<PAGE>

                                                                      EXHIBIT 13

                                                                 BOOKS-A-MILLION
                                                              2005 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.

FIVE-YEAR HIGHLIGHTS

<TABLE>
<CAPTION>
                                                                          FOR THE FISCAL YEAR ENDED:
     (In thousands, except per share amounts)           1/29/05    1/31/04 (1)   2/1/03 (2)      2/2/02       2/3/01
--------------------------------------------------     ----------  -----------  ------------   ----------   ----------
<S>                                                    <C>         <C>          <C>            <C>          <C>
STATEMENT OF OPERATIONS DATA                             52 WEEKS     52 weeks      52 weeks     52 weeks     53 weeks
Net sales                                              $  475,226  $   458,290  $    436,348   $  435,832   $  411,881
Income before cumulative effect of a change
    in accounting principle (2)                            10,199        7,126         2,554        3,944        3,012
Net income                                                 10,199        7,126         1,353        3,944        3,012
Earnings per share - diluted,  before cumulative
    effect of a change in accounting principle (2)           0.59         0.42          0.15         0.23         0.17
Earnings per share - diluted                                 0.59         0.42          0.08         0.23         0.17
Weighted average shares - diluted                          17,178       16,789        16,566       16,945       17,991
Capital investment                                         14,923       10,402        19,836       12,688       17,065
Dividends per share - declared                               0.23         0.00          0.00         0.00         0.00

BALANCE SHEET DATA
Property and equipment, net                            $   55,946  $    59,892  $     68,912   $   67,941   $   72,870
Total assets                                              300,812      296,398       319,484      306,083      304,410
Long-term debt                                              7,500       20,640        44,942       38,846       41,526
Stockholders' equity                                      134,859      131,001       122,694      121,212      122,108

OTHER DATA
Working capital                                        $   95,382  $   104,723  $    112,810   $  105,638   $  103,338
Debt to total capital ratio                                  0.05         0.14          0.27         0.24         0.26

OPERATIONAL DATA
Total number of stores                                        206          202           207          204          185
Number of superstores                                         168          163           163          157          145
Number of traditional stores                                   34           35            37           40           37
Number of Joe Muggs newsstands                                  4            4             7            7            3
</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 of the Consolidated Financial Statements.

                                        1
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

TO OUR STOCKHOLDERS:

Fiscal year 2005 was challenging and rewarding for our entire team at
Books-A-Million. We saw steady progress in all areas of our business, overcoming
very strong sales comparisons with the prior year due to the publication of
Harry Potter and the Order of the Phoenix and dealt with the ravages of Mother
Nature in the form of the devastating hurricanes that struck the south in August
and September.

Sales in our core book business were excellent. The fiction, inspirational,
children's, biography and humor categories--among our largest--all performed
well. In addition, we saw emerging categories such as graphic novels, teen
fiction, and Christian fiction achieve significant growth.

The mass media once again had a considerable impact on book sales. We saw the
success of movie tie-ins such as Series of Unfortunate Events and The Polar
Express. Television influenced titles such as Jon Stewart's America (The Book)
and Joel Osteen's Your Best Life Now, as well as the runaway hit He's Just Not
That Into You.

In the non-book categories, we were pleased with our initiatives in games and
toys and the continued strong performance of calendars, journals, and book
accessories. The cafe business was also solid, driven by the strength of the
cold-drink category anchored by Frappe, our line of blended frozen drinks.

The positive sales results combined with improved operations had a marked impact
on our results. Higher margins resulted from increased sales of books related to
our proprietary publishing efforts and gift products sourced through our import
program, along with less promotional discounting. Our debt decreased
substantially and cash balances improved. Enhanced inventory management systems
allowed us to achieve better inventory turns and improved leveraging of accounts
payable.

During the year we opened 6 new stores and remodeled an additional 31 stores.
This brings the total number of stores remodeled over the past three years up to
111 stores.

                                       2
<PAGE>
                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

Thanks to the efforts of our dedicated associates, we were able to achieve the
objectives that we set at the beginning of the year. Our team was focused on
specific improvements in sales, margin and inventory. The results of this focus
are clear; net income grew by 43% and earnings per share by 40%. We continued a
stock repurchase program and initiated a dividend for our shareholders that is
now at an annual rate of 20 cents per share.

We intend to build on these positive results as we move into the new year. July
16th brings the publication of the next installment of the Harry Potter series,
Harry Potter and the Half Blood Prince, and we hope you will join us at a
Books-A-Million store to share in the excitement surrounding what will
undoubtedly be the biggest publishing event of the year.

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)        1/29/05     1/31/04 (1)
----------------------------------------      -----------   -----------
<S>                                           <C>           <C>
Net sales                                     $   475,226   $   458,290
Operating profit                                   18,184        15,158
Net income                                         10,199         7,126
Net income per share - diluted                       0.59          0.42
Dividends per share - declared                       0.23          0.00
</TABLE>

<TABLE>
<CAPTION>
                                                        AS OF
                                              -------------------------
   (In thousands)                               1/29/05     1/31/04 (1)
---------------------                         -----------   -----------
<S>                                           <C>           <C>
Working capital                               $    95,382   $   104,723
Total assets                                      300,812       296,398
Stockholders' equity                              134,859       131,001
</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.

                                        3
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                         Fiscal Year Ended
               (In thousands, except per share data)                    1/29/05   1/31/04(1)  2/1/03(2)    2/2/02    2/3/01
--------------------------------------------------------------------   ---------  ---------   ---------   ---------  ---------
<S>                                                                    <C>        <C>         <C>         <C>        <C>
STATEMENT OF OPERATIONS DATA:                                           52 WEEKS    52 weeks    52 weeks   52 weeks   53 weeks
Net sales                                                              $ 475,226  $  458,290  $  436,348  $ 435,832  $ 411,881
Cost of products sold, including warehouse distribution and store
   occupancy costs                                                       339,851     330,909     317,020    312,140    297,454
                                                                       ---------  ----------  ----------  ---------  ---------
Gross profit                                                             135,375     127,381     119,328    123,692    114,427
Operating, selling and administrative expenses                            99,399      94,155      91,764     95,462     88,588
Depreciation and amortization                                             17,792      18,068      18,230     17,194     16,130
                                                                       ---------  ----------  ----------  ---------  ---------
Operating profit                                                          18,184      15,158       9,334     11,036      9,709
Interest expense, net                                                      1,874       2,909       4,171      4,429      4,804
                                                                       ---------  ----------  ----------  ---------  ---------
Income from continuing operations before income taxes and cumulative
   effect of change in accounting principle                               16,310      12,249       5,163      6,607      4,905
Provision for income taxes                                                 6,035       4,656       1,962      2,510      1,863
                                                                       ---------  ----------  ----------  ---------  ---------
Income from continuing operations before cumulative effect of change
   in accounting principle                                                10,275       7,593       3,201      4,097      3,042

Discontinued operations:
   Loss from discontinued operations (including impairment charge)          (121)       (754)     (1,044)      (246)       (48)
   Income tax benefit                                                         45         287         397         93         18
                                                                       ---------  ----------  ----------  ---------  ---------
   Loss from discontinued operations                                         (76)       (467)       (647)      (153)       (30)
                                                                       ---------  ----------  ----------  ---------  ---------
Income before cumulative effect of change in accounting principle         10,199       7,126       2,554      3,944      3,012
Cumulative effect of change in accounting principle, net of income
   taxes                                                                      --          --      (1,201)        --         --
                                                                       ---------  ----------  ----------  ---------  ---------
Net income                                                             $  10,199  $    7,126  $    1,353  $   3,944  $   3,012
                                                                       =========  ==========  ==========  =========  =========
Net income per common share:
BASIC:
   Income from continuing operations before cumulative effect of
      change in accounting principle                                   $    0.62  $     0.47  $     0.20  $    0.25  $    0.17
   Loss from discontinued operations                                          --       (0.03)      (0.04)     (0.01)        --
                                                                       ---------  ----------  ----------  ---------  ---------
   Income before cumulative effect of change in accounting principle        0.62        0.44        0.16       0.24       0.17
   Cumulative effect of change in accounting principle                        --          --       (0.08)        --         --
                                                                       ---------  ----------  ----------  ---------  ---------
   Net income per share                                                $    0.62  $     0.44  $     0.08  $    0.24  $    0.17
                                                                       =========  ==========  ==========  =========  =========
Weighted average number of shares outstanding - basic                     16,453      16,279      16,190     16,667     17,955
                                                                       =========  ==========  ==========  =========  =========
DILUTED:
   Income from continuing operations before cumulative effect of
      change in accounting principle                                   $    0.59  $     0.45  $     0.19  $    0.24  $    0.17
   Gain (loss) from discontinued operations                                   --       (0.03)      (0.04)     (0.01)        --
                                                                       ---------  ----------  ----------  ---------  ---------
   Income before cumulative effect of change in accounting principle        0.59        0.42        0.15       0.23       0.17
   Cumulative effect of change  in accounting principle                       --          --       (0.07)        --         --
                                                                       ---------  ----------  ----------  ---------  ---------
   Net income per share                                                $    0.59  $     0.42  $     0.08  $    0.23  $    0.17
                                                                       =========  ==========  ==========  =========  =========
Weighted average number of shares outstanding - diluted                   17,178      16,789      16,566     16,945     17,991
                                                                       =========  ==========  ==========  =========  =========
Dividends per share - declared                                         $    0.23          --          --         --         --

Pro forma amounts assuming the change in accounting principle was
   applied retroactively: (1)
Net income                                                                   N/A         N/A         N/A  $   3,891  $   2,760
Net income per share - basic                                                 N/A         N/A         N/A       0.23       0.15
Net income per share - diluted                                               N/A         N/A         N/A       0.23       0.15

BALANCE SHEET DATA:
Property and equipment, net                                            $  55,946  $   59,892  $   68,912  $  67,941  $  72,870
Total assets                                                             300,812     296,398     319,484    306,083    304,410
Long-term debt                                                             7,500      20,640      44,942     38,846     41,526
Stockholders' investment                                                 134,859     131,001     122,694    121,212    122,108

OTHER DATA:
Working capital                                                        $  95,382  $  104,723  $  112,810  $ 105,638  $ 103,338
</TABLE>

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

                                        4
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

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

GENERAL

The Company was founded in 1917 and currently operates 206 retail bookstores
concentrated primarily in the southeastern United States. Of the 206 stores, 168
are superstores which operate under the names Books-A-Million and Books & Co.,
34 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 29,
2005, the Company employed approximately 4,900 full and part-time employees.

