<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

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 18 states and the District of Columbia. The Company operates three
distinct store formats, including large superstores operating under the names
Books-A-Million and Books & Co., traditional bookstores operating under the
names Books-A-Million and Bookland, and Joe Muggs Newsstands. The Company's
wholesale operations include American Wholesale Book Company and Book$mart, both
based in Florence, Alabama.

FIVE-YEAR HIGHLIGHTS

<TABLE>
<CAPTION>
                                                                           FOR THE FISCAL YEAR ENDED
                                                     -------------------------------------------------------------------
(In thousands, except per share amounts)             1/31/04 (1)    2/1/03 (2)     2/2/02        2/3/01      1/29/00 (3)
----------------------------------------             -----------   -----------   -----------   -----------   -----------
<S>                                                  <C>           <C>           <C>           <C>           <C>
                                                      52 WEEKS      52 weeks      52 weeks      53 weeks      52 weeks
STATEMENT OF OPERATIONS DATA
Net sales                                            $   460,159   $   438,215   $   437,583   $   412,876   $   397,188
Income before cumulative effect of a change
    in accounting principle (2)                            7,201         2,602         3,919         2,980         5,851
Net income                                                 7,201         1,401         3,919         2,980         5,851
Earnings per share - diluted, before cumulative
    effect of a change in accounting principle (2)          0.43          0.16          0.23          0.17          0.32
Earnings per share - diluted                                0.43          0.08          0.23          0.17          0.32
Weighted average shares - diluted                         16,789        16,566        16,945        17,991        18,250
Capital investment                                         9,008        17,042        11,709        12,417        13,462

BALANCE SHEET DATA
Property and equipment, net                          $    49,177   $    57,146   $    56,716   $    60,659   $    64,232
Total assets                                             285,679       307,718       294,858       292,199       287,327
Long-term debt                                            20,640        44,942        38,846        41,526        35,936
Stockholders' equity                                     131,250       122,868       121,338       122,259       120,520

OTHER DATA
Working capital                                      $   104,420   $   112,596   $   105,483   $   103,153   $    92,987
Debt to total capital ratio                                 0.14          0.27          0.24          0.25          0.23

OPERATIONAL DATA
Total number of stores                                       202           207           204           185           180
Number of superstores                                        163           163           157           145           135
Number of traditional stores                                  35            37            40            37            43
Number of Joe Muggs newsstands                                 4             7             7             3             2
</TABLE>

(1)  Effective February 2, 2003, the Company changed its method of accounting
     for inventories to the last-in, first-out method, as discussed in Note 1 to
     the Consolidated Financial Statements.

(2)  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, as discussed in
     Note 1 to the Consolidated Financial Statements.

(3)  During the fiscal year ended February 1, 2003, the Company restated its
     consolidated financial statements for the fiscal year ended January 29,
     2000. As a result, financial information for the year ended January 29,
     2000 is unaudited.

                                       1
<PAGE>

BOOKS-A-MILLION
2004 Annual Report

                             LETTER TO STOCKHOLDERS:

Fiscal year 2004 was a successful one for Books-A-Million. After the difficult
retail environment of the past two years and a weak first quarter influenced by
the onset of the war in Iraq, sales rebounded and remained strong throughout the
year. June brought the publication of Harry Potter And The Order Of The Phoenix,
an event that led to record breaking sales and provided strong momentum for our
entire industry.

Sales trends in our core book business were encouraging with several standout
categories. Diet and health, driven by the low carbohydrate diet phenomenon, led
the way. Religion and inspiration, children's books, politics, movie tie-ins and
graphic novels also produced strong sales increases. We had several media driven
blockbuster bestsellers such as The South Beach Diet, The Da Vinci Code, Harry
Potter And The Order Of The Phoenix, Hillary Clinton's memoir Living History and
The Purpose Driven Life. These titles not only sold at record levels but also
spawned spin-offs, non-book product sales and increased sales of related
titles.

During the year we gave renewed focus to our proprietary publishing and import
programs. The trend toward increased custom publishing was pronounced in the
industry last year and we plan to continue to be competitive in this arena. Our
cafe business continued to grow with several new lines of drinks.

The positive sales environment in the latter part of the year allowed us to
pursue a less expensive marketing strategy. We also increased the membership
price of the Millionaire's Club program and continued our efforts in cost
control to produce improved margins and profitability. Our store remodel program
continued with an additional 36 stores converted to our new layout and design
criteria. Approximately half of all stores have now completed our remodel
program. In addition we opened four new stores during the year, relocated one
store and closed nine underperforming stores.

                                        2
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

Our overall strategy of focusing on top line sales while pursuing improvements
in inventory management and expense control led to positive results. We plan to
build on the progress we have made to deliver improved sales, margin and profits
in the year to come.

Sandy Cochran was named Chief Executive Officer, in addition to her
responsibilities as President, effective February 1, 2004. Together, we will
strive to build on this year's solid results and to add value for both our
shareholders and our associates.

Thank you for your continued interest and support.


/s/ Clyde B. Anderson                                 /s/ Sandra B. Cochran

Clyde B. Anderson                                     Sandra B. Cochran
Executive Chairman of the Board                       President, Chief Executive
                                                      Officer, and Secretary

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                                                                        Fiscal Year Ended
                                                                                 -------------------------------
           (In thousands, except per share amounts)                               1/31/04 (1)         2/1/03 (2)
           ----------------------------------------                              ------------        -----------
<S>                                                                              <C>                 <C>
Net sales                                                                          $ 460,159           $438,215
Operating profit                                                                      15,220              9,285
Income before cumulative effect of change in accounting principle                      7,201              2,602
Net income                                                                             7,201              1,401
Income per share - diluted, before cumulative effect of change in                       0.43               0.16
   accounting principle
Net income per share                                                                    0.43               0.08
</TABLE>

<TABLE>
<CAPTION>
                                                                                              As of
                                                                                  -------------------------------
   (In thousands)                                                                 1/31/04 (1)          2/1/03 (2)
   --------------                                                                 -----------          ----------
<S>                                                                              <C>                  <C>
Working capital                                                                  $    104,420         $  112,596
Total assets                                                                          285,679            307,718
Stockholders' equity                                                                  131,250            122,868
</TABLE>

(1)  Effective February 2, 2003, the Company changed its method of accounting
     for inventories to the last-in, first-out method, as discussed in Note 1 to
     the Consolidated Financial Statements.

(2)  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, as discussed in
     Note 1 to the Consolidated Financial Statements.

                                       3

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                            Fiscal Year Ended
                                                                     --------------------------------------------------------------
          (In thousands, except per share data)                      1/31/04 (1)   2/1/03 (2)    2/2/02       2/3/01    1/29/00 (3)
          -------------------------------------                      -----------   ----------    ------       ------    -----------
<S>                                                                  <C>           <C>          <C>          <C>        <C>
STATEMENT OF OPERATIONS DATA:                                         52 WEEKS     52 weeks     52 weeks     53 weeks     52 weeks
Net sales                                                             $ 460,159    $ 438,215    $ 437,583    $ 412,876    $ 397,188
Cost of products sold, including warehouse distribution
 and store occupancy costs                                              334,697      320,704      315,556      299,875      287,649
                                                                      ---------    ---------    ---------    ---------    ---------
Gross profit                                                            125,462      117,511      122,027      113,001      109,539
Operating, selling and administrative expenses                           94,530       92,178       95,870       88,853       82,783
Depreciation and amortization                                            15,712       16,048       15,296       14,499       13,530
                                                                      ---------    ---------    ---------    ---------    ---------
Operating profit                                                         15,220        9,285       10,861        9,649       13,226
Interest expense, net                                                     2,909        4,171        4,429        4,804        4,211
                                                                      ---------    ---------    ---------    ---------    ---------
Income from continuing operations before income taxes and
 cumulative effect of change in accounting principle                     12,311        5,114        6,432        4,845        9,015
Provision for income taxes                                                4,678        1,943        2,444        1,841        3,425
                                                                      ---------    ---------    ---------    ---------    ---------
Income from continuing operations before cumulative effect of
 change in accounting principle                                           7,633        3,171        3,988        3,004        5,590

Discontinued operations:

  Loss from discontinued operations (including impairment charges)         (696)        (917)        (111)         (39)         421
  Income tax benefit (provision)                                            264          348           42           15         (160)
                                                                      ---------    ---------    ---------    ---------    ---------
  Income (loss) from discontinued operations                               (432)        (569)         (69)         (24)         261
                                                                      ---------    ---------    ---------    ---------    ---------
Income before cumulative effect of change in accounting principle         7,201        2,602        3,919        2,980        5,851
Cumulative effect of change in accounting principle, net of
 income taxes (2)                                                            --       (1,201)          --           --           --
                                                                      ---------    ---------    ---------    ---------    ---------
Net income                                                            $   7,201    $   1,401    $   3,919    $   2,980    $   5,851
                                                                      =========    =========    =========    =========    =========

Net income per common share:

BASIC:

  Income from continuing operations before cumulative effect of
   change in accounting principle                                     $    0.47    $    0.20    $    0.24    $    0.17    $    0.32
  Income (loss) from discontinued operations                              (0.03)       (0.04)          --           --         0.01
                                                                      ---------    ---------    ---------    ---------    ---------
  Income before cumulative effect of change in accounting                  0.44         0.16         0.24         0.17         0.33
   principle
  Cumulative effect of change in accounting
   principle (2)                                                             --        (0.07)          --           --           --
                                                                      ---------    ---------    ---------    ---------    ---------
  Net income per share                                                $    0.44    $    0.09    $    0.24    $    0.17    $    0.33
                                                                      =========    =========    =========    =========    =========
Weighted average number of shares outstanding - basic                    16,279       16,190       16,667       17,955       17,981
                                                                      =========    =========    =========    =========    =========

