UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number: 333-48221
NEBRASKA BOOK COMPANY, INC.
(Exact name of registrant as specified in its charter)
KANSAS 47-0549819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4700 SOUTH 19TH STREET
LINCOLN, NEBRASKA 68501-0529
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (402) 421-7300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.Yes [ X] No [ ]
Total number of shares of common stock outstanding as of August 12, 1999: 100
shares
Total Number of Pages: 14
Exhibit Index: Page 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NEBRASKA BOOK COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
June 30, March 31, June 30,
1999 1999 1998
---------- ----------- --------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,270,567 $ 4,059,660 $ 4,964,261
Receivables 22,648,480 20,838,546 21,537,394
Inventories 73,852,504 49,878,561 66,780,007
Recoverable income tax 3,354,217 4,902 4,944,855
Deferred income tax benefit 1,491,693 1,468,156 1,183,529
Prepaid expenses and other assets 472,750 376,748 148,807
------------ ----------- -----------
Total current assets 107,090,211 76,626,573 99,558,853
PROPERTY AND EQUIPMENT 33,572,110 31,212,534 29,843,943
Less accumulated depreciation (8,589,721) (8,024,049) (6,404,741)
------------ ----------- -----------
24,982,389 23,188,485 23,439,202
GOODWILL AND OTHER INTANGIBLES, net of amortization 43,322,643 35,562,090 40,104,631
OTHER ASSETS 4,718,942 4,313,208 3,243,123
------------ ----------- -----------
$ 180,114,185 $ 139,690,356 $ 166,345,809
============ =========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 9,582,525 $ 9,200,870 $ 13,434,831
Accrued employee compensation and benefits 3,393,168 3,825,893 3,161,734
Accrued interest 3,798,990 1,426,509 4,224,591
Accrued expenses 648,474 681,725 508,096
Deferred revenue 457,693 376,556 514,222
Current maturities of long-term debt 6,042,442 5,644,838 1,765,609
Current maturities of capital lease obligations 131,587 - -
Revolving credit facility 31,800,000 - 25,500,000
------------ ----------- -----------
Total current liabilities 55,854,879 21,156,391 49,109,083
LONG-TERM DEBT, net of current maturities 162,773,325 163,612,489 168,815,767
CAPITAL LEASE OBLIGATIONS, net of current maturities 159,139 - -
OTHER LONG-TERM LIABILITIES 201,053 191,074 159,880
DUE TO PARENT 2,821,022 2,277,266 724,413
STOCKHOLDER'S DEFICIT:
Common stock, voting, authorized
50,000 shares of $1.00 par value;
issued and outstanding 100 shares 100 100 100
Additional paid-in capital 41,241,034 30,904,931 30,967,876
Retained deficit (82,936,367) (78,451,895) (83,431,310)
------------ ----------- -----------
Total stockholder's deficit (41,695,233) (47,546,864) (52,463,334)
------------ ----------- -----------
$ 180,114,185 $ 139,690,356 $ 166,345,809
============ =========== ===========
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
NEBRASKA BOOK COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended June 30,
1999 1998
------------ -----------
REVENUES, net of returns $ 32,397,165 $ 29,663,992
COSTS OF SALES 19,544,337 17,105,191
----------- -----------
Gross profit 12,852,828 12,558,801
OPERATING EXPENSES:
Selling, general and administrative 13,107,490 11,811,375
Depreciation 585,985 529,284
Amortization 1,587,757 1,767,051
----------- -----------
15,281,232 14,107,710
----------- -----------
LOSS FROM OPERATIONS (2,428,404) (1,548,909)
OTHER EXPENSES (INCOME):
Interest expense 4,495,486 4,579,089
Interest income (20,380) (18,899)
Other income (241,291) (210,769)
----------- -----------
4,233,815 4,349,421
----------- -----------
LOSS BEFORE INCOME TAXES (6,662,219) (5,898,330)
INCOME TAX BENEFIT (2,177,747) (1,976,198)
----------- -----------
NET LOSS $ (4,484,472) $ (3,922,132)
=========== ===========
See notes to consolidated financial statements.