The Company's growth strategy is focused on opening superstores in new and
existing market areas, particularly in the Southeast. In addition to opening new
stores, management intends to continue its practice of reviewing the
profitability trends and prospects of existing stores and closing or relocating
under-performing stores. During fiscal 2005, the Company opened six stores,
closed two stores and relocated three stores. 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 three years, the remodeled stores have outpaced
the chain in comparable store sales. During fiscal 2005, the Company remodeled
31 stores. Approximately 58 percent of the Company's stores have been remodeled
to date as part of the 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

General

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

Other Long-Lived Assets and Impairment of Long-Lived Assets

Property and equipment are recorded at cost. Depreciation on equipment and
furniture and fixtures is provided on the straight-line method over the
estimated service lives, which range from three to seven years. Depreciation of
buildings and amortization of leasehold improvements, including remodels, is
provided on the straight-line basis over the lesser of the assets estimated
useful lives (ranging from 5 to 40 years) or, if applicable, the periods of the
leases. Determination of useful asset life is based on several factors requiring
judgment by management and adherence to generally accepted accounting principles
for depreciable periods. Judgment used by management in the determination of
useful asset life could relate to any of the following factors: expected use of
the asset; expected useful life of similar assets; any legal, regulatory, or
contractual provisions that may limit the useful life; and other factors that
may impair the economic useful life of the asset. Maintenance and repairs are
charged to expense as incurred. Improvement costs are capitalized to property
accounts and depreciated using applicable annual rates. The cost and accumulated
depreciation of assets sold, retired or otherwise disposed of are removed from
the accounts, and the related gain or loss is credited or charged to income.

The Company reviews property and equipment and amortizable intangibles when
events or changes in circumstances indicate that their carrying amounts may not
be recoverable or their depreciation or amortization periods should be
accelerated in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". Circumstances that are considered in determining impairment are:
decreases in store sales from the prior year, decreases in store sales from the
current year budget, annual measurement of individual store pre-tax future cash
flows, indications that an asset no longer has an economically useful life, or
other factors that would indicate a store cannot be profitable. Recoverability
of assets held and used is measured by a comparison of the carrying amount of an
asset to

                                        5
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

undiscounted pre-tax future net cash flows at the lowest level of independent
cash flows, which is generally at the individual store level. Future events
could cause the Company to conclude that impairment indicators exist and those
long-lived assets may be impaired. Any resulting impairment loss could have a
material adverse impact on the Company's financial condition and results of
operations. The Company's long-lived assets are principally 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 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 2005, 2004 and
2003, impairment losses of $342,000, $983,000 and $241,000, respectively, were
recorded in selling, general and administrative costs. For all years presented,
the impairment losses related to the retail trade business segment.

Closed Store Expenses

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

When the Company closes or relocates a store, the Company charges unrecoverable
costs to expense. Such costs include the net book value of abandoned fixtures
and leasehold improvements, lease termination costs, costs to transfer inventory
and usable fixtures, other costs in connection with vacating the leased
location, and a provision for future lease obligations, net of expected sublease
recoveries. Costs associated with store closings of $55,000, $219,000, and
$22,000 during fiscal 2005, 2004 and 2003, respectively, are included in selling
and administrative expenses in the accompanying consolidated statements of
operations.

Inventories

Inventories 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's accrual for inventory shortages is based upon
historical inventory shortage results.

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

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 $0.4 million and $0.7 million for the fiscal years
ended January 29, 2005 and January 31, 2004, respectively. This resulted in an
after-tax decrease to net income of $0.3 million or $0.01 per diluted share for
fiscal 2005 and an after-tax decrease to net income of $0.4 million or $0.02 per
diluted share for fiscal 2004. 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
retroactively applying the change cannot be reasonably estimated and have not
been disclosed. The cumulative difference between replacement and current cost
of inventory over stated LIFO value is $1.1 million as of January 29, 2005 and
$0.7 million as of January 31, 2004, whereas the fiscal 2005 and fiscal 2004
inventory before LIFO, at FIFO value is $211.3 million and $212.3 million,
respectively. The estimated replacement cost of inventory is the current FIFO
value of $211.3 million. The LIFO value did not include any layer liquidation in
fiscal 2005 or fiscal 2004.

Vendor Allowances

The Company receives allowances from its vendors from a variety of programs and
arrangements, including merchandise placement and cooperative advertising
programs. Effective February 3, 2002, the Company adopted the provisions of
Emerging Issues Task Force ("EITF") No. 02-16, Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor, which
addresses the accounting for vendor allowances. As a result of the adoption of
this statement, vendor allowances in excess of incremental direct costs are
reflected as a reduction of inventory costs and recognized in cost of products
sold upon the sale of the related inventory. 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 $0.07 per diluted share. Prior to fiscal 2003, the
Company recognized these vendor allowances over the period covered by the vendor
arrangement.

                                        6
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

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
                                                                                    ----------------------------
                                                                                    1/29/05    1/31/04    2/1/03
                                                                                    -------    -------    ------
<S>                                                                                 <C>        <C>        <C>
Net sales                                                                            100.0%     100.0%    100.0%
Gross profit                                                                          28.5%      27.8%     27.3%
Operating, selling, and administrative expenses                                       20.9%      20.5%     21.0%
Depreciation and amortization                                                          3.8%       4.0%      4.2%
Operating profit                                                                       3.8%       3.3%      2.1%
Interest expense, net                                                                  0.4%       0.6%      1.0%
Income from continuing operations before income taxes and cumulative effect of         3.4%       2.7%      1.1%
    change in accounting principle
Provision for income taxes                                                             1.2%       1.0%      0.4%
Income from continuing operations before cumulative effect of change in                2.2%       1.7%      0.7%
    accounting principle
Loss from discontinued operations (including impairment charge), net of tax            0.0%      -0.1%     -0.1%
Income before cumulative effect of change in accounting principle                      2.2%       1.6%      0.6%
Cumulative effect of a change in accounting principle                                  0.0%       0.0%     -0.3%
Net income                                                                             2.2%       1.6%      0.3%
</TABLE>

FISCAL 2005 COMPARED TO FISCAL 2004

Consolidated net sales increased $16.9 million, or 3.7%, to $475.2 million in
fiscal 2005 from $458.3 million in fiscal 2004. Comparable store sales increased
2.5% when compared to the same 52-week period last year. The increase in
comparable store sales was primarily attributable to an increase in book sales
and increase in cafe sales. The book sales increase was due to strong sales
performance in categories such as: Fiction, which had broad based strength in
many titles; Inspirational, with strong sales of The Purpose Driven Life,
Biography, with strong sales of Bill Clinton's My Life, and Humor, which was
driven by sales of Jon Stewart's America (The Book) and He's Just Not That Into
You. The cafe sales increase was driven by the strong performance in the frappe
line of cold drinks. The Company opened six new stores during fiscal 2005
resulting in partial year sales of $3.6 million and closed two stores during
fiscal 2005 with partial year sales of $1.0 million. One of the closed stores
was located in Stewart, Florida and was not reopened after substantial damage
due to Hurricane Jean. Additional detail is discussed in the footnotes regarding
Impairment of Long-Lived Assets, Closed Store Expenses and Discontinued
Operations.

Net sales for the retail trade segment increased $14.8 million, or 3.3%, to
$466.9 million in fiscal 2005 from $452.1 million in fiscal 2004. The increase
in comparable store sales was primarily attributable to an increase in book
sales and increase in cafe sales. The book sales increase was due to strong
sales performance in categories such as: Fiction, which had broad based strength
in many titles; Inspirational, with strong sales of The Purpose Driven Life,
Biography, with strong sales of Bill Clinton's My Life, and Humor, which was
driven by sales of Jon Stewart's America (The Book) and He's Just Not That Into
You. The cafe sales increase was driven by the strong performance in the frappe'
line of cold drinks. Net sales for the electronic commerce segment increased
$1.2 million, or 4.7%, to $26.7 million in fiscal 2005 from $25.5 million in
fiscal 2004. This increase was primarily due to growth in business-to-business
sales volume during fiscal 2005.

