Name of Subsidiary	State of Organization
American Wholesale Book Company, Inc.	Alabama
Booksamillion.com, inc.	Alabama
BAM Card Services, LLC	Virginia