3
<PAGE>
NEBRASKA BOOK COMPANY, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(UNAUDITED)
- -------------------------------------------------------------------------------------------
Additional
Common Paid-in Retained
Stock Capital Deficit Total
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE, April 1, 1998 $ 100 $ 30,935,250 $ (79,509,178) $ (48,573,828)
Contributed capital - 32,626 - 32,626
Net loss - - (3,922,132) (3,922,132)
------------ ------------- -------------- --------------
BALANCE, June 30, 1998 $ 100 $ 30,967,876 $ (83,431,310) $ (52,463,334)
============ ============= ============== ==============
BALANCE, April 1, 1999 $ 100 $ 30,904,931 $ (78,451,895) $ (47,546,864)
Contributed capital - 10,336,103 - 10,336,103
Net loss - - (4,484,472) (4,484,472)
------------ ------------- -------------- --------------
BALANCE, June 30, 1999 $ 100 $ 41,241,034 $ (82,936,367) $ (41,695,233)
============ ============= ============== ==============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NEBRASKA BOOK COMPANY, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -------------------------------------------------------------------------------------------
Three Months Ended June 30,
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (4,484,472) $ (3,922,132)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation 585,985 529,284
Amortization of intangibles 1,928,821 2,102,262
(Gain) Loss on disposal of assets (9,515) 19,972
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables (1,677,892) (154,247)
Inventories (18,995,883) (18,210,113)
Recoverable income tax (3,034,587) (570,807)
Prepaid expenses and other assets 38,606 41,143
Other assets (182,437) (857,518)
Accounts payable (644,420) (982,714)
Accrued employee compensation and benefits (676,482) (635,508)
Accrued interest 2,372,481 2,436,044
Accrued expenses (33,251) 9,356
Income taxes payable (965) -
Deferred revenue 81,137 50,305
Other long-term liabilities 9,979 9,276
Due to parent 543,756 476,323
----------- -----------
Net cash flows from operating activities (24,179,139) (19,659,074)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (368,602) (1,282,414)
Bookstores acquisitions, net of cash acquired (15,837,358) -
Proceeds from sale of property and equipment 18,711 25,863
Software development costs (74,049) (51,252)
----------- -----------
Net cash flows from investing activities (16,261,298) (1,307,803)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs (32,477) (4,731)
Principal payments on long-term debt (441,560) (3,647)
Principal payments on capital lease obligations (10,722) -
Net increase in revolving credit facility 31,800,000 20,100,000
Capital contribution 10,336,103 32,626
----------- -----------
Net cash flows from financing activities 41,651,344 20,124,248
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,210,907 (842,629)
CASH AND CASH EQUIVALENTS, Beginning of period 4,059,660 5,806,890
----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 5,270,567 $ 4,964,261
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid (refunded) during the period for:
Interest $ 1,781,941 $ 1,692,534
Income taxes 314,049 (1,881,713)
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
NEBRASKA BOOK COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. Management Representations - The balance sheet of Nebraska Book Company,
Inc. (the "Company") at March 31, 1999 was obtained from the Company's
audited balance sheet as of that date. All other financial statements
contained herein are unaudited and reflect all adjustments which are, in the
opinion of management, necessary to summarize fairly the financial position
of the Company and its wholly-owned subsidiary, Triro, Inc. (from June 4,
1999, date of acquisition) and the results of the Company's operations for
the periods presented. All of these adjustments are of a normal recurring
nature. Because of the seasonal nature of the Company's operations, results
of operations of any single reporting period should not be considered as
indicative of results for a full year. Certain reclassifications have been
made to prior period financial statements to conform with current year
presentation. These statements should be read in conjunction with the
Company's audited financial statements for the year ended March 31, 1999
included in the Company's Annual Report on Form 10-K.