                                        7
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 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 6.3%, to $135.4 million
in fiscal 2005 from $127.4 million in fiscal 2004. Gross profit as a percentage
of net sales increased to 28.5% in fiscal 2005 from 27.8% in fiscal 2004,
primarily due to less promotional discounting and improved margin due to
increased sales of proprietary product.

Operating, selling and administrative expenses increased $5.2 million, or 5.6%,
to $99.4 million in fiscal 2005, from $94.2 million in fiscal 2004. Operating,
selling and administrative expenses as a percentage of net sales increased to
20.9% in fiscal 2005 from 20.5% in fiscal 2004, partially due to the impact of
costs incurred for Sarbanes-Oxley compliance, as well as increased general
corporate expenses.

Depreciation and amortization decreased $0.3 million or 1.5% to $17.8 million in
fiscal 2005 from $18.1 million in fiscal 2004. Depreciation and amortization as
a percentage of net sales decreased to 3.8% in fiscal 2005 from 4.0% in fiscal
2004, due to lower capital expenditures in fiscal 2005.

Consolidated operating profit was $18.2 million for fiscal 2005 compared to
$15.2 million in fiscal 2004. Operating profit for the retail trade segment was
$17.0 million in fiscal 2005 versus $14.3 million in fiscal 2004. This increase
was primarily attributable to the higher comparable store sales during fiscal
2005. The operating profit for the electronic commerce segment was $0.9 million
compared to $0.3 million in fiscal 2004. The improvement in operating results
was due to improved gross margin as a result of increased sales, as well as
improved sales mix.

Net interest expense decreased $1.0 million, or 35.6%, to $1.9 million in fiscal
2005 from $2.9 million in fiscal 2004, primarily due to lower average debt
levels during fiscal 2005.

Income taxes were calculated at an effective rate of 37.0% for fiscal 2005 and
38.0% for fiscal 2004.

Loss from discontinued operations was $0.1 million in fiscal 2005 compared to
$0.8 million in fiscal 2004. The income tax benefit on the loss from
discontinued operations was $0.0 million in fiscal 2005 and $0.3 million in
fiscal 2004. Loss from discontinued operations, net of tax, was $0.1 million in
fiscal 2005 compared to $0.5 million in fiscal 2004. These losses represent the
results of two stores that were closed in fiscal 2005 and 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 2004 COMPARED TO FISCAL 2003

Consolidated net sales increased $22.0 million, or 5.0%, to $458.3 million in
fiscal 2004 from $436.3 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 primarily attributable to an increase in book sales
and an increase in cafe sales. The book sales increase was due to strong sales
performance in categories such as: Children's, with strong sales of Harry
Potter; Fiction, with strong best sellers such as The DaVinci Code; and Diet &
Health, with successful titles in the low-carb diet category. The cafe sales
increase was due to strong performance in the frappe line of drinks. The Company
opened four new stores during fiscal 2004 resulting in partial year sales of
$5.7 million and closed nine stores during fiscal 2004 with partial year sales
of $4.7 million. Additional detail is discussed in the footnotes regarding
Impairment of Long-Lived Assets, Closed Store Expenses and Discontinued
Operations.

Net sales for the retail trade segment increased $21.1 million, or 4.9%, to
$452.1 million in fiscal 2004 from $431.0 million in fiscal 2003. The increase
in comparable store sales was primarily attributable to an increase in book
sales and an increase in cafe sales. The book sales increase was due to strong
sales performance in categories such as: Children's, with strong sales of Harry
Potter; Fiction, with strong best sellers such as The DaVinci Code; and Diet &
Health, with successful titles in the low-carb diet category. The cafe sales
increase was due to strong performance in the frappe line of drinks. 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.

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 $8.1 million, or 6.8%, to $127.4 million
in fiscal 2004 from $119.3 million in fiscal 2003. Gross profit as a percentage
of net sales increased to 27.8% in fiscal 2004 from 27.3% in fiscal 2003,
primarily due to improved sales mix, less promotional discounting and lower
occupancy costs as a percentage of net sales.

                                        8
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

Operating, selling and administrative expenses increased $2.4 million, or 2.6%,
to $94.2 million in fiscal 2004, from $91.8 million in fiscal 2003. Operating,
selling and administrative expenses as a percentage of net sales decreased to
20.5% 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 $0.1 million or 0.9% to $18.1 million in
fiscal 2004 from $18.2 million in fiscal 2003. Depreciation and amortization as
a percentage of net sales decreased to 4.0% in fiscal 2004 from 4.2% 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 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 lowering 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 $0.8 million in fiscal 2004 compared to
$1.0 million in fiscal 2003. The income tax benefit on the loss from
discontinued operations was $0.3 million in fiscal 2004 and $0.4 million in
fiscal 2003. Loss from discontinued operations, net of tax, was $0.5 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.

SEASONALITY AND QUARTERLY RESULTS

Similar to many retailers, the Company's business is seasonal, with its highest
retail sales, gross profit and net income historically occurring in the fourth
fiscal quarter. This seasonal pattern reflects the increased demand for books
and gifts experienced during the year-end holiday selling season. Working
capital requirements are generally highest during the third fiscal quarter and
the early part of the fourth fiscal quarter due to the seasonality of the
Company's business. The Company's results of operations depend significantly
upon net sales generated during the fourth fiscal quarter, and any significant
adverse trend in the net sales of such period would have a material adverse
impact on the Company's results of operations for the full year.

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

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are cash flows from operations,
including credit terms from vendors, and borrowings under its credit facilities.
The Company has an unsecured revolving credit facility that allows borrowings up
to $100.0 million, for which no principal repayments are due until the facility
expires in July 2007. 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 29, 2005 there was no
outstanding balance and as of January 31, 2004 there was $13.1 million
outstanding under this credit facility. The maximum and average outstanding
balances during fiscal 2005 were $34.4 million and $21.6 million, respectively.
Additionally, as of January 29, 2005 and January 31, 2004, the Company has
outstanding borrowings under an industrial revenue bond totaling $7.5 million,
which is secured by certain property.

The Company's capital expenditures totaled $14.9 million in fiscal 2005. 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 2006 will be
approximately $16.0 million and that such amounts will be used for purposes
similar to fiscal 2005. 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
2006.

                                        9
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

Financial Position

During fiscal 2005, the Company opened six new stores and closed two stores.
Strong inventory management resulted in decreased inventory balances at January
29, 2005, as compared to January 31, 2004. Net property and equipment decreased
due to lower capital expenditures in fiscal 2005. Additionally, long-term debt
balances decreased as of January 29, 2005 compared to January 31, 2004 due to
improved earnings, lower inventory balances, increased accounts payable
leveraging and lower capital expenditures.

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 29, 2005:

<TABLE>
<CAPTION>
                                                     PAYMENTS DUE UNDER CONTRACTUAL OBLIGATIONS
                                    ----------------------------------------------------------------------------
         (in thousands)               TOTAL     FY 2006    FY 2007    FY 2008    FY 2009    FY 2010   THEREAFTER
---------------------------------   ---------  ---------  ---------  ---------  ---------  ---------  ----------
<S>                                 <C>        <C>        <C>        <C>        <C>        <C>        <C>
Long-term debt - revolving credit   $      --  $      --  $      --  $      --  $      --  $      --  $       --
    facility
Long-term debt - industrial             7,500         --      7,500         --         --         --          --
    revenue bond
Operating leases                      106,685     27,521     21,853     18,133     13,468      8,461      17,249
                                    ---------  ---------  ---------  ---------  ---------  ---------  ----------
Total of obligations                $ 114,185  $  27,521  $  29,353  $  18,133  $  13,468  $   8,461  $   17,249
                                    =========  =========  =========  =========  =========  =========  ==========
</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 29, 2005; as such liabilities are considered
de minimis.

Cash Flows

Operating activities provided cash of $47,193,000, $34,678,000 and $13,650,000
in fiscal 2005, 2004 and 2003, respectively, and included the following effects:

      -     Cash provided by inventories in fiscal 2005 of $1,321,000 and
            $12,428,000 in fiscal 2004 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 accounts payable is fiscal 2005 of $10,015,000 was
            the result of improved inventory management in fiscal 2005. Cash
            used by accounts payable in fiscal 2004 of $11,895,000 was due to
            lower inventory levels for fiscal 2004. Cash provided by accounts
            payable in fiscal 2003 was $5,472,000 due to higher inventory
            levels.

      -     Depreciation and amortization expenses were $17,843,000, $18,325,000
            and $18,584,000 in fiscal 2005, 2004 and 2003, respectively. The
            decrease in fiscal 2005 and 2004 was due to decreased capital
            expenditures during the respective years.

      -     Cash provided by accrued expenses was $6,379,000, $4,144,000, and
            $967,000 in fiscal 2005, 2004 and 2003, respectively. The increase,
            in fiscal 2005 and fiscal 2004 was primarily due to increases in
            deferred revenues related to the Company's discount card , deferred
            rent related to landlord allowances, and higher bonus accruals due
            to the Company's improved earnings performance in fiscal 2005 and
            fiscal 2004.