DILUTED:
  Income from continuing operations before cumulative effect of
   change in accounting principle                                     $    0.45    $    0.19    $    0.24    $    0.17    $    0.31
  Income (loss) from discontinued operations                              (0.02)       (0.03)       (0.01)          --         0.01
                                                                      ---------    ---------    ---------    ---------    ---------
  Income before cumulative effect of change in accounting principle        0.43         0.16         0.23         0.17         0.32
  Cumulative effect of change in accounting principle (2)                    --        (0.08)          --           --           --
                                                                      ---------    ---------    ---------    ---------    ---------
  Net income per share                                                $    0.43    $    0.08    $    0.23    $    0.17    $    0.32
                                                                      =========    =========    =========    =========    =========
Weighted average number of shares outstanding - diluted                  16,789       16,566       16,945       17,991       18,250
                                                                      =========    =========    =========    =========    =========
Pro forma amounts assuming the change in accounting principle was
 applied retroactively: (2)

Net income                                                                  N/A          N/A    $   3,866    $   2,728    $   5,772
Net income per share - basic                                                N/A          N/A         0.23         0.15         0.32
Net income per share - diluted                                              N/A          N/A         0.23         0.15         0.32
BALANCE SHEET DATA:
Property and equipment, net                                           $  49,177    $  57,146    $  56,716    $  60,659    $  64,232
Total assets                                                            285,679      307,718      294,858      292,199      287,327
Long-term debt                                                           20,640       44,942       38,846       41,526       35,936
Stockholders' equity                                                    131,250      122,868      121,338      122,259      120,520
OTHER DATA:
Working capital                                                       $ 104,420    $ 112,596    $ 105,483    $ 103,153    $  92,987
</TABLE>

(1)  Effective February 2, 2003, the Company changed its method of accounting
     for inventories to the last-in, first-out method, as discussed in Note 1 to
     the Consolidated Financial Statements.

(2)  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, as discussed in
     Note 1 to the Consolidated Financial Statements.

(3)  During the fiscal year ended February 1, 2003, the Company restated its
     consolidated financial statements for the fiscal year ended January 29,
     2000. As a result, financial information for the year ended January 29,
     2000 is unaudited.

                                       4

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

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

GENERAL

         The Company was founded in 1917 and currently operates 202 retail
bookstores concentrated primarily in the southeastern United States. Of the 202
stores, 163 are superstores which operate under the names Books-A-Million and
Books & Co., 35 are traditional stores which operate under the Bookland and
Books-A-Million names and four are newsstands which operate under the name Joe
Muggs Newsstand. In addition to the retail store formats, the Company offers its
products over the Internet at www.booksamillion.com and www.joemuggs.com. As of
January 31, 2004, the Company employed approximately 4,800 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, or converting stores to different formats. With the
Company's focus on superstores, the number of traditional stores has decreased
over the years as new superstores are opened nearby and the traditional stores
are closed. During fiscal 2004, the Company opened four stores, closed nine
stores and relocated one store. In fiscal 2002, the Company began an extensive
remodeling program to bring a consistent look to each store and also to update
equipment. Certain stores completed a major remodeling, including new flooring,
resetting the fixtures and / or relocating the cafe. Other stores completed a
minor remodeling which was limited to resetting fixtures, new signage and paint.
Over the past two years, the remodeled stores have outpaced the chain in
comparable store sales. During fiscal 2004, the Company remodeled 36 stores.
Approximately 50 percent of the Company's stores have been remodeled to date as
part of this remodel program.

         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.

CRITICAL ACCOUNTING POLICIES

Inventories

         Inventory counts are taken throughout the fiscal period. 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 accrues for
inventory shortages 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.

         Effective February 2, 2003, the Company changed from the first-in,
first-out (FIFO) method of accounting for inventories to the last-in, first-out
(LIFO) method. Management believes this change is preferable in that it achieves
a more appropriate matching of revenues and expenses. The impact of this
accounting change was to increase "Costs of Products Sold" in the consolidated
statements of operations by $0.7 million for the fiscal year ended January 31,
2004. This resulted in an after-tax decrease to net income of $0.4 million or a
decrease in net income per diluted share of $0.02. The cumulative effect of a
change in accounting principle from the FIFO method to LIFO method is not
determinable. Accordingly, such change has been accounted for prospectively. In
addition, pro forma amounts from retroactively applying the change cannot be
reasonably estimated and have not been disclosed.

Vendor Allowances

         The Company receives allowances from its vendors related to 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 sales of the related inventory. The charge for the
adoption of EITF No. 02-16 at the beginning of fiscal 2003 is reflected as a
cumulative effect of a change in accounting principle of approximately $1.2
million (net of income tax benefit of $736,000), or $0.08 per diluted share.
Prior to fiscal 2003, the Company recognized these vendor allowances over the
period covered by the vendor arrangement.

                                       5

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

Impairment of Long-Lived Assets

         The Company reviews property and equipment and intangibles periodically
to determine whether events or changes in circumstances indicate that their
carrying amounts may not be recoverable or their depreciation or amortization
periods should be accelerated. The Company's long-lived assets are retail store
leasehold improvements, lease-rights intangibles and goodwill. The Company
assesses recoverability based upon several factors, including management's
intention with respect to its stores and those stores' projected undiscounted
cash flows. If an impairment is indicated, an impairment loss is generally
recognized for the amount by which the carrying amount of the assets exceeds the
present value of their projected cash flows. Impairment losses from continuing
operations are included in selling, general and administrative costs. For fiscal
2004, 2003 and 2002, impairment losses of $983,000, $241,000 and $232,000,
respectively, were recorded in selling, general and administrative costs. For
all years presented, the impairment losses related to the retail trade business
segment.

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 operations data expressed
as a percentage of net sales for the periods presented.

<TABLE>
<CAPTION>
                                                                                                       Fiscal Year Ended
                                                                                                 ----------------------------
                                                                                                 1/31/04    2/1/03    2/2/02
                                                                                                 -------    ------    ------
<S>                                                                                              <C>        <C>       <C>
Net sales                                                                                         100.0%     100.0%   100.0%
Gross profit                                                                                       27.3%      26.8%    27.9%
Operating, selling, and administrative expenses                                                    20.6%      21.0%    21.9%
Depreciation and amortization                                                                       3.4%       3.7%     3.5%
Operating profit                                                                                    3.3%       2.1%     2.5%
Interest expense, net                                                                               0.6%       0.9%     1.0%
Income from continuing operations before income taxes and cumulative effect of change in
   accounting principle                                                                             2.7%       1.2%     1.5%
Provision for income taxes                                                                          1.0%       0.5%     0.6%
Income from continuing operations before cumulative effect of change in accounting principle        1.7%       0.7%     0.9%
Loss from discontinued operations (including impairment charges), net of tax                       -0.1%      -0.1%     0.0%
Income before cumulative effect of change in accounting principle                                   1.6%       0.6%     0.9%
Cumulative effect of a change in accounting principle                                               0.0%      -0.3%     0.0%
Net income                                                                                          1.6%       0.3%     0.9%
</TABLE>

FISCAL 2004 COMPARED TO FISCAL 2003

         Consolidated net sales increased $22.0 million to $460.2 million in
fiscal 2004 from $438.2 million in fiscal 2003. Comparable store sales increased
3.3% when compared to the same 52-week period last year. The increase in
comparable store sales was due to an improving economy, as well as strong sales
in categories such as Children's, Fiction and Diet & Health. The Company opened
four new stores during fiscal 2004 and closed nine underperforming stores.

         Net sales for the retail trade segment increased $21.1 million, or
4.9%, to $454.0 million in fiscal 2004 from $432.9 million in fiscal 2003. The
increase in sales was due to an improving economy, as well as strong sales in
categories such as Children's, Fiction and Diet & Health. Net sales for the
electronic commerce segment increased $2.2 million, or 9.3%, to $25.5 million in
fiscal 2004 from $23.3 million in fiscal 2003. This increase was primarily due
to growth in business-to-business sales volume during fiscal 2004.

                                       6

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

         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.

         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 $8.0 million, or 6.8%, to
$125.5 million in fiscal 2004 from $117.5 million in fiscal 2003. Gross profit
as a percentage of net sales increased to 27.3% in fiscal 2004 from 26.8% in
fiscal 2003, primarily due to improved sales mix, less promotional discounting
and lower occupancy costs as a percentage of net sales.

         Operating, selling and administrative expenses increased $2.3 million,
or 2.6%, to $94.5 million in fiscal 2004 from $92.2 million in fiscal 2003.
Operating, selling and administrative expenses as a percentage of net sales
decreased to 20.6% in fiscal 2004 from 21.0% in fiscal 2003, primarily due to
the impact of higher comparable store sales as well as strong expense controls.

         Depreciation and amortization decreased $0.3 million, or 2.1% to $15.7
million in fiscal 2004 from $16.0 million in fiscal 2003. Depreciation and
amortization as a percentage of net sales decreased to 3.4% in fiscal 2004 from
3.7% in fiscal 2003, due to lower capital expenditures in fiscal 2004.

         Consolidated operating profit was $15.2 million for fiscal 2004
compared to $9.3 million in fiscal 2003. Operating profit for the retail trade
segment was $14.3 million in fiscal 2004 versus $8.8 million in fiscal 2003.
This increase was primarily attributable to the higher comparable store sales
during fiscal 2004. The operating profit for the electronic commerce segment was
$0.3 million compared to the fiscal 2003 operating loss of $0.5 million. The
improvement in operating results was due to improved gross margin as a result of
increased sales, as well as lower operating costs as a percent to sales.

         Net interest expense decreased $1.3 million, or 30.3%, to $2.9 million
in fiscal 2004 from $4.2 million in fiscal 2003, primarily due to lower average
debt levels and lower average interest rates during fiscal 2004.