2. Acquisitions - Effective June 4, 1999, the Company acquired all of the
outstanding common stock of Triro, Inc., an independent college bookstore
operation with 17 retail bookstores located in Texas, New Mexico, and
Arizona, for approximately $15.0 million, net of cash acquired. The Company
accounted for this acquisition under the purchase method of accounting.
Excess cost over fair value of net assets acquired of approximately $9.0
million has been recorded as goodwill and is being amortized over a period
of three years. The results of operations for Triro, Inc. have been included
in the consolidated results of the Company from the date of acquisition. The
acquisition of Triro, Inc. was funded in part through a $10.3 million
capital contribution from the Company's parent, NBC Acquisition Corp. (NBC).
NBC raised the $10.3 million in capital through the sale of 197,001 shares
of its Class A Common Stock to certain shareholders, including HWH Capital
Partners, L.P. and members of senior management. The remaining funding was
provided through available cash funds and borrowings under the Company's
revolving credit facility. Also in conjunction with the acquisition of
Triro, Inc., the Company established an irrevocable standby letter of credit
for $52,000 which expires June 2, 2000.
The following table summarizing unaudited pro forma financial information
assumes the acquisition discussed above had occurred at the beginning of
each period presented. The unaudited pro forma financial information is not
necessarily indicative of what the actual results of operations would have
been had the acquisition occurred at the beginning of each period presented,
nor does it purport to indicate the results of future operations.
Three Months Ended June 30,
---------------------------
1999 1998
------------- -------------
Pro Forma Information:
Revenues, net of returns $34,255,219 $31,608,632
Net loss (5,165,587) (4,984,772)
3. Inventories - Inventories are summarized as follows:
June 30, March 31, June 30,
1999 1999 1998
------------------------------------------------------------------------
Wholesale $35,968,945 $25,944,411 $35,963,838
College bookstores 34,747,571 21,400,003 28,494,196
Complementary services 3,135,988 2,534,147 2,321,973
------------------------------------------------------------------------
Inventories $73,852,504 $49,878,561 $66,780,007
========================================================================
4. Long-Term Debt - The Company's indebtedness includes a bank-administered
senior credit facility (the "Senior Credit Facility") provided through a
syndicate of lenders. The facility is comprised of a $27.5 million term loan
(the "Tranche A Loan"), a $32.5 million term loan (the "Tranche B Loan") and
a $50.0 million revolving credit facility (the "Revolving Credit Facility").
The Revolving Credit Facility expires on March 31, 2004. Availability under
6
<PAGE>
the Revolving Credit Facility is determined by the calculation of a
borrowing base which at any time is equal to a percentage of eligible
accounts receivable and inventory, up to a maximum of $50.0 million. The
borrowing base at June 30, 1999 was $50.0 million. The interest rate on the
Senior Credit Facility is prime plus an applicable margin of up to 1.50% or,
on Eurodollar borrowings, LIBOR plus an applicable margin of up to 2.50%.
The Senior Credit Facility requires excess cash flows as defined in the
credit agreement dated February 13, 1998 (the "Credit Agreement") to be
applied initially towards prepayment of the term loans and then utilized to
permanently reduce commitments under the Revolving Credit Facility. The
fiscal 1999 excess cash flow payment of approximately $3.6 million is due
September 29, 1999 and is included in the current maturities of long-term
debt in the Company's consolidated financial statements. Additional
indebtedness includes $110.0 million face amount of 8.75% senior
subordinated notes due 2008 (the "Senior Subordinated Notes").
5. Segment Information - The following segment reporting information is
provided in accordance with SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information.