Cash used in investing activities in fiscal 2005, 2004 and 2003 reflected a net
use of cash of $14,879,000, $10,363,000 and $19,776,000, respectively. Cash was
used 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.

                                       10
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

Financing activities used cash of $21,103,000 in fiscal 2005 primarily to repay
debt under the credit facility ($13,140,000), to purchase stock (treasury stock,
$6,359,000) and dividend payments ($3,009,000). 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 $5,891,000 from borrowings under the
credit facility.

Dividends

The Company paid $3.0 million in dividends in fiscal 2005. On August 17, 2004,
the Board of Directors declared a special dividend of $0.12 per share and a
quarterly dividend of $0.03 per share, which was paid on September 14, 2004, to
stockholders of record at the close of business on August 31, 2004. On November
16, 2004, the Board of Directors declared a quarterly dividend of $0.03 per
share, which was paid on December 14, 2004, to stockholders of record at the
close of business on November 30, 2004. On March 15, 2005, the Board of
Directors declared a quarterly dividend of $0.05 per share, a 67% increase from
the third quarter quarterly dividend, to be paid on April 12, 2005, to
stockholders of record at the close of business on March 29, 2005. The Company
will pay quarterly dividends in the future, subject to Board approval.

Outlook

For fiscal 2006, the Company currently expects to open approximately eight to
ten new stores, relocate or remodel approximately 20 to 25 stores and close
approximately two to four stores. Management estimates that capital expenditures
for fiscal 2006 will be approximately $16.0 million and that such amounts will
be used primarily for new store openings, renovations and improvements to
existing stores, warehouse distribution purposes and investment in management
information systems.

NEW ACCOUNTING STANDARDS

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (revised 2004, "Share-Based Payment.") SFAS No. 123R is a revision of
SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R
requires all share-based payments to employees including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. SFAS No. 123R is effective at the beginning of the first annual period
beginning after June 15, 2005 (as modified by the SEC on April 14, 2005). Under
ABP Opinion No. 25, no stock-based compensation cost had been reflected in the
net income of the Company for grants of stock options to employees. Beginning in
fiscal 2007, the Company will recognize compensation expense in its financial
statements based on the fair value of all share-based payments to employees. The
impact of adopting this new accounting standard on the Company's financial
position, results of operations or cash flows has not yet been determined.

In November 2004, the Emerging Issues Task Force ("EITF") issued EITF No. 03-13,
"Applying the Conditions in Paragraph 42 of FASB No. 144 in Determining Whether
to Report Discontinued Operations." EITF No. 03-13 addresses how an ongoing
entity should evaluate whether the operations and cash flows of a disposed
component have been or will be eliminated from the ongoing operations of the
entity and the types of continuing involvement that constitute significant
continuing involvement in the operations of the disposed component. EITF No.
03-13 is effective with the fiscal year beginning January 30, 2005. The impact
of adopting this new guidance on the Company's financial position, results of
operations or cash flows has not yet been determined.

FASB Interpretation ("FIN") No. 46, "Consolidation of Variable Interest
Entities,"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 applied
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
applied also 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 adopted the provisions of FIN
46R in the first quarter of fiscal 2005. The adoption of this interpretation did
not have a material effect 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 2005 when compared to fiscal 2004. Related party
sales transactions decreased in fiscal 2005 due to lower sales of book product.
The Company leases certain office, retail and warehouse space from related
parties for which the rents have remained relatively unchanged. Management
believes the terms of these related party transactions are substantially
equivalent to those available from unrelated parties.

                                       11
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 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.

                                       12
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                            AS OF
                        (Dollars In thousands, except per share amounts)                             1/29/05     1/31/04
------------------------------------------------------------------------------------------------    ---------   ----------
<S>                                                                                                 <C>         <C>
ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                                                       $  16,559   $    5,348
    Accounts receivable, net of allowance for doubtful accounts of $581 and $545, respectively          6,543        7,271
    Related party receivables                                                                              73          351
    Inventories                                                                                       210,270      211,591
    Prepayments and other                                                                               6,911        5,890
    Deferred income taxes                                                                               1,704        4,450
                                                                                                    ---------   ----------
       Total Current Assets                                                                           242,060      234,901
                                                                                                    ---------   ----------
PROPERTY AND EQUIPMENT:
    Land                                                                                                  628          628
    Buildings                                                                                           6,439        6,130
    Equipment                                                                                          67,942       67,418
    Furniture and fixtures                                                                             44,279       44,815
    Leasehold improvements                                                                             71,323       70,777
    Construction in process                                                                             5,353          193
                                                                                                    ---------   ----------
       Gross Property and Equipment                                                                   195,964      189,961
    Less accumulated depreciation and amortization                                                    140,018      130,069
                                                                                                    ---------   ----------
       Net Property and Equipment                                                                      55,946       59,892
                                                                                                    ---------   ----------
OTHER ASSETS:
    Goodwill                                                                                            1,368        1,368
    Other                                                                                               1,438          237
                                                                                                    ---------   ----------
       Total Other Assets                                                                               2,806        1,605
                                                                                                    ---------   ----------
       TOTAL ASSETS                                                                                 $ 300,812   $  296,398
                                                                                                    =========   ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable:
       Trade                                                                                        $  97,185   $   87,984
       Related party                                                                                    9,591        8,777
    Accrued expenses                                                                                   38,360       30,191
    Accrued income taxes                                                                                1,542        3,226
                                                                                                    ---------   ----------
       Total Current Liabilities                                                                      146,678      130,178
                                                                                                    ---------   ----------
LONG-TERM DEBT                                                                                          7,500       20,640
DEFERRED INCOME TAXES                                                                                   1,415        1,957
OTHER LONG-TERM LIABILITIES                                                                            10,360       12,622
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 19,067,960 and 18,465,387
       shares issued at January 29, 2005 and January 31, 2004, respectively                               191          185
    Additional paid-in capital                                                                         74,505       71,799
    Treasury stock at cost (2,792,869 shares at January 29, 2005 and 2,010,050 shares at January      (11,630)      (5,271)
        31, 2004, respectively)
    Deferred compensation                                                                                (481)        (284)
    Accumulated other comprehensive loss, net of tax                                                     (195)        (707)
    Retained earnings                                                                                  72,469       65,279
                                                                                                    ---------   ----------
       Total Stockholders' Equity                                                                     134,859      131,001
                                                                                                    ---------   ----------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                   $ 300,812   $  296,398
                                                                                                    =========   ==========
</TABLE>

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

                                       13
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                  FISCAL YEAR ENDED
                                                                                        ---------------------------------------
                       (In thousands, except per share data)                              1/29/05       1/31/04       2/1/03
------------------------------------------------------------------------------------    -----------   -----------   ----------
<S>                                                                                     <C>           <C>           <C>
                                                                                           52 WEEKS      52 weeks     52 weeks
Net sales                                                                               $   475,226   $   458,290   $  436,348
Cost of products sold, including warehouse distribution and store occupancy costs(1)        339,851       330,909      317,020
                                                                                        -----------   -----------   ----------
    GROSS PROFIT                                                                            135,375       127,381      119,328

Operating, selling and administrative expenses                                               99,399        94,155       91,764
Depreciation and amortization                                                                17,792        18,068       18,230
                                                                                        -----------   -----------   ----------
    OPERATING PROFIT                                                                         18,184        15,158        9,334

Interest expense, net                                                                         1,874         2,909        4,171
                                                                                        -----------   -----------   ----------
    INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE
       EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                              16,310        12,249        5,163

Provision for income taxes                                                                    6,035         4,656        1,962
                                                                                        -----------   -----------   ----------
    INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN
       ACCOUNTING PRINCIPLE                                                                  10,275         7,593        3,201

Discontinued operations:
Loss from discontinued operations (including impairment charge)                                (121)         (754)      (1,044)
Income tax benefit                                                                               45           287          397
                                                                                        -----------   -----------   ----------
Loss from discontinued operations                                                               (76)         (467)        (647)
                                                                                        -----------   -----------   ----------
    INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                        10,199         7,126        2,554
Cumulative effect of change in accounting principle, net of deferred income tax
    benefit of $736                                                                              --            --       (1,201)
                                                                                        -----------   -----------   ----------
    NET INCOME                                                                          $    10,199   $     7,126   $    1,353
                                                                                        ===========   ===========   ==========

Net income per common share:
    BASIC
       Income from continuing operations before cumulative effect of change in
          accounting principle                                                          $      0.62   $      0.47   $     0.20
       Loss from discontinued operations                                                         --         (0.03)       (0.04)
       Income before cumulative effect of change in accounting principle                       0.62          0.44         0.16
                                                                                        -----------   -----------   ----------
       Cumulative effect of change in accounting principle                                       --            --        (0.08)
       Net income per share                                                             $      0.62   $      0.44   $     0.08
                                                                                        ===========   ===========   ==========
       WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC                                 16,453        16,279       16,190
                                                                                        ===========   ===========   ==========
    DILUTED
       Income from continuing operations before cumulative effect of change in
          accounting principle                                                          $      0.59   $      0.45   $     0.19
       Loss from discontinued operations                                                         --         (0.03)       (0.04)
                                                                                        -----------   -----------   ----------
       Income before cumulative effect of change in accounting principle                       0.59          0.42         0.15
       Cumulative effect of change in accounting principle                                       --            --        (0.07)
                                                                                        -----------   -----------   ----------
       Net income per share                                                             $      0.59   $      0.42   $     0.08
                                                                                        ===========   ===========   ==========
       WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED                               17,178        16,789       16,566
                                                                                        ===========   ===========   ==========

Dividends per share - declared                                                          $      0.23            --           --
                                                                                        ===========   ===========   ==========
</TABLE>

(1)   Inventory purchases from related parties were $30,059, $30,349 and
      $30,193, respectively, for the periods presented above.