         Income taxes were calculated at an effective rate of 38.0% for both
fiscal 2004 and 2003.

         Loss from discontinued operations was $0.7 million in fiscal 2004
compared to $0.9 million in fiscal 2003. The income tax benefit on the loss from
discontinued operations was $0.3 million in fiscal 2004 and in fiscal 2003. Loss
from discontinued operations, net of tax, was $0.4 million in fiscal 2004
compared to $0.6 million in fiscal 2003. These losses represent the results of
four stores that were closed in fiscal 2004 in markets where the Company does
not expect to retain the closed stores' customers at another store.

FISCAL 2003 COMPARED TO FISCAL 2002

         Consolidated net sales increased $0.6 million to $438.2 million in
fiscal 2003 from $437.6 million in fiscal 2002. Comparable store sales decreased
2.6% when compared to the same 52-week period last year. The primary reasons for
the decrease were weak comparable store sales in book categories and lower music
sales (a discontinued line of merchandise). The Company opened six new stores
during fiscal 2003 and closed three underperforming stores (these stores were
not discontinued operations).

         Net sales for the retail trade segment increased $2.2 million, or 0.5%,
to $432.9 million in fiscal 2003 from $430.7 million in fiscal 2002. The slight
increase in sales was due to the six new stores opened during fiscal year 2003.
Net sales for the electronic commerce segment increased $1.1 million, or 4.6%,
to $23.3 million in fiscal 2003 from $22.2 million in fiscal 2002. This increase
was primarily due to growth in business-to-business sales volume during fiscal
2003.

         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.

         Gross profit decreased $4.5 million, or 3.7%, to $117.5 million in
fiscal 2003 from $122.0 million in fiscal 2002. Gross profit as a percentage of
net sales decreased to 26.8% in fiscal 2003 from 27.9% in fiscal 2002, primarily
due to higher occupancy costs as a percentage of sales combined with more
promotional discount activity during fiscal 2003. Gross profit includes cost of
sales, distribution costs and occupancy costs (including rent, common area
maintenance, property taxes, utilities and merchant association dues).

         Operating, selling and administrative expenses decreased $3.7 million,
or 3.9%, to $92.2 million in fiscal 2003, from $95.9 million in fiscal 2002.
Operating, selling and administrative expenses as a percentage of net sales
decreased to 21.0% in fiscal 2003 from 21.9% in fiscal 2002, primarily due to
lower corporate expenses.

         Depreciation and amortization increased $0.7 million, or 4.9% to $16.0
million in fiscal 2003 from $15.3 million in fiscal 2002. Depreciation and
amortization as a percentage of net sales increased to 3.7% in fiscal 2003 from
3.5% in fiscal 2002, due to the increased number of superstores operated by the
Company combined with capital improvements made to existing stores during fiscal
2003.

         Consolidated operating profit was $9.3 million for fiscal 2003 compared
to $10.9 million in fiscal 2002. Operating profit for the retail trade segment
was $8.8 million in fiscal 2003 versus $11.2 million in fiscal 2002. This
decrease was primarily attributable to the lower comparable store sales during
fiscal 2003. The operating loss for the electronic commerce segment was $0.5
million compared to the fiscal 2002 loss of $1.7 million. The improvement in
operating results was due to improved gross margin as a percent of sales, as
well as lower operating costs as a percent to sales.

                                       7

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

         Net interest expense decreased $0.2 million, or 5.8%, to $4.2 million
in fiscal 2003 from $4.4 million in fiscal 2002, primarily due to lower average
interest rates during fiscal 2003.

         Income taxes were calculated at an effective rate of 38.0% for both
fiscal 2003 and 2002.

         Loss from discontinued operations was $0.9 million in fiscal 2003
compared to $0.1 million in fiscal 2002. The income tax benefit on the loss from
discontinued operations was $0.3 million in fiscal 2003 compared to $42,000 in
fiscal 2002. Loss from discontinued operations, net of tax, was $0.6 million in
fiscal 2003 compared to $69,000 in fiscal 2002. These losses represent the
results of four stores that were closed in fiscal 2004 in markets where the
Company does not expect to retain the closed stores' customers at another store.

         Effective February 3, 2002, the Company adopted 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. The adoption of this accounting principle resulted in a
cumulative after-tax reduction to net income of $1.2 million, or $0.08 per
diluted share. Additional information is included in Note 1 to the consolidated
financial statements.

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 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 that allows
borrowings up to $100.0 million, for which no principal repayments are due until
the facility expires in July 2005. The credit facility has certain financial and
non-financial covenants, the most restrictive of which is the maintenance of a
minimum fixed charge coverage ratio. As of January 31, 2004 and February 1,
2003, $13.1 and $37.4 million, respectively, was outstanding under this credit
facility. The maximum and average outstanding balances during fiscal 2004 were
$77.6 million and $57.5 million, respectively. Outstanding borrowings as of
January 31, 2004 had annual interest rates of 2.75%. Additionally, as of January
31, 2004 and February 1, 2003, the Company had outstanding borrowings under an
industrial revenue bond totaling $7.5 million, which is secured by certain
property.

         The Company's capital expenditures totaled $9.0 million in fiscal 2004.
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.
Management estimates that capital expenditures for fiscal 2005 will be
approximately $14.7 million and that such amounts will be used for purposes
similar to fiscal 2004. Management believes that existing cash balances and net
cash from operating activities, together with borrowings under the Company's
credit facilities, will be adequate to finance the Company's planned capital
expenditures and to meet the Company's working capital requirements for fiscal
2005.

Financial Position

         During fiscal 2004, the Company opened four new stores and closed nine
stores. The store closings, combined with strong inventory management, resulted
in decreased inventory and accounts payable balances at January 31, 2004, as
compared to February 1, 2003. Net property and equipment decreased due to lower
capital expenditures in fiscal 2004. Additionally, long-term debt balances
decreased as of January 31, 2004 compared to February 1, 2003 due to improved
earnings, lower inventory balances and lower capital expenditures.

                                       8

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 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 January 31, 2004:

<TABLE>
<CAPTION>
                                                                 Payments Due Under Contractual Obligations
                                                                 ------------------------------------------
           (in thousands)                        Total      FY 2005    FY 2006    FY 2007    FY 2008    FY 2009   Thereafter
           --------------                        -----      -------    -------    -------    -------    -------   ----------
<S>                                            <C>         <C>        <C>        <C>        <C>         <C>       <C>
Long-term debt - revolving credit facility     $  13,140   $          $ 13,140   $     --   $     --    $    --    $     --
Long-term debt - industrial revenue bond           7,500         --      7,500         --         --         --          --
Operating leases                                 116,533     27,561     24,834     19,429     15,910     11,426      17,373
                                               ---------   --------   --------   --------   --------    -------    --------
Total of obligations                           $ 137,173   $ 27,561   $ 45,474   $ 19,429   $ 15,910    $11,426    $ 17,373
                                               =========   ========   ========   ========   ========    =======    ========
</TABLE>

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.

         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 the
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 January 31, 2004, as such liabilities are considered
de minimus.

Cash Flows

         Operating activities provided cash of $33,284,000, $10,850,000 and
$24,559,000 in fiscal 2004, 2003 and 2002, respectively, and included the
following effects:

-    Cash provided by inventories in fiscal 2004 of $12,428,000 was primarily
     the result of increased sales and improved inventory management during the
     year. Cash used by inventories in fiscal 2003 of $15,103,000 was primarily
     the result of expanding the store title base in existing stores. Cash
     provided by inventories in fiscal 2002 was $1,047,000.

-    Cash used by accounts payable in fiscal 2004 of $11,895,000 was a result of
     lower inventory levels for fiscal 2004. Cash provided by accounts payable
     in fiscal 2003 was $5,472,000 due to higher inventory levels. Accounts
     payable cash flow changes were an insignificant amount in fiscal 2002.

-    Depreciation and amortization expenses were $15,880,000, $16,331,000 and
     $15,575,000 in fiscal 2004, 2003 and 2002, respectively. The decrease in
     fiscal 2004 was due to decreased capital expenditures during fiscal 2004,
     while the increases in fiscal 2003 and 2002 were due to increased capital
     expenditures in each of the fiscal years.

-    Cash provided by accrued expenses was $5,074,000, $348,000 and $319,000 in
     fiscal 2004, 2003 and 2002, respectively. The increase in fiscal 2004 was
     primarily due to increases in deferred revenue related to the Company's
     discount card and higher bonus accruals due to the Company's improved
     earnings performance in fiscal 2004.

         Cash used in investing activities in fiscal 2004, 2003 and 2002
reflected a net use of cash of $8,969,000, $16,982,000 and $18,206,000,
respectively. Cash was used primarily to fund capital expenditures for new store
openings, acquisitions of stores, renovation and improvements to existing
stores, warehouse distribution purposes and investments in management
information systems.

         Financing activities used cash of $23,944,000 in fiscal 2004 to repay
debt under the credit facility. Financing activities in fiscal 2003 provided
cash of $5,897,000 from borrowings under the credit facility. In fiscal 2002,
cash used in financing activities was $6,265,000, which was used to repurchase
1,412,000 shares of the Company's common stock and to repay debt under the
credit facility.

                                       9

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

Outlook

         For fiscal 2005, the Company currently expects to open approximately
six to eight new superstores, relocate or remodel approximately 20 to 25 stores
and close approximately two to four stores. Management estimates that capital
expenditures for fiscal 2005 will be approximately $14.7 million and that such
amounts will be used primarily for new store openings, renovations and
improvements to existing stores, upgrades and expansion of warehouse
distribution facilities and investment in management information systems.