The Company's operating segments are determined based on the way that
management organizes the segments for making operating decisions and
assessing performance. Management has organized the Company's segments based
upon differences in products and services provided. The Company has three
reportable segments: wholesale operations, college bookstore operations and
complementary services. The wholesale operations segment consists primarily
of selling used textbooks to college bookstores, buying them back from
students or college bookstores at the end of each school semester and then
reselling them to college bookstores. The college bookstore operations
segment encompasses the operating activities of the Company's 87 college
bookstores located on or adjacent to college campuses. The complementary
services segment includes book-related services such as a centralized buying
service, distance education materials, and computer hardware and software.
The Company accounts for intersegment sales as if the sales were to third
parties (at current market prices). With the exception of cash and cash
equivalents, certain receivables and other assets, and inventories, assets,
net interest expense, and taxes are not allocated between the Company's
segments; instead, such balances are accounted for in a corporate
administrative division. The following table provides selected information
about profit or loss on a segment basis for the three months ended June 30,
1999 and 1998.
<TABLE>
<CAPTION>
College
Wholesale Bookstore Complementary
Operations Operations Services Total
--------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Three months ended June 30, 1999:
External customer revenues $ 16,404,083 $ 13,055,287 $ 2,937,795 $ 32,397,165
Intersegment revenues 4,887,613 - 188,775 5,076,388
Depreciation and amortization expense 70,577 1,058,798 462,196 1,591,571
Income (loss) before interest and taxes 4,710,253 (4,509,501) (654,771) (454,019)
Three months ended June 30, 1998:
External customer revenues $ 14,932,726 $ 12,184,939 $ 2,546,327 $ 29,663,992
Intersegment revenues 4,124,205 - 223,598 4,347,803
Depreciation and amortization expense 71,267 733,437 423,518 1,228,222
Income (loss) before interest and taxes 4,747,252 (3,434,612) (733,241) 579,399
</TABLE>
7
<PAGE>
The following table reconciles segment information presented above with
consolidated information as presented in the consolidated financial
statements for the three months ended June 30, 1999 and 1998.
Three Months Ended June 30,
1999 1998
------------- -------------
Revenues:
Total for reportable segments $ 37,473,553 $ 34,011,795
Elimination of intersegment revenues (5,076,388) (4,347,803)
------------ ------------
Consolidated total $ 32,397,165 $ 29,663,992
============= =============
Depreciation and Amortization Expense:
Total for reportable segments $ 1,591,571 $ 1,228,222
Corporate administration 582,171 1,068,113
------------- ------------
Consolidated total $ 2,173,742 $ 2,296,335
============= ============
Income (Loss) Before Interest and Taxes:
Total for reportable segments $ (454,019) $ 579,399
Unallocated corporate administrative costs (1,733,094) (1,917,539)
------------- ------------
Consolidated loss before interest and taxes (2,187,113) (1,338,140)
Interest expense, net (4,475,106) (4,560,190)
------------- ------------
Consolidated loss before income taxes $ (6,662,219) $(5,898,330)
============= ============
The Company's revenues are attributed to countries based on the location of
the customer. Substantially all revenues generated are attributable to
customers located within the United States.
6. Accounting Standards Not Adopted - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Statement
becomes effective, and will be adopted by the Company, in the first quarter
of fiscal 2002. The impact on the Company's financial position and results
of operations is not expected to be material.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Quarter Ended June 30, 1999 Compared With Quarter Ended June 30, 1998.
Revenues. Revenues for the quarters ended June 30, 1999 and 1998 and the
corresponding increase (decrease) in revenues were as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------------
1999 1998 Amount Percentage
------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Wholesale operations $ 21,291,696 $ 19,056,931 $ 2,234,765 11.7 %
College bookstore operations 13,055,287 12,184,939 870,348 7.1 %
Complementary services 3,126,570 2,769,925 356,645 12.9 %
Intercompany eliminations (5,076,388) (4,347,803) (728,585) 16.8 %
------------- ------------- -------------- -----------
$ 32,397,165 $ 29,663,992 $ 2,733,173 9.2 %
============= ============= ============== ===========
</TABLE>
The increase in wholesale revenues for the quarter ended June 30, 1999 was due
primarily to publisher price increases and a decline in sales returns as a
percentage of revenues. The increase in college bookstore revenues was
attributable to the net addition of 28 new college bookstores either through
acquisition or startup since June 30, 1998, including 17 new bookstores added
through the Triro, Inc. acquisition, which occurred on June 4, 1999. The $1.2
million increase in revenues attributable to new college bookstores was offset
by a 2.5% decrease in same store revenues. Same store revenues were down
primarily due to lower general merchandise sales at stores located near colleges
that achieved prominent collegiate athletic championships during 1998.