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

                                       14
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                         ACCUMULATED
                                                                                UNVESTED                   OTHER
                                COMMON STOCK   ADDITIONAL  TREASURY STOCK  RESTRICTED STOCK            COMPREHENSIVE     TOTAL
                              ---------------   PAID-IN    --------------------------------  RETAINED     INCOME      STOCKHOLDERS'
       (In thousands)         SHARES   AMOUNT   CAPITAL    SHARES  AMOUNT    SHARES  AMOUNT  EARNINGS     (LOSS)        EQUITY
----------------------------- ------  -------  ----------  ------  --------  ------  ------  --------  -------------  -------------
<S>                           <C>     <C>      <C>         <C>     <C>       <C>     <C>     <C>       <C>            <C>
BALANCE, FEBRUARY 2, 2002     18,139  $   181  $   70,719   2,010  $ (5,271)                 $ 56,800  $      (1,217) $     121,212

Net income                                                                                      1,353                         1,353
Unrealized loss on
  accounting for derivative
  instruments                                                                                                     (2)            (2)
                                                                                                                      -------------
Subtotal comprehensive income                                                                                                 1,351
                                                                                                                      -------------
Issuance of stock for
  employee stock purchase plan    47        1          85                                                                        86

Exercise of stock options         26                   39                                                                        39
Tax benefit from exercise of
  stock options                                         6                                                                         6
                              ------  -------  ----------  ------  --------  ------  ------  --------  -------------  -------------
BALANCE, FEBRUARY 1, 2003     18,212  $   182  $   70,849   2,010  $ (5,271)                 $ 58,153         (1,219) $     122,694
                              ======  =======  ==========  ======  ========  ======  ======  ========  =============  =============

Net income                                                                                      7,126                         7,126
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                                                                                                 7,638
                                                                                                                      -------------
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) $ 65,279           (707) $     131,001
                              ======  =======  ==========  ======  ========  ======  ======  ========  =============  =============

Net income                                                                                     10,199                        10,199
Unrealized gain on
accounting  for
  derivative instruments,
  net of  tax
  provision of $285                                                                                              485            485
Reclassification of
  unrealized loss
  related to de-designation
  of cash flow hedge, net
  of tax benefit of $16                                                                                           27             27
                                                                                                                      -------------
Subtotal comprehensive income                                                                                                10,711
                                                                                                                      -------------
Purchase of treasury stock                                    783    (6,359)                                                 (6,359)

Dividends paid                                                                                 (3,009)                       (3,009)

Issuance of restricted stock      48        1        363                               (364)                                     --
Amortization of deferred
compensation related to
restricted stock                                                                        167                                     167
Issuance of stock for
  employee stock
  purchase plan                   22                  46                                                                         46

Exercise of stock options        533        5      1,354                                                                      1,359
Tax benefit from exercise of
stock options                                         943                                                                       943
                              ------  -------  ----------  ------  --------  ------  ------  --------  -------------  -------------
BALANCE, JANUARY 29, 2005     19,068  $   191  $   74,505   2,793  $(11,630)         $ (481) $ 72,469  $        (195) $     134,859
                              ======  =======  ==========  ======  ========  ======  ======  ========  =============  =============
</TABLE>

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

                                       15
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                   Fiscal Year Ended
                                                                                          ------------------------------------
                                  (In thousands)                                           1/29/05       1/31/04       2/1/03
-----------------------------------------------------------------------------------       ---------     ---------     --------
<S>                                                                                       <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                                $  10,199     $   7,126     $  1,353
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                                                            17,843        18,325       18,584
    Loss on impairment of assets                                                                356         1,211          382
    Loss on sale of property                                                                   (29)            73          136
    Deferred income tax provision                                                             2,352         1,934          104
    Tax benefit of exercise of stock options                                                    943           141            6
    Reclassification of unrealized loss from de-designation of cash flow hedge                   27           284            -
    Deferred compensation amortization                                                          167             -            -
    (Increase) decrease in assets:
       Accounts receivable                                                                      728           528          241
       Related party receivables                                                                278            86          530
       Inventories                                                                            1,321        12,428      (15,103)
       Prepayments and other                                                                 (1,021)         (510)          59
       Noncurrent assets (excluding amortization)                                              (533)            -            -
    Increase (decrease) in liabilities:
       Accounts payable                                                                       9,201       (11,601)       2,062
       Related party payables                                                                   814          (294)       3,410
       Accrued income taxes                                                                  (1,832)          803         (282)
       Accrued expenses                                                                       6,379         4,144          967
                                                                                          ---------     ---------     --------
          Total adjustments                                                                  36,994        27,552       12,297
                                                                                          ---------     ---------     --------
              Net cash provided by operating activities                                      47,193        34,678       13,650
                                                                                          ---------     ---------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                                                                        (14,923)      (10,402)     (19,836)
Proceeds from sale of property and equipment                                                     44            39           60
                                                                                          ---------     ---------     --------
              Net cash used in investing activities                                         (14,879)      (10,363)     (19,776)
                                                                                          ---------     ---------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities                                                          171,400       192,490      203,378
Repayments under credit facilities                                                         (184,540)     (216,790)    (197,283)
Proceeds from exercise of stock options and issuance of common stock under employee
    stock purchase plan                                                                       1,405           528          125
Purchase of treasury stock                                                                   (6,359)            -            -
Payment of dividends                                                                         (3,009)            -            -
Repayments of other debt                                                                          -          (172)        (329)
                                                                                          ---------     ---------     --------
              Net cash provided by (used in) financing activities                           (21,103)      (23,944)       5,891
                                                                                          ---------     ---------     --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                         11,211           371         (235)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                5,348         4,977        5,212
                                                                                          ---------     ---------     --------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                                  $  16,559     $   5,348     $  4,977
                                                                                          =========     =========     ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
    Interest                                                                              $   2,036     $   3,133     $  4,084
                                                                                          =========     =========     ========
    Income taxes, net of refunds                                                          $   1,650     $   1,694     $  1,388
                                                                                          =========     =========     ========
</TABLE>

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

                                       16
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 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 206 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 inter-company balances and
transactions have been eliminated in consolidation. For a discussion of the
Company business segments, see Note 8.

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 2005, 2004 and 2003 were all
52-week periods.

Use of Estimates in the Preparation of Financial Statements

In preparing these financial statements, management has made its best estimates
and judgments of certain amounts included in the financial statements, giving
due consideration to materiality. The Company believes that the likelihood is
remote that materially different amounts will be reported related to actual
results for the estimates and judgments described below. However, application of
these accounting policies involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates.

Revenue Recognition

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

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.

Management recognizes web development and maintenance revenue at the time
maintenance is provided or non-returnable product/service (web development) is
delivered. Revenue from web development and maintenance is less than .01% of the
Company's total revenues.

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 $0.07 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 $0.4 million and $0.7 million for the fiscal years
ended January 29, 2005 and January 31, 2004, respectively. This resulted in an
after-tax decrease to net income of $0.3 million or $0.01 per diluted share for
fiscal 2005 and an after-tax decrease to net income of $0.4 million or $0.02 per
diluted share for fiscal 2004. 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

                                       17
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

prospectively. In addition, pro forma amounts retroactively applying the change
cannot be reasonably estimated and have not been disclosed. The cumulative
difference between replacement and current cost of inventory over stated LIFO
value is $1.1 million as of January 29, 2005 and $0.7 million as of January 31,
2004, whereas the fiscal 2005 and fiscal 2004 inventory before LIFO, at FIFO
value is $211.3 million and $212.3 million, respectively. The estimated
replacement cost of inventory is the current FIFO value of $211.3 million. The
LIFO value did not include any layer liquidation in fiscal 2005 or fiscal 2004.

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 29,    January 31,
   (In thousands)                     2005           2004
---------------------              -----------    -----------
<S>                                <C>            <C>
Inventories (at FIFO)                211,375        212,251

LIFO reserve                          (1,105)          (660)
                                     -------        -------

Net inventories                      210,270        211,591
                                     =======        =======
</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, including remodels, is
provided on the straight-line basis over the lesser of the assets estimated
useful lives (ranging from 5 to 40 years) or, if applicable, the periods of the
leases. Determination of useful asset life is based on several factors requiring
judgment by management and adherence to generally accepted accounting principles
for depreciable periods. Judgment used by management in the determination of
useful asset life could relate to any of the following factors: expected use of
the asset; expected useful life of similar assets; any legal, regulatory, or
contractual provisions that may limit the useful life; and other factors that
may impair the economic useful life of the asset. Maintenance and repairs are
charged to expense as incurred. Improvement costs, which extend the useful life
of an asset, are capitalized to property accounts and depreciated over the
asset's expected remaining life. The cost and accumulated depreciation of assets
sold, retired or otherwise disposed of are removed from the accounts, and the
related gain or loss is credited or charged to income.