NEW ACCOUNTING STANDARDS

         In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 148 ("SFAS 148"),
"Accounting for Stock-Based Compensation - Transition and Disclosure - an
Amendment of FASB No. 123." SFAS 148 amends SFAS 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The disclosure provisions of this statement are effective for financial
statements for fiscal years ending after December 15, 2002, and are included
herein. The Company has not adopted the fair value method of recording stock
options under SFAS No. 123. The FASB has now determined that stock-based
compensation should be recognized as a cost in the financial statements and that
such cost be measured according to the fair value of the stock options. The FASB
has not as yet determined the methodology for calculating fair value and plans
to issue an accounting standard that would become effective in fiscal 2005. The
Company will continue to monitor communications on this subject from the FASB in
order to determine the impact on the Company's financial position, results of
operations or cash flows.

         FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" ("FIN 46"), was issued in January 2003. This interpretation requires
consolidation of variable interest entities ("VIE"), also formerly referred to
as "special purpose entities," if certain conditions are met. The interpretation
applies immediately to VIE's created after January 31, 2003 and to interests
obtained in VIE's after January 31, 2003. Beginning after June 15, 2003, the
interpretation also applies to VIE's created or interests obtained in VIE's
before January 31, 2003. In December 2003, the FASB issued FASB Interpretation
No. 46R, "Consolidation of Variable Interest Entities--An Interpretation of ARB
51" (revised December 2003) ("FIN 46R"), which includes significant amendments
to previously issued FIN No. 46. Among other provisions, FIN 46R includes
revised transition dates for public entities. The Company is now required to
adopt the provisions of FIN 46R no later than the first quarter of fiscal 2005.
The adoption of this interpretation is not expected to have a material effect on
the Company's financial position, results of operations or cash flows.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). This
statement amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts. The provisions of SFAS 149 require that contracts with comparable
characteristics be accounted for similarly. The provisions of SFAS No. 149 are
effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The requirements of SFAS
No. 149 did not have a material impact on the Company's financial position,
results of operations or cash flows.

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 to, related parties. Related party inventory purchases
were essentially flat in fiscal 2004 when compared to fiscal 2003. Related party
sales transactions increased in fiscal 2004 due to higher sales of book product.
The Company leases certain office, retail and warehouse space from related
parties of 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.

                                       10

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

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.

                                       11

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                 As Of
                                                                                                 -----
                (Dollars in thousands, except per share amounts)                         1/31/04       2/1/03
                ------------------------------------------------                         -------       ------
<S>                                                                                     <C>         <C>
ASSETS
CURRENT ASSETS:

   Cash and cash equivalents                                                            $  5,348    $   4,977
   Accounts receivable, net of allowance for doubtful accounts of $545 and $712,
    respectively                                                                           7,271        7,799
   Related party receivables                                                                 351          437
   Inventories                                                                           211,591      224,019
   Prepayments and other                                                                   5,890        5,380
   Deferred income taxes                                                                   4,446        6,130
                                                                                        --------    ---------
        Total Current Assets                                                             234,897      248,742
                                                                                        --------    ---------
PROPERTY AND EQUIPMENT:

   Land                                                                                      628          628
   Buildings                                                                               6,130        6,118
   Equipment                                                                              67,418       62,193
   Furniture and fixtures                                                                 44,815       44,260
   Leasehold improvements                                                                 47,282       45,899
   Construction in process                                                                   193          270
                                                                                        --------    ---------
     Gross Property and Equipment                                                        166,466      159,368
   Less accumulated depreciation and amortization                                        117,289      102,222
                                                                                        --------    ---------
     Net Property and Equipment                                                           49,177       57,146
                                                                                        --------    ---------
OTHER ASSETS:

   Goodwill, net                                                                           1,368        1,368
   Other                                                                                     237          462
                                                                                        --------    ---------
     Total Other Assets                                                                    1,605        1,830
                                                                                        --------    ---------
     Total Assets                                                                       $285,679    $ 307,718
                                                                                        ========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:

   Accounts payable:

     Trade                                                                              $ 87,984    $  99,585
     Related party                                                                         8,777        9,071
   Accrued expenses                                                                       30,189       24,790
   Accrued income taxes                                                                    3,527        2,530
   Current portion of long-term debt                                                          --          170
                                                                                        --------    ---------
     Total Current Liabilities                                                           130,477      136,146
                                                                                        --------    ---------
LONG-TERM DEBT                                                                            20,640       44,942
DEFERRED INCOME TAXES                                                                      1,805        1,703
OTHER LONG-TERM LIABILITIES                                                                1,507        2,059
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, 18,465,387 and
     18,211,706 shares issued at January 31, 2004 and February 1, 2003,
     respectively                                                                            185          182
   Additional paid-in capital                                                             71,799       70,849
   Treasury stock at cost (2,010,050 shares at January 31, 2004 and February
    1, 2003)                                                                              (5,271)      (5,271)
   Deferred compensation                                                                    (284)          --
   Accumulated other comprehensive loss, net of tax                                         (707)      (1,219)
   Retained earnings                                                                      65,528       58,327
                                                                                        --------    ---------
     Total Stockholders' Equity                                                          131,250      122,868
                                                                                        --------    ---------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $285,679    $ 307,718
                                                                                        ========    =========
</TABLE>

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

                                       12

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                            Fiscal Year Ended
                                                                                            -----------------
                  (In thousands, except per share data)                              1/31/04       2/1/03      2/2/02
                  -------------------------------------                              -------       ------      ------
                                                                                    52 WEEKS     52 weeks     52 weeks

<S>                                                                                 <C>          <C>          <C>
Net sales                                                                           $ 460,159    $ 438,215    $ 437,583
Cost of products sold, including warehouse distribution and store
 occupancy costs(1)                                                                   334,697      320,704      315,556
                                                                                    ---------    ---------    ---------
   GROSS PROFIT                                                                       125,462      117,511      122,027

Operating, selling and administrative expenses                                         94,530       92,178       95,870
Depreciation and amortization                                                          15,712       16,048       15,296
                                                                                    ---------    ---------    ---------
   OPERATING PROFIT                                                                    15,220        9,285       10,861

Interest expense, net                                                                   2,909        4,171        4,429
                                                                                    ---------    ---------    ---------
   INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT
          OF CHANGE IN ACCOUNTING PRINCIPLE                                            12,311        5,114        6,432

Provision for income taxes                                                              4,678        1,943        2,444
                                                                                    ---------    ---------    ---------
   INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN
          ACCOUNTING PRINCIPLE                                                          7,633        3,171        3,988

Discontinued operations:
Loss from discontinued operations (including impairment charges)                         (696)        (917)        (111)
Income tax benefit                                                                        264          348           42
                                                                                    ---------    ---------    ---------
Loss from discontinued operations                                                        (432)        (569)         (69)
                                                                                    ---------    ---------    ---------

   INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                    7,201        2,602        3,919

Cumulative effect of change in accounting principle, net of deferred
 income tax benefit of $ 736                                                               --       (1,201)          --
                                                                                    ---------    ---------    ---------
   NET INCOME                                                                       $   7,201    $   1,401    $   3,919
                                                                                    =========    =========    =========
Net income per common share:
   BASIC:
        Income from continuing operations before cumulative effect of change in
         accounting principle                                                       $    0.47    $    0.20    $    0.24
        Loss from discontinued operations                                               (0.03)       (0.04)          --
                                                                                    ---------    ---------    ---------
        Income before cumulative effect of change in accounting principle                0.44         0.16         0.24
        Cumulative effect of change in accounting principle                                --        (0.07)          --
                                                                                    ---------    ---------    ---------
        Net income per share                                                        $    0.44    $    0.09    $    0.24
                                                                                    =========    =========    =========
        WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -- BASIC                         16,279       16,190       16,667
                                                                                    =========    =========    =========
   DILUTED:
        Income from continuing operations before cumulative effect of change in
         accounting principle                                                       $    0.45    $    0.19    $    0.24
        Loss from discontinued operations                                               (0.02)       (0.03)       (0.01)
                                                                                    ---------    ---------    ---------
        Income before cumulative effect of change in accounting principle                0.43         0.16         0.23
        Cumulative effect of change in accounting principle                                --        (0.08)          --
                                                                                    ---------    ---------    ---------
        Net income per share                                                        $    0.43    $    0.08    $    0.23
                                                                                    =========    =========    =========
        WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -- DILUTED                       16,789       16,566       16,945
                                                                                    =========    =========    =========

Pro forma amounts assuming the change in accounting principle was applied
 retroactively:
NET INCOME                                                                                N/A          N/A    $   3,866
NET INCOME PER SHARE - BASIC                                                              N/A          N/A    $    0.23
NET INCOME PER SHARE - DILUTED                                                            N/A          N/A    $    0.23
</TABLE>

(1)  Inventory purchases from related parties were $30,380, $30,212 and $29,679,
     respectively, for the years presented above.