Complementary services revenues increased primarily due to growth in the
Company's distance education program. As the Company's wholesale and college
bookstore operations have grown, the Company's intercompany transactions have
also increased.
Gross profit. Gross profit for the quarter ended June 30, 1999 increased $0.3
million, or 2.3%, to $12.9 million from $12.6 million for the quarter ended June
30, 1998. This increase was primarily due to higher revenues, combined with a
decrease in gross margin percent. Gross margin for the quarter ended June 30,
1999 decreased to 39.7% from 42.3% for the quarter ended June 30, 1998. The
decrease was primarily due to sales of books remaining from the Company's new
book program, which was discontinued in the fourth quarter of fiscal 1999. These
new books, which are primarily being sold as used books, have a higher cost
basis than the used textbooks purchased from students. Accordingly, the sale of
these books has a negative impact on gross margin. The future sale of the final
set of books from this program should not have a material effect on gross profit
for any future quarterly period of the Company.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the quarter ended June 30, 1999 increased $1.3
million, or 11.0%, to $13.1 million from $11.8 million for the quarter ended
June 30, 1998. Selling, general and administrative expenses as a percentage of
revenues were 40.5% and 39.8% for the quarters ended June 30, 1999 and June 30,
1998, respectively. The increase in expense resulted primarily from the expected
higher expense base associated with the Company's expansion of its operations
through bookstore acquisitions and startups. Additionally, the Company incurred
all severance costs associated with the resignation of the Company's chief
financial officer in the quarter ended June 30, 1999.
Amortization expense. Amortization expense for the quarter ended June 30, 1999
decreased $0.2 million, or 10.1%, to $1.6 million from $1.8 million for the
quarter ended June 30, 1998. This decrease was the result of a non-compete
agreement becoming fully-amortized in August, 1998 and is partially offset by
additional amortization of goodwill related to recent acquisitions, including
Triro, Inc.
Loss before interest and taxes. The loss before interest and taxes for the
quarter ended June 30, 1999 increased $0.9 million to $(2.2) million from $(1.3)
million for the quarter ended June 30, 1998. Due to the seasonality of the
Company's revenues and its relatively fixed operating costs, it has historically
experienced losses in the first quarter. Only 14% of the Company's annual
revenues for fiscal 1999 occurred in the three months ended June 30, 1998. The
9
<PAGE>
impact of seasonality on earnings was compounded by the acquisition/startup of
28 college bookstores since June 30, 1998 (including 22 in the three months
ended June 30, 1999), which resulted, as anticipated, in an increase in selling,
general and administrative expenses as a percentage of revenues. While the
Company's growth in its college bookstore operations resulted in increased
losses for the three months ended June 30, 1999, management believes that such
growth will have a positive impact on earnings on an annual basis. As described
above, severance costs and lower margins on sales of books remaining from the
Company's discontinued new book program also contributed to the increase in loss
before interest and taxes.
Income taxes. The Company's effective tax rate for the quarter ended June 30,
1999 was 32.7% as compared to 33.5% for the quarter ended June 30, 1998. This
decrease in benefit is primarily the result of non-deductible amortization on
goodwill associated with the Triro, Inc. acquisition.