Impairment of Long-Lived Assets

The Company reviews property and equipment and amortizable intangibles when
events or changes in circumstances indicate that their carrying amounts may not
be recoverable or their depreciation or amortization periods should be
accelerated in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". Circumstances that are considered in determining impairment are:
decreases in store sales from the prior year, decreases in store sales from the
current year budget, annual measurement of individual store pre-tax future cash
flows, indications that an asset no longer has an economically useful life, or
other factors that would indicate a store cannot be profitable. Recoverability
of assets held and used is measured by a comparison of the carrying amount of an
asset to undiscounted pre-tax future net cash flows at the lowest level of
independent cash flows, which is generally at the individual store level. Future
events could cause the Company to conclude that impairment indicators exist and
those long-lived assets may be impaired. Any resulting impairment loss could
have a material adverse impact on the Company's financial condition and results
of operations. The Company's long-lived assets are principally 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 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 2005, 2004 and
2003, impairment losses of $342,000, $983,000 and $241,000, respectively, were
recorded in selling, general and administrative costs (also see Note 7 for
impairment losses included in discontinued operations). For all years presented,
the impairment losses related to the retail trade business segment.

Deferred Rent

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

                                       18
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

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

Store Opening Costs

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

Store Closing Costs

The Company continually evaluates the profitability of its stores. When the
Company closes or relocates a store, the Company incurs unrecoverable costs,
including net book value of abandoned fixtures and leasehold improvements, lease
termination payments, costs to transfer inventory and usable fixtures and other
costs of vacating the leased location. Such costs are primarily expensed as
incurred and are included in selling, general and administrative costs. During
fiscal 2005, 2004 and 2003, the Company recognized store closing costs of
$55,000, $219,000 and $22,000, 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 $3,207,000, $2,995,000 and $4,204,000 for
fiscal years 2005, 2004 and 2003, respectively.

Insurance Accruals

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

Income Taxes

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, landlord and other receivables due within one
year and are net of any allowance for doubtful accounts. Net receivables were
$6,616,000 and $7,622,000 for January 29, 2005 and January 31, 2004,
respectively.

Cash and Cash Equivalents

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

Stockholders' Equity

Basic net income per share ("EPS") is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution, using the treasury
stock method, that could occur if stock options 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)                           1/29/05    1/31/04    2/1/03
-------------------------------------------------        ---------  ---------  --------
<S>                                                      <C>        <C>        <C>
Weighted average shares outstanding:
     Basic                                                16,453     16,279     16,190
     Dilutive effect of stock options outstanding            725        510        376
                                                          ------     ------     ------
     Diluted                                              17,178     16,789     16,566
                                                          ======     ======     ======
</TABLE>

Weighted options outstanding of 157,000, 801,000 and 1,577,000 for the years
ended January 29, 2005, January 31, 2004 and February 1, 2003, respectively,
were not included in the table above as they were anti-dilutive in those
periods.

                                       19
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

In fiscal 2000, the Board of Directors authorized a common stock repurchase
program that approved spending up to $6.0 million to repurchase Company
outstanding shares. At January 31, 2003 and February 1, 2002, the Company had
repurchased 2,010,000 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. At January 29, 2005 the Company had repurchased 783,000 shares for a cost
of $6,359,000. These shares are held in treasury as well.

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 29, 2005 and
January 31, 2004 approximate their carrying values at those dates.

Stock-Based Compensation

At January 29, 2005 and January 31, 2004, the Company had one stock option plan
with outstanding options 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. 123 to
stock-based employee compensation:

<TABLE>
<CAPTION>
                                                                                                 FISCAL YEAR ENDED
                                                                                        -----------------------------------
                (In thousands, except per share amounts)                                  1/29/05       1/31/04      2/1/03
------------------------------------------------------------------------                  -------       -------      ------
<S>                                                                                     <C>            <C>           <C>
Net income, as reported                                                                 $   10,199     $   7,126     $1,353
Deduct: Total stock-based employee compensation expense determined under
   fair value based method for all awards, net of tax effects                                1,139         1,346      1,299
Pro forma net income                                                                    $    9,060     $   5,780     $   54
Net income per common share:
    Basic - as reported                                                                 $     0.62     $    0.44     $ 0.08
    Basic - pro forma                                                                   $     0.55     $    0.36          -
    Diluted - as reported                                                               $     0.59     $    0.42     $ 0.08
    Diluted - pro forma                                                                 $     0.53     $    0.34          -
</TABLE>

The fair value of the options granted under the Company's stock option plan
during fiscal 2005, 2004 and 2003 was estimated on their date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: $0.03 per quarter dividend yield for fiscal 2005 only; expected
stock price volatility rate of .44, 1.06 and 1.01, respectively; risk free
interest rates of 3.45% to 4.31%, 3.87% to 4.90% and 3.63% to 5.10%,
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 Derivatives and Hedging Activities." SFAS
No. 133 established accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. 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 29, 2005 and January 31, 2004, liabilities related to derivatives
were classified as other long-term liabilities of $543,000 and $1,507,000,
respectively.

Comprehensive Income (Loss)

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

                                       20
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (revised 2004, "Share-Based Payment.") SFAS No. 123R is a revision of
SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R
requires all share-based payments to employees including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. SFAS No. 123R is effective at the beginning of the first annual period
beginning after June 15, 2005 (as modified by the SEC on April 14, 2005). Under
ABP Opinion No. 25, no stock-based compensation cost had been reflected in the
net income of the Company for grants of stock options to employees. Beginning in
fiscal 2007, the Company will recognize compensation expense in its financial
statements based on the fair value of all share-based payments to employees. The
impact of adopting this new accounting standard on the Company's financial
position, results of operations or cash flows has not yet been determined.

In November 2004, the Emerging Issues Task Force ("EITF") issued EITF No. 03-13,
"Applying the Conditions in Paragraph 42 of FASB No. 144 in Determining Whether
to Report Discontinued Operations." EITF No. 03-13 addresses how an ongoing
entity should evaluate whether the operations and cash flows of a disposed
component have been or will be eliminated from the ongoing operations of the
entity and the types of continuing involvement that constitute significant
continuing involvement in the operations of the disposed component. EITF No.
03-13 is effective with the fiscal year beginning January 30, 2005. The impact
of adopting this new guidance on the Company's financial position, results of
operations or cash flows has not yet been determined.

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 applied
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 applied also 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 adopted the provisions
of FIN 46R in the first quarter of fiscal 2005. The adoption of this
interpretation did not have a material effect 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
                               --------------------------------
                               1/29/05     1/31/04      2/1/03
                               -------     -------      -------
<S>                            <C>         <C>          <C>
Current:
     Federal                   $ 4,000     $ 2,916      $ 1,566
     State                         102          25           32
                               -------     -------      -------
                               $ 4,102     $ 2,941      $ 1,598
                               -------     -------      -------
Deferred:
     Federal                   $ 1,681     $ 1,558      $   (35)
     State                         207        (131)           2
                               -------     -------      -------
                                 1,888       1,427          (33)
                               -------     -------      -------

Provision for income taxes     $ 5,990     $ 4,368      $ 1,565
                               =======     =======      =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                        FISCAL YEAR ENDED
                                                   ---------------------------
                                                   1/29/05   1/31/04    2/1/03
                                                   -------   -------    ------
<S>                                                <C>       <C>        <C>
Federal statutory income tax rate                   35.0%     34.0%       34.0%
State income tax provision                           0.9%      0.2%        1.0%
Nondeductible meals and entertainment expense        0.5%      0.6%        2.7%
Other                                                0.6%      3.2%        0.3%
                                                    ----      ----        ----
Effective income tax rate                           37.0%     38.0%       38.0%
                                                    ====      ====        ====
</TABLE>

                                       21
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

Temporary differences (in thousands) which created deferred tax assets
(liabilities) at January 29, 2005 and January 31, 2004, are as follows:

<TABLE>
<CAPTION>
                                               AS OF 1/29/05            As of 1/31/04
                                           ----------------------    ---------------------
                                           CURRENT     NONCURRENT    Current    Noncurrent
                                           -------     ----------    -------    ----------
<S>                                        <C>         <C>           <C>        <C>
Depreciation                               $     -      $(5,429)     $     -     $(6,589)
Accruals                                     1,422        3,300        3,174       3,916
Interest rate swap                             123            -          434           -
Inventory                                      (85)           -          639           -
State net operating loss carryforwards           -          903            -         831
Other                                          244         (189)         203        (115)
                                           -------      -------      -------     -------
Deferred tax asset (liability)             $ 1,704      $(1,415)     $ 4,450     $(1,957)
                                           =======      =======      =======     =======
</TABLE>

At January 29, 2005, the Company had state net operating loss carryforwards of
approximately $13,686,000 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

In fiscal 2005, the Company negotiated an extension of its current credit
facility for two years to July 2007. The facility allows for unsecured
borrowings up to $100 million for which no principal payments are due until the
facility expires in July 2007. 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 29, 2005 the
Company had a zero balance and as of January 31, 2004, $13.1 million was
outstanding under this credit facility. The maximum and average outstanding
balances during fiscal 2005 were $34.4 million and $21.6 million, respectively.