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

                                       13

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                              Common Stock   Additional   Treasury Stock                                 Other          Total
                             --------------    Paid-In   ----------------     Deferred     Retained  Comprehensive   Stockholders
     (In thousands)          Shares  Amount    Capital   Shares   Amount    Compensation   Earnings  Income (Loss)      Equity
     --------------          ------  ------    -------   ------   ------    ------------   --------  -------------      ------
<S>                          <C>     <C>     <C>         <C>     <C>        <C>            <C>       <C>             <C>
BALANCE, FEBRUARY 3, 2001    18,092  $  181  $   70,634     598  $ (1,563)  $         --   $ 53,007  $          --   $    122,259

Net income                                                                                                   3,919          3,919
Cumulative effect of
 accounting change for
 derivative instruments,
 net of tax benefit of $285                                                                                   (465)          (465)

Unrealized loss on
 accounting for
 derivative instruments,
 net of tax benefit
 of $461                                                                                                      (752)          (752)
                                                                                                                     ------------
Subtotal of comprehensive
 income                                                                                                                     2,702
                                                                                                                     ------------
Purchase of treasury
 stock                                                    1,412    (3,708)                                                 (3,708)

Issuance of stock for
 employee stock
 purchase plan                   46      --          83                                                                        83
Exercise of stock
 options                          1                   2                                                                         2
                             ------  ------  ----------  ------  --------   ------------   --------  -------------   ------------
BALANCE, FEBRUARY 2,2002     18,139     181      70,719   2,010    (5,271)            --     56,926         (1,217)       121,338
                             ======  ======  ==========  ======  ========   ============   ========  =============   ============

Net income                                                                                    1,401                         1,401
Unrealized loss on
 accounting for
 derivative instruments                                                                                         (2)            (2)
                                                                                                                     ------------
Subtotal comprehensive
 income                                                                                                                     1,399
                                                                                                                     ------------
Issuance of stock for
 employee stock purchase
 plan                            47       1          85                                                                        86
Exercise of stock options        26                  45                                                                        45
                             ------  ------  ----------  ------  --------   ------------   --------  -------------   ------------
BALANCE, FEBRUARY 1, 2003    18,212     182      70,849   2,010    (5,271)            --     58,327         (1,219)       122,868
                             ======  ======  ==========  ======  ========   ============   ========  =============   ============

Net income                                                                                    7,201                         7,201
Unrealized gain on
 accounting for
 derivative instruments,
 net of tax provision
 of $139                                                                                                       228            228
Reclassification of
 unrealized loss
 related to
 de-designation of cash
 flow hedge, net of tax
 benefit of $ 174                                                                                              284            284
                                                                                                                     ------------
Subtotal comprehensive
 income                                                                                                                     7,713
                                                                                                                     ------------
Issuance of restricted
 stock                           34                 284                             (284)                                      --
Issuance of stock for
 employee stock purchase
 plan                            42                  83                                                                        83
Exercise of stock
 options                        177       3         442                                                                       445
Tax benefit from exercise
 of stock options                                   141                                                                       141
                             ------  ------  ----------  ------  --------   ------------   --------  -------------   ------------
BALANCE, JANUARY 31, 2004    18,465  $  185   $  71,799   2,010  $ (5,271)  $       (284)  $ 65,528  $        (707)  $    131,250
                             ======  ======  ==========  ======  ========   ============   ========  =============   ============
</TABLE>

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

                                       14

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             Fiscal Year Ended
                                                                                   ---------------------------------
                                 (In thousands)                                    1/31/04        2/1/03      2/2/02
                                 --------------                                    -------        ------      ------
<S>                                                                                <C>           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                                         $   7,201     $  1,401     $  3,919
Adjustments to reconcile net income to net cash provided by operating
   activities:
     Cumulative effect of change in accounting principle, net of tax                      --        1,201           --
     Depreciation and amortization                                                    15,880       16,331       15,575
     Loss on impairment of assets                                                      1,211          382          232
     Loss on sale of property                                                             73          136          110
     Deferred income tax provision (benefit)                                           1,786           (4)        (134)
     Tax benefit of exercise of stock options                                            141           --           --
     Reclassification of unrealized loss from de-designation of cash flow hedge          284           --           --
     (Increase) decrease in assets, net of effect of acquisition in fiscal 2002:
          Accounts receivable                                                            528          241         (402)
          Related party receivables                                                       86          530        1,391
          Inventories                                                                 12,428      (15,103)       1,047
          Prepayments and other                                                         (510)          59       (1,173)
      Increase (decrease) in liabilities:
          Accounts payable                                                           (11,601)       2,062        3,454
          Related party payables                                                        (294)       3,410       (1,843)
          Accrued income taxes                                                           997         (144)       2,064
          Accrued expenses                                                             5,074          348          319
                                                                                   ---------     --------     --------
          Total adjustments                                                           26,083        9,449       20,640
                                                                                   ---------     --------     --------
                    Net cash provided by operating activities                         33,284       10,850       24,559
                                                                                   ---------     --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                                                                  (9,008)     (17,042)     (11,709)
Acquisition of stores                                                                     --           --       (6,532)
Proceeds from sale of property and equipment                                              39           60           35
                                                                                   ---------     --------     --------
                    Net cash used in investing activities                             (8,969)     (16,982)     (18,206)
                                                                                   ---------     --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities                                                   192,490      203,378      186,004
Repayments under credit facilities                                                  (216,790)    (197,283)    (188,197)
Proceeds from exercise of stock options and issuance of common stock under
   employee stock purchase plan                                                          528          131           85
Purchase of treasury stock                                                                --           --       (3,708)
Repayments of other debt                                                                (172)        (329)        (449)
                                                                                   ---------     --------     --------
                    Net cash provided by (used in) financing activities              (23,944)       5,897       (6,265)
                                                                                   ---------     --------     --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     371         (235)          88
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                         4,977        5,212        5,124
                                                                                   ---------     --------     --------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                           $   5,348     $  4,977     $  5,212
                                                                                   =========     ========     ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
   Interest                                                                        $   3,133     $  4,084     $  4,128
                                                                                   =========     ========     ========
   Income taxes, net of refunds                                                    $   1,694     $  1,388     $    955
                                                                                   =========     ========     ========
</TABLE>

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

                                       15

<PAGE>

BOOKS-A-MILLION
2004 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 202 bookstores in 18
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 two wholly
owned subsidiaries, American Wholesale Book Company, Inc. ("American Wholesale")
and American Internet Service, Inc. ("AIS"). All significant inter-company
balances and transactions have been eliminated in consolidation. For a
discussion of the Company's business segments, see Note 9.

Fiscal Year

         The Company operates on a 52-53 week year, with the fiscal year ending
on the Saturday closest to January 31. Fiscal years 2004, 2003 and 2002 were all
52-week periods.

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 requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. 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.

         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.

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 costs of goods
sold upon the sale of the related inventory. The charge for the adoption of EITF
No. 02-16 at the beginning of fiscal 2003 is reflected as a cumulative effect of
a change in accounting principle of approximately $1.2 million (net of income
tax benefit of $736,000), or $0.08 per diluted share. Prior to fiscal 2003, the
Company recognized these vendor allowances over the period covered by the vendor
arrangement.

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.

         Effective February 2, 2003, the Company changed from the first-in,
first-out (FIFO) method of accounting for inventories to the last-in, first-out
(LIFO) method. Management believes this change was preferable in that it
achieves a more appropriate matching of revenues and expenses. The impact of
this accounting change was to increase "Costs of Products Sold" in the
consolidated statements of operations by $0.7 million for the fiscal year ended
January 31, 2004. This resulted in an after-tax decrease to fiscal 2004 net
income of $0.4 million or a decrease in net income per diluted share of $0.02.
The cumulative effect of a change in accounting principle from the FIFO method
to LIFO method is not determinable. Accordingly, such change has been accounted
for prospectively. In addition, pro forma amounts from retroactively applying
the change cannot be reasonably estimated and have not been disclosed.

                                       16
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

         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:

<TABLE>
<CAPTION>
                                                      Fiscal Year Ended
                                                ------------------------------
                                                January 31,       February 1,
    (In thousands)                                 2004              2003
    -------------                               -----------     --------------
<S>                                             <C>             <C>
Inventories (at FIFO)                           $   212,251     $      224,019
LIFO reserve                                           (660)                --
                                                -----------     --------------
Net inventories                                 $   211,591     $      224,019
                                                ===========     ==============
</TABLE>

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 is provided on the
straight-line basis over the lesser of the assets estimated useful lives
(ranging from 10 to 40 years) or, if applicable, the periods of the leases.
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.

Impairment of Long-Lived Assets

         The Company reviews property and equipment and intangibles periodically
to determine whether events or changes in circumstances indicate that their
carrying amounts may not be recoverable or their depreciation or amortization
periods should be accelerated. The Company's long-lived assets are retail store
leasehold improvements, lease-rights intangibles and goodwill. The Company
assesses recoverability based upon several factors, including management's
intention with respect to its stores and those stores' projected undiscounted
cash flows. If impairment is indicated, an impairment loss is generally
recognized for the amount by which the carrying amount of the assets exceeds the
present value of their projected cash flows. Impairment losses from continuing
operations are included in selling, general and administrative costs. For fiscal
2004, 2003 and 2002, impairment losses of $983,000, $241,000 and $232,000,
respectively, were recorded in selling, general and administrative costs (also
see Note 8 for impairment losses included in discontinued operations). For all
years presented, the impairment losses related to the retail trade business
segment.

Loss from Discontinued Operations

         The Company periodically closes under-performing stores. The Company
believes that a store is a component under Statement of Financial Accounting
Standards ("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 a surrounding Company
store(s) within the same market area. Management evaluates certain factors in
determining whether a closed store's operations could be absorbed by a
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 8 for discontinued operations
disclosures.

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 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 2004, 2003 and 2002, the Company recognized
store closing costs of $219,000, $22,000 and $119,000, respectively.

Advertising Costs

         The costs of advertising are expensed as incurred. Advertising costs,
net of applicable vendor reimbursements, are charged to operating, selling and
administrative expenses, and totaled $2,995,000, $4,204,000 and $7,192,000 for
fiscal years 2004, 2003 and 2002, respectively.

                                       17

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

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

         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.

Receivables

         Receivables represent customer (both wholesale and retail), landlord
and other receivables due within one year and are net of any allowance for
doubtful accounts. Net receivables were $7,622,000 and $8,236,000 at January 31,
2004 and February 1, 2003, respectively.

Statements of Cash Flows

         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.