Liquidity and Capital Resources
The Company's primary liquidity requirements are for debt service under
the Senior Credit Facility, the Senior Subordinated Notes and other outstanding
indebtedness, for working capital, and for capital expenditures. The Company has
historically funded these requirements primarily through internally generated
cash flow and funds borrowed under the Company's credit facility. At June 30,
1999, the Company's total indebtedness was approximately $200.9 million,
consisting of $58.2 million in Term Loans, $110.0 million of the Senior
Subordinated Notes, $31.8 million under the Revolving Credit Facility and $0.9
million of other indebtedness, including capital lease obligations.
Principal and interest payments under the Senior Credit Facility and the
Senior Subordinated Notes represent significant liquidity requirements for the
Company. Under the terms of the Tranche A and B Loans, the Company is required
to make principal payments totaling approximately $5.6 million in fiscal 2000,
$4.2 million in fiscal 2001, $6.0 million in fiscal 2002, $6.5 million in fiscal
2003, $8.1 million in fiscal 2004, $10.7 million in fiscal 2005 and $17.6
million in fiscal 2006. Such scheduled principal payments are subject to change
upon the annual payment and application of excess cash flows (as defined in the
Credit Agreement underlying the Senior Credit Facility) towards Tranche A and B
Loan principal balances. The aforementioned scheduled principal payments have
been adjusted to reflect an anticipated excess cash flow payment for the year
ended March 31, 1999 of approximately $3.6 million, which is due September 29,
1999 and is included in the current maturities of long-term debt in the
Company's consolidated financial statements. Loans under the Senior Credit
Facility bear interest at floating rates based upon the interest rate option
selected by the Company. The Senior Subordinated Notes require semi-annual
interest payments at a fixed rate of 8.75% and mature on February 15, 2008.
The Company's capital expenditures were $0.4 million and $1.3 million
for the three months ended June 30, 1999 and 1998, respectively. The Company
estimates that for fiscal 2000, approximately $2.5 million of capital
expenditures will be required, primarily for maintenance. Capital expenditures
consist primarily of bookstore opening costs, bookstore renovations, computer
upgrades and miscellaneous maintenance requirements. The Company's ability to
make capital expenditures is subject to certain restrictions under the Senior
Credit Facility.
Business acquisition expenditures were $15.8 million for the three
months ended June 30, 1999. Such expenditures included the acquisition of Triro,
Inc. and two college bookstores in Florida. There were no business acquisition
expenditures in the quarter ended June 30, 1998.
The Company's principal sources of cash to fund its normal future
liquidity needs will be net cash from operating activities and borrowings under
the Revolving Credit Facility. Usage of the Revolving Credit Facility to meet
the Company's liquidity needs fluctuates throughout the year due to the
Company's distinct buying and selling periods, increasing substantially at the
end of each semester (May and December). Net cash flows used in operating
activities for the three months ended June 30, 1999 were $24.2 million, an
increase of $4.5 million from $19.7 million for the three months ended June 30,
1998. This increase was primarily due to higher uses of cash in the three months
ended June 30, 1999 to fund increases in accounts receivable and recoverable
income tax. Future acquisitions, if any, may require additional debt or equity
financing.
Access to the Company's principal sources of cash is subject to various
restrictions. The availability of additional borrowings under the Revolving
Credit Facility is subject to the calculation of a borrowing base which at any
time is equal to a percentage of eligible accounts receivable and inventory, up
to a maximum of $50.0 million. The Senior Credit Facility restricts the
Company's ability to make loans or advances and pay dividends, except that,
among other things, the Company may pay dividends to NBC (i) after August 15,
2003 in an amount not to exceed the amount of interest required to be paid on
10
<PAGE>
NBC's Senior Discount Debentures and (ii) to pay corporate overhead expenses not
to exceed $250,000 per year and any taxes due by NBC. The indenture governing
the Senior Subordinated Notes (the "Indenture") restricts the ability of the
Company and its Restricted Subsidiaries (as defined in the Indenture) to pay
dividends or make other Restricted Payments (as defined in the Indenture) to
their respective stockholders, subject to certain exceptions, unless certain
conditions are met, including that (i) no default under the Indenture shall have
occurred and be continuing, (ii) the Company shall be permitted by the Indenture
to incur additional indebtedness and (iii) the amount of the dividend or payment
may not exceed a certain amount based on, among other things, the Company's
consolidated net income. Such restrictions are not expected to impact the
Company's ability to meet its cash obligations.