The Company is subject to interest rate fluctuations involving its credit
facility. To manage this exposure, the Company is subject to interest rate swaps
to fix the interest rate on variable debt. The Company entered into two separate
$10.0 million swaps on July 24, 2002. Both expire in August 2005 and, prior to
the payoff of the debt, effectively fix the interest rate on $20.0 million of
variable debt at 5.13%. 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 29, 2005 and January 31,
2004, there was $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 $5,383,000 as of January 29, 2005. The Bond has a
maturity date of December 1, 2019, with a purchase provision obligating the
Company to repurchase the Bond on May 30, 2006, 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 designated as cash flow hedges because they are
interest rate swaps that convert variable payments to fixed payments. Cash flow
hedges protect against the variability in future cash outflows of current or
forecasted debt and related interest expense. The changes in the fair value of
these hedges are reported on the balance sheet with a corresponding adjustment
to accumulated other comprehensive income (loss) or in earnings, depending on
the type of hedging relationship. Over time, the amounts held in accumulated
other comprehensive income (loss) will be reclassified to earnings if the hedge
transaction becomes ineffective.

The Company's interest rate swaps were reported as a liability classified in
other long-term liabilities in the accompanying consolidating balance sheets at
their fair value of $543,000 and $1.5 million as of January 29, 2005 and January
31, 2004, respectively. For the fiscal years ending January 29, 2005, January
31, 2004, and February 1, 2003, adjustments of $485,000, $228,000, and $(2,000)
were recorded as unrealized gains (losses) in accumulated other comprehensive
income (loss), after tax. During the fourth quarter of fiscal 2005, 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
$27,000. Previously, in the fourth quarter of fiscal 2004, the other $10 million
interest rate swap no longer qualified for hedge accounting under SFAS No. 133
and the Company de-designated that hedge resulting in an expense of $284,000.

                                       22
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

4. LEASES

The Company leases the premises for its retail bookstores under operating
leases, which expire in various years through the year 2015. 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.

Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of January 29, 2005 are as follows (in
thousands):

<TABLE>
<CAPTION>
                   FUTURE MINIMUM
 FISCAL YEAR           RENT
-------------      --------------
<S>                <C>
2006                 $ 27,521
2007                   21,853
2008                   18,133
2009                   13,468
2010                    8,461
Subsequent years       17,249
                     --------
Total                $106,685
                     ========
</TABLE>

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

<TABLE>
<CAPTION>
                              FISCAL YEAR ENDED
                       -------------------------------
                       1/29/05     1/31/04     2/1/03
                       -------     -------     ------
<S>                    <C>         <C>         <C>
Minimum rentals        $28,332     $28,194     $27,982
Contingent rentals         466         684         552
                       -------     -------     -------
Total                  $28,798     $28,878     $28,534
                       =======     =======     =======
</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 $675,000, $467,000 and $437,000 in
fiscal 2005, 2004 and 2003, 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 (shares in thousands):

<TABLE>
<CAPTION>
                                                                       FISCAL YEAR ENDED
                                                    ----------------------------------------------------------------
                                                    JANUARY 29, 2005        January 31, 2004       February 1, 2003
                                                    ----------------        ----------------       -----------------
                                                                WEIGHTED               Weighted             Weighted
                                                                AVERAGE                Average               Average
                                                                EXERCISE               Exercise             Exercise
                                                   SHARES        PRICE    Shares        Price      Shares     Price
                                                   ------        -----    ------        -----      ------     -----
<S>                                                <C>         <C>        <C>         <C>          <C>      <C>
Outstanding at beginning of year                    2,296      $    5.22   2,576      $   4.90      2,469   $   5.30
Granted                                                35           8.64     266          6.45        386       2.41
Exercised                                            (533)          2.54    (177)         2.51        (26)      1.74
Forfeited                                            (292)         10.65    (369)         5.24       (253)      5.30
                                                    -----      ---------   -----      --------     ------   --------
Outstanding at end of year                          1,506      $    5.19   2,296      $   5.22      2,576   $   4.90
                                                    -----      ---------   -----      --------     ------   --------
Exercisable at end of year                            949      $    5.71   1,525      $   5.52      1,468   $   5.60
                                                    -----      ---------   -----      --------     ------   --------
Weighted average fair value of options granted                 $    8.64              $   5.87              $   2.20
                                                    =====      =========   =====      ========     ======   ========
</TABLE>

During fiscal years 2005, 2004 and 2003, the Company recognized tax benefits
related to the exercise of stock options in the amount of $943,000, $141,000 and
$6,000, respectively. The tax benefits were credited to paid-in capital in the
respective years.

                                       23
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

The following table summarizes information about stock options outstanding at
January 29, 2005 (shares in thousands):

<TABLE>
<CAPTION>
                                Options Outstanding                         Options Exercisable
                  ------------------------------------------------   --------------------------------
                                      Weighted
                      Number          Average                            Number
                  Outstanding at     Remaining         Weighted      Exercisable at       Weighted
  Range of          January 29,     Contractual        Average         January 29,        Average
Exercise Price        2005         Life (Years)     Exercise Price        2005         Exercise Price
--------------        ----         ------------     --------------        ----         --------------
<S>               <C>              <C>              <C>              <C>               <C>
$1.38 - $ 2.37         456             7.06            $   2.07           246            $   1.82
$2.39 - $ 7.69         869             5.12            $   5.95           525            $   6.29
$7.90 - $11.13         181             1.99            $   9.37           178            $   9.39
                     -----                                                ---
    Totals           1,506             5.33            $   5.19           949            $   5.71
                     =====             ====            ========           ===            ========
</TABLE>

The Company also maintains separate option plans for its subsidiaries. A total
of 40,000 shares of common stock are authorized under these plans and all 40,000
shares were available for issuance as of January 29, 2005.

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, 245,870 shares have been purchased as
of January 29, 2005.

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 periods ended January 29, 2005 and
January 31, 2004 totaled $364,000 and $284,000 respectively. No awards were
issued under the Incentive Plan for the three year performance period ended
February 1, 2003.

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 2005,
2004 and 2003, purchases of these items from Anderson Media totaled $27,341,000,
$28,160,000 and $27,736,000, respectively. The Company purchases certain of its
collectibles, gifts and books from Anderson Press, Inc. ("Anderson Press"), an
affiliate through common ownership. During fiscal 2005, 2004 and 2003, such
purchases from Anderson Press totaled $1,122,000, $853,000 and $1,153,000,
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 2005, 2004, and 2003 were $371,000, $265,000
and $460,000, respectively. The Company purchases certain magazine subscriptions
from Magazines.com, an affiliate through common ownership. During fiscal 2005,
2004, and 2003, purchases of these items were $78,000, $89,000 and $59,000,
respectively. The Company purchases content for publication from Publication
Marketing Corporation, an affiliate through common ownership. During fiscal
2005, 2004, and 2003, purchases of these items were $72,000, $72,000 and
$56,000, respectively. The Company utilizes import sourcing and consolidation
services from Anco Far East Importers, LTD ("Anco Far East"), an affiliate
through common ownership. The total paid to Anco Far East was $1,075,000,
$910,000 and $729,000 for fiscal 2005, 2004, and 2003, respectively. These
amounts paid to Anco Far East primarily included the actual cost of the product,
as well as duty, freight, and fees for sourcing and consolidation services. All
other costs other than the sourcing and consolidation service fees were passed
through from other vendors. Anco Far East fees, net of the passed-through costs,
were $75,000, $77,000 and $73,000, respectively.

The Company sold books to Anderson Media in the amounts of $115,000, $383,000
and $58,000 in fiscal 2005, 2004 and 2003, respectively. During fiscal 2005,
2004 and 2003, the Company provided $296,000, $226,000 and $131,000,
respectively, of internet services to Magazines.com. The Company provided
internet services to American Promotional Events of $68,000, $50,000 and $55,000
in fiscal 2005, 2004 and 2003, respectively.

                                       24
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

The Company leases its principal executive offices from a trust, which was
established for the benefit of the grandchildren of Mr. Charles C. Anderson, a
former member of the Board of Directors. The lease extends to January 31, 2006.
During fiscal 2005, 2004 and 2003, 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 2005, 2004 and 2003, the Company paid A&A a total of $441,000,
$446,000 and $455,000, respectively, in connection with such leases. Total
minimum future rental payments under all four of these leases are $137,000 at
January 29, 2005. 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 2005, 2004 and 2003, the Company
received $191,000, $191,000 and $161,000, respectively, in rent payments from
Hibbett.

The Company incurred expenses related to professional services from A&A and
Charles C. Anderson, a former member of the Board of Directors, which amounted
to $22,000 in fiscal 2005, $0 in fiscal 2004 and $144,000 in fiscal 2003. The
Company shares ownership of a plane, which the Company uses in the operations of
its business, with an affiliated company. The Company rents the plane to
affiliated companies at rates that cover all the variable costs and a portion of
the fixed costs. The total amounts received from affiliated companies for use of
the plane in fiscal 2005, 2004 and 2003 were $110,000, $270,000 and $269,000,
respectively. The Company also occasionally rents a plane from A&A as well. The
amounts paid to A&A for plane rental were $92,000, $44,000 and $48,000 for
fiscal 2005, 2004 and 2003, respectively.