Earnings Per Share

         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 that
could occur if stock options granted to employees are exercised and resulted in
the issuance of common stock that then shared in the earnings of the Company.
Diluted EPS has been computed based on the average number of shares outstanding
including the effect of outstanding stock options, if dilutive, in each
respective year. A reconciliation of the weighted average shares for basic and
diluted EPS is as follows:

<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended
                                                           -----------------------------
                 (In thousands)                            1/31/04     2/1/03     2/2/02
------------------------------------------------           -------     ------     ------
<S>                                                        <C>         <C>        <C>
Weighted average shares outstanding:
   Basic                                                    16,279     16,190     16,667
   Dilutive effect of stock options outstanding                510        376        278
                                                           -------     ------     ------
   Diluted                                                  16,789     16,566     16,945
                                                           =======     ======     ======
</TABLE>

         Weighted options outstanding of 801,000, 1,577,000 and 1,368,000 for
the years ended January 31, 2004, February 1, 2003 and February 2, 2002,
respectively, were not included in the table above as they were anti-dilutive in
those periods.

Disclosure of Fair Value of Financial Instruments

         Based upon the Company's variable rate debt and the short-term nature
of its other financial instruments, the estimated fair values of the Company's
financial instruments recognized on the balance sheet at January 31, 2004 and
February 1, 2003 approximate their carrying values at those dates.

Stock-Based Compensation

         At January 31, 2004 and February 1, 2003, the Company had one stock
option plan that is described more fully in Note 5. The Company accounts for the
plan under the recognition and measurement principles of Accounting
Pronouncements Bulletin (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. No stock-based employee compensation
cost 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:

                                       18

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended
                                                                        ---------------------------
       (In thousands, except per share amounts)                         1/31/04   2/1/03    2/2/02
       ----------------------------------------                         -------  --------  --------
<S>                                                                     <C>      <C>       <C>
Net income, as reported                                                 $ 7,201  $  1,401  $  3,919
Deduct: Total stock-based employee compensation expense
   determined under fair value based method for all awards,
   net of tax effects                                                     1,362     1,315     1,133
                                                                        -------  --------  --------
Pro forma net income                                                    $ 5,839  $     86  $  2,786
                                                                        =======  ========  ========
Net income per common share:
   Basic - as reported                                                  $  0.44  $   0.09  $   0.24
   Basic - pro forma                                                    $  0.36  $   0.01  $   0.17
   Diluted - as reported                                                $  0.43  $   0.08  $   0.23
   Diluted - pro forma                                                  $  0.35  $   0.01  $   0.16
</TABLE>

         The fair value of the options granted under the Company's stock option
plan during fiscal 2004, 2003 and 2002 was estimated on their date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: no dividend yield; expected volatility of 1.06%, 1.01% and 1.21%,
respectively; risk free interest rates of 3.87% to 4.90%, 3.63% to 5.10% and
3.76% to 5.71%, respectively; and expected lives of six or ten years.

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 Derivative 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. The adoption of hedge accounting provided for in
these statements, on February 4, 2001, resulted in a cumulative after-tax
increase to other comprehensive loss, pertaining to years prior to fiscal 2002,
of $465,000. At January 31, 2004 and February 1, 2003, liabilities related to
derivatives are classified as other long-term liabilities totaling $1,507,000
and $2,059,000, respectively.

Shareholders' Equity

         In fiscal 2000, the Board of Directors authorized a common stock
repurchase program for up to $6.0 million of the Company's outstanding shares.
At January 31, 2003 and February 1, 2002, the Company had repurchased 2,010,050
shares for a cost of $5,271,000. Those shares are held in treasury. This
repurchase program was discontinued in March 2004.

         In March 2004, the Board of Directors authorized a new common stock
repurchase program for up to an additional 1.6 million shares, or 10% of the
outstanding stock.

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 as explained in Note 3.

Recent Accounting Pronouncements

         In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 148 ("SFAS 148"),
"Accounting for Stock-Based Compensation - Transition and Disclosure - an
Amendment of FASB No. 123." SFAS 148 amends SFAS 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The disclosure provisions of this statement are effective for financial
statements for fiscal years ending after December 15, 2002, and are included
herein. The Company has not adopted the fair value method of recording stock
options under SFAS No. 123. The FASB has now determined that stock-based
compensation should be recognized as a cost in the financial statements and that
such cost be measured according to the fair value of the stock options. The FASB
has not as yet determined the methodology for calculating fair value and plans
to issue an accounting standard that would become effective in fiscal 2005. The
Company will continue to monitor communications on this subject from the FASB in
order to determine the impact on the Company's financial position, results of
operations or cash flows.

                                       19

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

         FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities," ("FIN 46"), was issued in January 2003. This interpretation requires
consolidation of variable interest entities ("VIE"), also formerly referred to
as "special purpose entities," if certain conditions are met. The interpretation
applies immediately to VIE's created after January 31, 2003 and to interests
obtained in VIE's after January 31, 2003. Beginning after June 15, 2003, the
interpretation also applies to VIE's created or interests obtained in VIE's
before January 31, 2003. In December 2003, the FASB issued FASB Interpretation
No. 46R, "Consolidation of Variable Interest Entities--An Interpretation of ARB
51," (revised December 2003) ("FIN 46R"), which includes significant amendments
to previously issued FIN No. 46. Among other provisions, FIN 46R includes
revised transition dates for public entities. The Company is now required to
adopt the provisions of FIN 46R no later than the first quarter of fiscal 2005.
The adoption of this interpretation is not expected to have a material effect on
the Company's financial position, results of operations or cash flows.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities," ("SFAS 149"). This
statement amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts. The provisions of SFAS 149 require that contracts with comparable
characteristics be accounted for similarly. The provisions of SFAS No. 149 are
effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The requirements of SFAS
No. 149 did not have a material impact on the Company's financial position,
results of operations or cash flows.

Prior Year Reclassifications

         Certain prior year amounts have been reclassified to conform to the
current year presentation.

2.       INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                   Fiscal Year Ended
                                                        ------------------------------------
                                                         1/31/04        2/1/03       2/2/02
                                                        ---------     ----------   ---------
<S>                                                     <C>           <C>          <C>
Current:
   Federal                                              $   2,916     $    1,567   $   2,450
   State                                                       25             32          86
                                                        ---------     ----------   ---------
                                                        $   2,941     $    1,599   $   2,536
                                                        ---------     ----------   ---------
Deferred:
   Federal                                                  1,609     $       (3)  $    (132)
   State                                                     (136)            (1)         (2)
                                                        ---------     ----------   ---------
                                                            1,473             (4)       (134)
                                                        ---------     ----------   ---------
Provision for income taxes                              $   4,414     $    1,595   $   2,402
                                                        =========     ==========   =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                  Fiscal Year Ended
                                                        ----------------------------------
                                                        1/31/04       2/1/03        2/2/02
                                                        -------       ------        ------
<S>                                                     <C>           <C>           <C>
Federal statutory income tax rate                        34.0%         34.0%         34.0%
State income tax provision                                0.2%          1.0%          1.3%
Nondeductible meals and entertainment expense             0.6%          2.7%          1.0%
Other                                                     3.2%          0.3%          1.7%
                                                         ----          ----          ----
Effective income tax rate                                38.0%         38.0%         38.0%
                                                         ====          ====          ====
</TABLE>

         Temporary differences (in thousands) which created deferred tax assets
(liabilities) at January 31, 2004 and February 1, 2003, are as follows:

<TABLE>
<CAPTION>
                                                          As of 1/31/04                   As of 2/1/03
                                                   ---------------------------      -------------------------
                                                    CURRENT        NONCURRENT       Current       Noncurrent
                                                   ----------     ------------      --------     ------------
<S>                                                <C>            <C>               <C>          <C>
Depreciation                                       $       --     $     (2,521)     $            $     (2,082)
Accruals                                                3,172               --         2,736               --
Interest rate swap                                        434               --           747               --
Inventory                                                 637               --         2,318               --
State net operating loss carryforwards                     --              831            --              441
Other                                                     203             (115)          329              (62)
                                                   ----------     ------------      --------     ------------
Deferred tax asset (liability)                     $    4,446     $     (1,805)     $  6,130     $     (1,703)
                                                   ==========     ============      ========     ============
</TABLE>

                                       20

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

         At January 31, 2004, the Company had state net operating loss
carryforwards of approximately $20,308,000 that expire beginning in 2006 through
2024.

         No valuation allowance for net deferred income tax assets is deemed
necessary, as the realization of recorded deferred tax assets is considered more
likely than not.

3.       DEBT AND LINES OF CREDIT

         The Company refinanced its credit facility during fiscal 2003. The new
facility allows for unsecured borrowings up to $100 million for which no
principal payments are due until the facility expires in July 2005. Interest on
borrowing 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 has certain financial and non-financial covenants. The most
restrictive financial covenant is the maintenance of a minimum fixed charge
coverage ratio. As of January 31, 2004 and February 1, 2003, $13.1 million and
$37.4 million, respectively, were outstanding under this credit facility. The
maximum and average outstanding balances during fiscal 2004 were $77.6 million
and $57.5 million, respectively. The outstanding borrowings as of January 31,
2004, had annual interest rates of 2.75%.

         The Company is subject to interest rate fluctuations involving its
credit facility. To manage this exposure, the Company utilizes interest rate
swaps to fix the interest rate on variable debt. The Company entered into two
separate $10.0 million interest rate swaps on July 24, 2002. Both swaps expire
in August 2005 and effectively fix the interest rate on $20.0 million of
variable debt at 5.13%, except during the fourth quarter of fiscal 2003, during
which neither swap was in effect. The counter parties to the interest rate swaps
are two of the Company's primary banks. The Company believes the credit and
liquidity risk of the counter parties failing to meet their obligation is remote
as the Company settles its interest position with the banks on a quarterly
basis.

         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 are secured by a mortgage interest in these facilities. As of January 31,
2004 and February 1, 2003, there were $7.5 million of borrowings outstanding
under these arrangements, which bear interest at variable rates. The net book
value of the collateral property securing the Bond was $5,179,000 as of January
31, 2004. The Bond has a maturity date of December 1, 2019, with a purchase
provision obligating the Company to repurchase the Bond on May 11, 2005, unless
extended by the bondholder. 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 maintains a $7.5 million interest rate swap that
effectively fixes the interest rate on the Bond at 7.98%. The swap was entered
into in May 1996 and has a term of ten years.