As of June 30, 1999, the Company could borrow up to $50.0 million under
the Revolving Credit Facility. Of the amount available, $31.8 million was drawn
by the Company. Additionally, in conjunction with certain bookstore
acquisitions, the Company established irrevocable standby letters of credit for
$142,000 which expire between October and June, 2000. Amounts available under
the Revolving Credit Facility may be used for working capital and general
corporate purposes (including up to $10.0 million for letters of credit),
subject to certain limitations contained in the Senior Credit Facility.
Seasonality
The Company's wholesale and bookstore operations experience two distinct
selling periods and the wholesale operations experience two distinct buying
periods. The peak selling periods for the wholesale operations occur prior to
the beginning of each school semester in August and December. The buying periods
for the wholesale operations occur at the end of each school semester in late
December and May. In fiscal 1999, approximately 45% of the Company's annual
revenues occurred in the second fiscal quarter (July-September), while
approximately 25% of the Company's annual revenues occurred in the fourth fiscal
quarter (January-March). The primary selling periods for the bookstore
operations are in September and January. Accordingly, the Company's working
capital requirements fluctuate throughout the year, increasing substantially at
the end of each semester, in May and December, as a result of the buying
periods. The Company funds its working capital requirements primarily through a
revolving credit facility, which historically has been repaid with cash provided
from operations.
Impact of Inflation
The Company's results of operations and financial condition are
presented based upon historical costs. While it is difficult to accurately
measure the impact of inflation due to the imprecise nature of the estimates
required, the Company believes that the effects of inflation, if any, on its
results of operations and financial condition have not been material. However,
there can be no assurance that during a period of significant inflation, the
Company's results of operations would not be adversely affected.
Impact of Year 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
programs may recognize a date using "00" as the year 1900 rather than the year
2000 (the "Year 2000 Issue"). This problem could cause a system failure or
miscalculations resulting in disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar routine business activities.
The Company has completed an assessment of the impact of the Year 2000
Issue on its operations, and has been modifying and will continue to modify and
replace portions of its software so that its internal computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company has been addressing the Year 2000 Issue consistently as part of its
regular program of updating and rewriting its internal corporate applications
during the last eight years. As a result, all of the Company's own retail
applications, including those marketed and sold to independent college
bookstores, have been modified and tested completely. Since Year 2000 Issue
modifications were integrated with regular operations, no significant additional
costs were incurred in conjunction with such modifications.
The only internal corporate application that remains to be addressed is
the general ledger application, which the Company is currently in the process of
modifying internally. The Company expects the cost to modify its current general
ledger software will not be significant. The Company plans to have such
modifications in place by September 1, 1999.
11
<PAGE>
The Company is currently in the process of identifying and evaluating
potential risks associated with the Year 2000 Issue on non-information
technology systems (i.e., telecommunications, heating and cooling, security,
electrical and freight). Although potentially disruptive, management does not
believe that such Year 2000 Issue system difficulties will adversely affect
day-to-day operations at the Company's retail locations. In a most likely worst
case scenario, difficulties encountered with the telecommunications and freight
systems could potentially hinder the Company's ability to receive and ship
wholesale orders. Contingency plans are being developed to minimize the effect
of any such disruptions on day-to-day operations.