7. LOSS FROM DISCONTINUED OPERATIONS

Discontinued operations represent the fiscal 2005 closure of two retail stores
in markets located in Florida and Mississippi and 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 customers. These stores had sales of $1,376,000,
$4,326,000 and $6,312,000 and pretax operating losses of $121,000, $754,000 and
$1,044,000 for fiscal 2005, 2004 and 2003, respectively. Included in the loss on
discontinued operations are impairment losses of $14,000, $228,000 and $141,000
for fiscal 2005, 2004 and 2003, respectively. Also, included in the loss on
discontinued operations are store closing costs of $50,000, $64,000, and
$178,000 for fiscal 2005 2004 and 2003, respectively.

8. BUSINESS SEGMENTS

The Company has two reportable segments: retail trade and electronic commerce
trade. The retail trade segment is a strategic business segment that is engaged
in the retail trade of mostly book merchandise and includes the Company's
distribution center operations, which 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. Shipping income related
to internet sales is included in net sales, and shipping expense is included in
cost of sales.

<TABLE>
<CAPTION>
                                                            FISCAL YEAR ENDED
                                                  ---------------------------------------
    Segment information (in thousands)             1/29/05        1/31/04        2/1/03
------------------------------------------         -------        -------        ------
<S>                                               <C>            <C>            <C>
Net Sales
    Retail Trade                                  $ 466,859      $ 452,131      $ 430,998
    Electronic Commerce Trade                        26,656         25,451         23,277
    Intersegment Sales Elimination                  (18,289)       (19,292)       (17,927)
                                                  ---------      ---------      ---------
       Net Sales                                  $ 475,226      $ 458,290      $ 436,348

Operating Profit
    Retail Trade                                  $  17,000      $  14,284      $   8,836
    Electronic Commerce Trade                           909            332           (490)
    Intersegment Elimination of Certain Costs           275            542            988
                                                  ---------      ---------      ---------
       Total Operating Profit                     $  18,184      $  15,158      $   9,334
                                                  =========      =========      =========

Assets
    Retail Trade                                  $ 299,703      $ 295,437
    Electronic Commerce Trade                         1,372          1,527
    Intersegment Sales Elimination                     (263)          (566)
                                                  ---------      ---------
       Total Assets                               $ 300,812      $ 296,398
                                                  =========      =========
</TABLE>

                                       25
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

9. COMMITMENTS AND CONTINGENCIES

The Company is a party to various legal proceedings incidental to its business.
In the opinion of management, after consultation with legal counsel, the
ultimate liability, if any, with respect to those proceedings is not presently
expected to materially affect the financial position 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
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 29, 2005, as such liabilities are considered
de minimis.

10. UNUSUAL EVENTS

The Company experienced a loss of sales resulting from temporary closings of
approximately 35 stores for periods ranging from two to seven days, as well as
significant property damage to three stores, due to the cumulative effects of
Hurricanes Charley, Francis, and Ivan. The Company is insured for property
damage and business interruption, but was liable for the deductible amounts
under the insurance coverage. Management also decided not to reopen the store
located in Stuart, Florida, see Note 7, of Notes to the Consolidated Financial
Statements, Loss from Discontinued Operations.

11. CASH DIVIDEND

On March 15, 2005, the Board of Directors declared a quarterly dividend of $0.05
per share to be paid on April 12, 2005, to stockholders of record at the close
of business on March 29, 2005. The Company will pay quarterly dividends in the
future, subject to Board approval.

12. GOODWILL

In accordance with SFAS No. 142, the Company evaluates existing goodwill for
impairment by applying the fair-value-based test on an annual basis. Management
has determined that the current value of goodwill on the balance sheet
($1,368,000) is not impaired and has thus not recognized a loss relating to
goodwill impairment.

                                       26
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
BOOKS-A-MILLION, INC.
BIRMINGHAM, ALABAMA

We have audited the accompanying consolidated balance sheets of Books-A-Million,
Inc. and subsidiaries (the "Company") as of January 29, 2005 and January 31,
2004 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three fiscal years in the period ended
January 29, 2005. 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 of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, 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 subsidiaries as of January 29, 2005 and January 31, 2004, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 29, 2005, 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 1, 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 25, 2005

                                       27
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
                                                               FISCAL YEAR ENDED JANUARY 29, 2005
                                              ------------------------------------------------------------------
                                                FIRST         SECOND        THIRD         FOURTH        TOTAL
(In thousands, except per share amounts)       QUARTER       QUARTER       QUARTER        QUARTER        YEAR
----------------------------------------       -------       -------       -------        -------        ----
<S>                                           <C>           <C>           <C>            <C>           <C>
Net sales                                     $ 108,024     $ 113,614     $ 104,190      $ 149,398     $ 475,226
Gross profit                                     30,209        31,045        27,846         46,275       135,375
Operating profit (loss)                           2,493         2,084        (1,318)        14,925        18,184
Net income (loss)                                 1,228           989        (1,172)         9,154        10,199
Net income (loss) per share - basic                0.07          0.06         (0.07)          0.56          0.62
Net income (loss) per share - diluted (1)          0.07          0.06         (0.07)          0.54          0.59
</TABLE>

<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                                 $  98,064      $ 112,654     $ 102,347      $ 145,225     $ 458,290
Gross profit                                 25,419         31,305        26,924         43,733       127,381
Operating profit (loss)                        (660)         3,246          (231)        12,803        15,158
Net income (loss)                            (1,052)         1,347          (776)         7,607         7,126
Net income (loss) per share - basic           (0.06)          0.09         (0.05)          0.46          0.44
Net income (loss) per share - diluted         (0.06)          0.09         (0.05)          0.44          0.42
</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.

                                       28
<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

DIRECTORS AND CORPORATE OFFICERS

BOARD OF DIRECTORS                        CORPORATE OFFICERS

CLYDE B. ANDERSON                         CLYDE B. ANDERSON
Executive Chairman of the Board           Executive Chairman of the Board

TERRY C. ANDERSON                         SANDRA B. COCHRAN
Chief Executive Officer and President,    President, Chief Executive Officer
American Promotional Events, Inc.           and Secretary

                                          TERRANCE G. FINLEY
RONALD G. BRUNO                           Executive Vice President of
President,                                  Books-A-Million, Inc. and President,
Bruno Capital Management Corporation        American Internet Service, Inc.

                                          RICHARD S. WALLINGTON
DR. J. BARRY MASON                        Chief Financial Officer
Dean, Culverhouse College of Commerce
The University of Alabama

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

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<PAGE>

                                                                 BOOKS-A-MILLION
                                                              2005 Annual Report

CORPORATE  INFORMATION

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

TRANSFER AGENT
Wells Fargo Shareowner Services
(800) 468-9716

      STOCKHOLDER INQUIRIES ADDRESS:

      161 North Concord Exchange
      South St. Paul, Minnesota 55075
      E-Mail address: stocktransfer@wellsfargo.com
      Wells Fargo Stock Transfer
      Website: www.wellsfargo.com/com/shareowner_services/index

      CERTIFICATES FOR TRANSFER AND ADDRESS CHANGES TO:

      Shareowner Services
      Post Office Box 64854
      St Paul, Minnesota 55164-0854
      Fax: (651) 450-4033

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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 29, 2005, as filed with the Securities and Exchange Commission, as well
as key committee charters and code of conduct, are available without charge to
stockholders upon written request. Such requests and other investor inquiries
should be directed to Richard S. Wallington, the Company's Chief Financial
Officer, or you can view those items at www.booksamillioninc.com.

MARKET AND DIVIDEND INFORMATION

COMMON STOCK

The Common Stock of Books-A-Million, Inc., is traded in the Nasdaq 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 29, 2005 and January
31, 2004.

<TABLE>
<CAPTION>
                                             DIVIDENDS
QUARTER ENDED      HIGH          LOW         DECLARED
-------------      ----          ---         --------
<S>              <C>           <C>          <C>
JANUARY 2005     $   10.29     $   8.02     $   0.05
OCTOBER 2004          8.52         6.18         0.03
JULY 2004             7.74         5.15         0.15
APRIL 2004            6.49         5.11         0.00
January 2004          7.02         4.41         0.00
October 2003          5.00         2.80         0.00
July 2003             3.34         2.07         0.00
April 2003            2.45         2.05         0.00
</TABLE>

The closing price on April 4, 2005, was $9.10. As of that date Books-A-Million,
Inc., had approximately 7,500 stockholders based on the number of individual
participants represented by security position listings. Cash dividends were
declared and paid for the first time starting with the second quarter of fiscal
2005.

ANNUAL MEETING OF STOCKHOLDERS

The annual meeting of stockholders will be held on June 1, 2005, at 10:00 a.m.
central time, at The Harbert Center, 2019 Fourth Avenue North, Birmingham,
Alabama 35203. Stockholders of record as of March 29, 2005, are invited to
attend this meeting.

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<PAGE>

                                 BOOKS-A-MILLION
                               402 INDUSTRIAL LANE
                            BIRMINGHAM, ALABAMA 35211
                            WWW.BOOKSAMILLIONINC.COM