         The Company's hedges are generally 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, amounts held
in accumulated other comprehensive income (loss) will be reclassified to
earnings when the hedge transaction affects earnings.

         The Company's interest rate swaps were reported as a liability
classified in other long-term liabilities in the accompanying consolidated
balance sheets at their fair value of $1.5 million and $2.1 million as of
January 31, 2004 and February 1, 2003, respectively. For the fiscal years ended
January 31, 2004, February 1, 2003 and February 2, 2002, adjustments of
$228,000, $(2,000) and $(752,000) were recorded as unrealized gains (losses) in
accumulated other comprehensive income (loss), after-tax. During the fourth
quarter of fiscal 2004, one interest rate swap no longer qualified for hedge
accounting under SFAS No. 133. Therefore, the Company de-designated the hedge
resulting in an expense of approximately $284,000.

4.       LEASES

         The Company leases the premises for its retail bookstores under
operating leases, which expire in various years through the year 2014. 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.

                                       21

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

         Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of one year as of January 31, 2004 are as
follows (in thousands):

<TABLE>
<CAPTION>
                                         Future Minimum
   Fiscal Year                                Rent
   -----------                           --------------
<S>                                      <C>
2005                                     $       27,561
2006                                             24,834
2007                                             19,429
2008                                             15,910
2009                                             11,426
Subsequent years                                 17,373
                                         --------------
Total                                    $      116,533
                                         ==============
</TABLE>

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

<TABLE>
<CAPTION>
                                                    FISCAL YEAR ENDED
                                        ----------------------------------------
                                          1/31/04       2/1/03        2/2/02
                                        ----------   ------------  -------------
<S>                                     <C>          <C>           <C>
Minimum rentals                         $   30,519   $     30,157  $      28,880
Contingent rentals                             684            552            595
                                        ----------   ------------  -------------
Total                                   $   31,203   $     30,709  $      29,475
                                        ==========   ============  =============
</TABLE>

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 6 months of service and who are at least 21 years
of age, and permit participants to contribute from 2% to 15% of compensation to
the plan. Company matching and supplemental contributions are made at
management's discretion. The expense under this plan was $467,000, $437,000 and
$417,000 in fiscal 2004, 2003 and 2002, respectively.

Stock Option Plan

         The Company maintains a stock option plan reserving 3,800,000 shares of
the Company's common stock for grants to executive officers, directors, and key
employees. Prior to January 9, 2001, all options granted to employees become
exercisable in equal annual increments over a five-year period and expire on the
sixth anniversary of the date of grant. On January 9, 2001, the Compensation
Committee of the Board of Directors approved an amendment to the Stock Option
Plan that allows all options granted on or after that date to vest in equal
annual increments over a three-year period and expire on the tenth anniversary
of the date of the grant. All stock 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:

<TABLE>
<CAPTION>
                                                                                   Fiscal Year Ended
                                                        ---------------------------------------------------------------------
                                                          JANUARY 31, 2004         February 1, 2003        February 2, 2002
                                                        -------------------      -------------------     --------------------
                                                                  WEIGHTED                 Weighted                 Weighted
                                                                  AVERAGE                   Average                  Average
                                                                  EXERCISE                 Exercise                 Exercise
           (Shares in thousands)                        SHARES     PRICE         Shares      Price       Shares      Price
           ---------------------                        ------   ----------      ------   ----------     ------    ----------
<S>                                                     <C>      <C>             <C>      <C>            <C>       <C>
Outstanding at beginning of year                         2,576   $     4.90       2,469   $     5.30      2,210    $     5.76
Granted                                                    278         6.45         386         2.41        410          3.03
Exercised                                                 (177)        2.51         (26)        1.74         (1)         1.69
Forfeited                                                 (369)        5.24        (253)        5.30       (150)         5.89
                                                        ------   ----------      ------   ----------     ------    ----------
Outstanding at end of year                               2,308   $     5.22       2,576   $     4.90      2,469    $     5.30
                                                        ------   ----------      ------   ----------     ------    ----------
Exercisable at end of year                               1,525   $     5.52       1,468   $     5.60      1,108    $     6.14
                                                        ------   ----------      ------   ----------     ------    ----------
Weighted average fair value of options granted                   $     5.97               $     2.20               $     2.90
                                                        ======   ==========      ======   ==========     ======    ==========
</TABLE>

         During fiscal years 2004, 2003 and 2002, the Company recognized tax
benefits related to the exercise of stock options in the amount of $141,000,
$6,000 and $0, respectively. The tax benefits were credited to paid-in capital
in the respective years.

                                       22

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

         The following table summarizes information about stock options
outstanding at January 31, 2004 (shares in thousands):

<TABLE>
<CAPTION>
                               Options Outstanding                                Options Exercisable
                  ----------------------------------------------------      -------------------------------
                                       Weighted
                      Number            Average                                 Number
                  Outstanding at      Remaining            Weighted         Exercisable at      Weighted
   Range of        January 31,       Contractual            Average          January 31,         Average
Exercise Price         2004          Life (Years)       Exercise Price           2004        Exercise Price
--------------    --------------     ------------       --------------      --------------   --------------
<S>               <C>                <C>                <C>                 <C>              <C>
$1.38 - $ 2.37          817              7.63           $         1.95             603       $         1.80
$2.39 - $ 7.69        1,055              6.30           $         5.57             517       $         5.91
$8.19 - $13.00          436              1.23           $        10.50             405       $        10.58
                      -----                                                      -----
     Totals           2,308              5.81           $         5.22           1,525       $         5.52
                      =====              ====           ==============           =====       ==============
</TABLE>


         The Company also maintains separate option plans for its subsidiaries.
A total of 40,000 shares of common stock is authorized under these plans and all
40,000 shares were available for issuance as of January 31, 2004.

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, 224,305 shares have
been purchased as of January 31, 2004.

Executive Incentive Plan

         The Company maintains an Executive Incentive Plan (the "Incentive
Plan"). The Incentive Plan provides for awards to certain executive officers of
both cash and shares 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 vest based on the grantee's employment at the end of a three year
restriction period which commences at the end of the performance period for
which the awards were issued. 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 three year performance period ended January 31, 2004
totaled $284,000. No awards were issued under the Incentive Plan for the three
year performance periods ended February 1, 2003 and February 2, 2002.

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 of their seasonal music and newspapers from Anderson Media Corporation
("Anderson Media"), an affiliate through common ownership. During fiscal 2004,
2003 and 2002, purchases of these items from Anderson Media totaled $28,160,000,
$27,736,000 and $27,934,000, respectively. The Company purchases certain of its
collectibles and books from Anderson Press, Inc. ("Anderson Press"), an
affiliate through common ownership. During fiscal 2004, 2003 and 2002, such
purchases from Anderson Press totaled $853,000, $1,153,000 and $440,000,
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 2004, 2003 and 2002 were $265,000, $460,000
and $368,000, respectively. The Company purchases certain magazine subscriptions
from Magazines.com, an affiliate through common ownership. During fiscal 2004,
2003 and 2002, purchases of these items were $89,000, $59,000 and $58,000,
respectively. The Company purchases content for publication from Publication
Marketing Corporation, an affiliate through common ownership. During fiscal
2004, 2003 and 2002, purchases of these items were $72,000, $56,000 and $38,000,
respectively. The Company purchases various gift products from American
Promotional Events, Inc. ("American Promotional Events"), an affiliate through
common ownership. These items totaled $29,000, $18,000 and $80,000 during fiscal
2004, 2003 and 2002, 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
$910,000, $729,000 and $761,000 for fiscal 2004, 2003 and 2002, respectively.
These amounts paid to Anco Far East primarily included the actual cost of
the product, as well as duty, freight and fees for consolidation and sourcing.
All costs other than the sourcing & consolidation service fees were passed
through from other vendors. Anco Far East fees, net of the pass through, were
$77,000, $73,000 and $76,000, respectively.


                                       23

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

         The Company sold books to (received returns from) Anderson Media in the
amounts of $443,000, $(116,000) and $(31,000) in fiscal 2004, 2003 and 2002,
respectively. The Company's sales to Anderson Media significantly decreased in
fiscal 2003 and 2002; however, returns were still being processed from previous
years, and as a result, net returns were recorded for those years. During fiscal
2004, 2003 and 2002, the Company provided $226,000, $131,000 and $128,000,
respectively, of internet services to Magazines.com. The Company provided
internet services to American Promotional Events of $50,000, $55,000 and $73,000
in fiscal 2004, 2003 and 2002, 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 member of the Board of Directors. The lease extends to January 31, 2006.
During fiscal 2004, 2003 and 2002, the Company paid rent of $137,000 in each
year 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 2004, 2003 and 2002, the Company paid A&A a total of $447,000,
$455,000 and $515,000, respectively, in connection with such leases. Total
minimum future rental payments under all four of these leases are $275,000 at
January 31, 2004. The Company subleases certain property to Hibbett Sporting
Goods, 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. During fiscal 2004, 2003 and 2002, the Company
received $191,000, $161,000 and $161,000, respectively, in rent payments from
Hibbett.

         The Company also purchased logistics services from Clark Distribution,
a distribution company affiliated through common ownership, which amounted to
$0, $0 and $64,000 in fiscal 2004, 2003 and 2002, respectively. The Company
incurred expenses related to professional services from A&A and Charles C.
Anderson, a member of the Board of Directors, which amounted to $0 in fiscal
2004 and $144,000 in each of fiscal 2003 and 2002. 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 the
approximate cost of usage. The total amounts received from affiliated companies
for use of the plane in fiscal 2004, 2003 and 2002 were $275,000, $269,000 and
$198,000, respectively. The cost of operating the plane during these years was
approximately the same as the revenue received. Likewise, the Company
occasionally rents a plane from A&A at prices that approximate the cost of
usage. The amounts paid to A&A for plane rental were $44,000, $48,000 and
$84,000 for fiscal 2004, 2003 and 2002, respectively.

7.       ACQUISITION OF STORES

         During March 2001, the Company acquired inventory and lease-rights of
18 stores from Crown Books Corporation for $6.5 million (which was allocated
predominantly to inventories). The stores are located in the Chicago and
Washington, D.C. metropolitan areas. The results of operations for these stores
are reflected in the consolidated financial statements beginning in the first
quarter of fiscal 2002.

8.       LOSS FROM DISCONTINUED OPERATIONS

         Discontinued operations represent the fiscal 2004 closure of four
retail stores in markets located in Georgia (two stores), Louisiana and North
Carolina where the Company does not expect another of its existing stores to
absorb the closed store's customers. These stores had sales of $2,457,000,
$4,445,000 and $5,172,000 and pretax operating losses of $696,000, $917,000 and
$111,000 for fiscal 2004, 2003 and 2002, respectively. Included in the loss on
discontinued operations are impairment losses of $228,000, $141,000 and $0 for
fiscal 2004, 2003 and 2002, respectively. Also included in the loss on
discontinued operations are store closing costs of $64,000, $178,000, and $0 for
fiscal 2004, 2003 and 2002, respectively.

                                       24

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

9.       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 predominantly supplies
merchandise 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.

<TABLE>
<CAPTION>
                                                                      Fiscal Year Ended
                                                            ---------------------------------------
    Segment information (in thousands)                        1/31/04        2/1/03        2/2/02
    ----------------------------------                      -----------    ----------   -----------
<S>                                                         <C>            <C>          <C>
NET SALES
   Retail / Wholesale Trade                                 $   454,000    $  432,865   $   430,742
   Electronic Commerce Trade                                     25,451        23,277        22,247
   Intersegment Sales Elimination                               (19,292)      (17,927)      (15,406)
                                                            -----------    ----------   -----------
     Net Sales                                              $   460,159    $  438,215   $   437,583
                                                            ===========    ==========   ===========
OPERATING PROFIT
   Retail / Wholesale Trade                                 $    14,346    $    8,787   $    11,199
   Electronic Commerce Trade                                        332          (490)       (1,718)
   Intersegment Elimination of Certain Costs                        542           988         1,380
                                                            -----------    ----------   -----------
     Total Operating Profit                                 $    15,220    $    9,285   $    10,861
                                                            ===========    ==========   ===========
ASSETS
   Retail / Wholesale Trade                                 $   284,718    $  306,542
   Electronic Commerce Trade                                      1,527         1,752
   Intersegment Sales Elimination                                  (566)         (576)
                                                            -----------    ----------
     Total Assets                                           $   285,679    $  307,718
                                                            ===========    ==========
</TABLE>

10.      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 or 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 the
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 January 31, 2004, as such liabilities are considered
de minimus.

                                       25

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

INDEPENDENT AUDITORS' REPORT

To Books-A-Million, Inc.:

We have audited the accompanying consolidated balance sheets of Books-A-Million,
Inc. (a Delaware corporation) (the "Company"), and its subsidiaries as of
January 31, 2004 and February 1, 2003 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three fiscal
years in the period ended January 31, 2004. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit 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, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Books-A-Million,
Inc. and its subsidiaries as of January 31, 2004 and February 1, 2003 and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 31, 2004 in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 1 to the Consolidated Financial Statements, effective
February 3, 2002, the Company changed its method of accounting for vendor
allowances and, effective February 2, 2003, the Company changed its method of
accounting for inventories.

DELOITTE & TOUCHE LLP

Birmingham, Alabama
April 19, 2004

                                       26

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

SUMMARY OF QUARTERLY RESULTS (Unaudited)

<TABLE>
<CAPTION>
                                                                              FISCAL YEAR ENDED JANUARY 31, 2004
                                                               --------------------------------------------------------------
                                                                 FIRST        SECOND       THIRD       FOURTH       TOTAL
 (In thousands, except per share amounts)                       QUARTER       QUARTER     QUARTER     QUARTER        YEAR
 ----------------------------------------                      ----------   ----------   ---------   ---------    -----------
<S>                                                            <C>          <C>          <C>         <C>          <C>
Net sales                                                      $   98,505   $  113,081   $ 102,724   $ 145,849    $   460,159
Gross profit                                                       24,937       30,815      26,412      43,298        125,462
Operating profit (loss)                                              (674)       3,238        (232)     12,888         15,220
Net income (loss)                                                  (1,042)       1,361        (755)      7,637          7,201
Net income (loss) per share - basic                                 (0.06)        0.08       (0.05)       0.47           0.44
Net income (loss) per share - diluted (1)                           (0.06)        0.08       (0.05)       0.45           0.43
</TABLE>

<TABLE>
<CAPTION>
                                                                         Fiscal Year Ended February 1, 2003 (2)
                                                               --------------------------------------------------------------
                                                                 FIRST        SECOND       THIRD       FOURTH       TOTAL
 (In thousands, except per share amounts)                       QUARTER       QUARTER     QUARTER     QUARTER        YEAR
 ----------------------------------------                      ----------   ----------   ---------   ---------    -----------
<S>                                                            <C>          <C>          <C>         <C>          <C>
Net sales                                                      $  100,273   $  103,550   $  96,280   $ 138,112    $   438,215
Gross profit                                                       27,380       27,989      22,718      39,424        117,511
Operating profit (loss)                                               871          470      (2,965)     10,909          9,285
Income (loss) before cumulative effect of change in
 accounting principle                                                (111)        (425)     (2,755)      5,893          2,602
Income (loss) per share - basic before cumulative effect of
 change in accounting principle (1)                                 (0.01)       (0.03)      (0.17)       0.36           0.16
Income (loss) per share - diluted before cumulative effect
 of change in accounting principle (1)                              (0.01)       (0.03)      (0.17)       0.36           0.16
Net income (loss)                                                  (1,312)        (425)     (2,755)      5,893          1,401
Net income (loss) per share - basic (1)                             (0.08)       (0.03)      (0.17)       0.36           0.09
Net income (loss) per share - diluted                               (0.08)       (0.03)      (0.17)       0.36           0.08
</TABLE>

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

(2)      Certain reclassifications were made to the quarterly amounts for fiscal
         2003 to appropriately reflect discontinued operations.

                                       27

<PAGE>

BOOKS-A-MILLION
2004 Annual Report

DIRECTORS AND CORPORATE OFFICERS

BOARD OF DIRECTORS

CLYDE B. ANDERSON
Executive Chairman of the Board

CHARLES C. ANDERSON
Retired Chairman

TERRY C. ANDERSON
Chief Executive Officer and President, American Promotional
Events, Inc.

RONALD G. BRUNO
President,
Bruno Capital Management Corporation

DR. J. BARRY MASON
Dean, Culverhouse College of Commerce The University of Alabama

WILLIAM H. ROGERS, JR.
Executive Vice President, SunTrust Banks, Inc.

CORPORATE OFFICERS

CLYDE B. ANDERSON
Executive Chairman of the Board

SANDRA B. COCHRAN
President, Chief Executive Officer and Secretary

TERRANCE G. FINLEY
Executive Vice President of Books-A-Million, Inc.
  and President, American Internet Service, Inc.

RICHARD S. WALLINGTON
Chief Financial Officer

                                       28

<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2004 Annual Report

CORPORATE INFORMATION

CORPORATE OFFICE
Books-A-Million, Inc.
402 Industrial Lane
Birmingham, Alabama 35211
(205) 942-3737

TRANSFER AGENT
Bank of New York
(800) 524-4458

     STOCKHOLDER INQUIRIES:
     Stockholder Relations Department - 11E
     P.O. Box 11258, Church Street Station
     New York, New York 10286
     E-Mail address: shareowner-svcs@bankofny.com
     Bank of New York's Stock Transfer Website: http://stock.bankofny.com

     CERTIFICATES FOR TRANSFER AND ADDRESS CHANGES TO:
     Receive and Deliver Department - 11W
     P.O. Box 11002, Church Street Station
     New York, New York 10286

INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Birmingham, Alabama

FORM 10-K AND INVESTOR CONTACT

         A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 2004, as filed with the Securities and Exchange Commission, as
well as key committee charters, corporate governance guidelines and code of
conduct, are available without charge to stockholders upon written request. Such
requests and other investor inquiries should be directed to Richard S.
Wallington, the Company's Chief Financial Officer, or you can view the 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
National Market under the symbol BAMM. The chart below sets forth the high and
low stock prices for each quarter of the fiscal years ending January 31, 2004
and February 1, 2003.

<TABLE>
<CAPTION>
Quarter Ended                           High            Low
-------------                          -----           -----
<S>                                    <C>             <C>
JANUARY 2004                           $7.02           $4.41
OCTOBER 2003                            5.00            2.80
JULY 2003                               3.34            2.07
APRIL 2003                              2.45            2.05
January 2003                            2.77            2.27
October 2002                            3.70            2.53
July 2002                               4.26            3.22
April 2002                              5.12            3.02
</TABLE>

         The closing price on April 5, 2004, was $6.68. No cash dividends have
been declared since completion of the Company's initial public offering in 1992.
As of April 5, 2004, Books-A-Million, Inc., had approximately 10,500
stockholders based on the number of individual participants represented by
security position listings.

ANNUAL MEETING OF STOCKHOLDERS

         The annual meeting of stockholders will be held on June 3, 2004, at
10:00 a.m. central time at The Harbert Center, 2019 Fourth Avenue North,
Birmingham, Alabama 35203. Stockholders of record as of April 5, 2004, are
invited to attend this meeting.

                                       29