The Company has also distributed questionnaires to its vendors to assess
exposure to vendors failing to be Year 2000 compliant. Based upon responses to
such questionnaires, discussions with certain vendors, and information provided
in trade publications, the Company believes that its vendors are taking steps to
address the Year 2000 Issue. Nonetheless, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be corrected
in a timely manner.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
This Quarterly Report on Form 10-Q contains or incorporates by reference
certain statements that are not historical facts, including, most importantly,
information concerning possible or assumed future results of operations of the
Company and statements preceded by, followed by or that include the words "may,"
"believes," "expects," "anticipates," or the negation thereof, or similar
expressions, which constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). All
statements which address operating performance, events or developments that are
expected or anticipated to occur in the future, including statements relating to
volume and revenue growth, earnings per share growth or statements expressing
general optimism about future operating results, are forward-looking statements
within the meaning of the Reform Act. Such forward-looking statements involve
risks, uncertainties and other factors which may cause the actual performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. For those statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Reform Act. Several
important factors could affect the future results of the Company and could cause
those results to differ materially from those expressed in the forward-looking
statements contained herein. The factors that could cause actual results to
differ materially include, but are not limited to, the following: increased
competition; ability to integrate recent acquisitions; loss or retirement of key
members of management; increases in the Company's cost of borrowing or inability
or unavailability of additional debt or equity capital; inability to purchase a
sufficient supply of used textbooks; changes in pricing of new and/or used
textbooks; changes in general economic conditions and/or in the markets in which
the Company competes or may, from time to time, compete; and other risks
detailed in the Company's Securities and Exchange Commission filings, in
particular the Company's Registration Statement on Form S-4 (No. 333-48221), all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. The Company will not undertake and
specifically declines any obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk exposure is, and is expected to continue to
be, fluctuation in LIBOR interest rates. Of the $200.9 million in long-term debt
and capital lease obligations outstanding at June 30, 1999, approximately $90.0
million is subject to fluctuations in the LIBOR rate. As provided in the
Company's Senior Credit Facility, exposure to interest rate fluctuations is
managed by maintaining fixed interest rate debt (primarily the Senior
Subordinated Notes) and by entering into interest rate swap agreements to
effectively convert certain variable rate debt into fixed rate debt. The Company
has separate five-year amortizing interest rate swap agreements with two
financial institutions whereby the Company's variable rate Tranche A and B Term
Loans have been effectively converted into debt with a fixed LIBOR rate of
5.815% plus an applicable margin (as defined in the Credit Agreement). The
current notional amount under each agreement is approximately $29.1 million.
Such notional amounts are reduced periodically by amounts equal to the scheduled
principal payments on the Tranche A and B Term Loans. The Company is exposed to
credit loss in the event of nonperformance by the counterparties to the interest
rate swap agreements. The Company anticipates the counterparties will be able to
fully satisfy their obligations under the agreements.
Certain quantitative market risk disclosures have changed significantly since
March 31, 1999 as a result of an upward movement in interest rates. The
following table reflects significant changes in the risks disclosed at March 31,
1999. Weighted average variable rates are based on implied forward rates in the
yield curve as of the date specified.
June 30, March 31,
1999 1999
-------------- --------------
Fair Values:
Fixed rate debt $ 110,951,097 $ 112,061,953
Interest rate swaps 447,849 (564,380)
Overall Weighted Average Interest Rates:
Variable rate debt 8.84% 8.12%
Interest rate swap receive rate 6.23% 5.54%
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement for Purchase and Sale of Stock, dated as of May 26,
1999 between and among Nebraska Book Company, Inc., Dennis
Rother, and Larry Rother, filed as Exhibit 2.1 to Nebraska
Book Company, Inc. Form 8-K dated June 4, 1999, is
incorporated herein by reference.
10.1 First Amendment, dated as of May 21, 1999, to the Credit
Agreement, dated as of February 13, 1998 among NBC Acquisition
Corp., Nebraska Book Company, Inc., the Chase Manhattan Bank,
and certain other financial institutions.
27 Financial Data Schedule [EDGAR filing only]
(b) Reports On Form 8-K
Current Report on Form 8-K dated June 4, 1999 reporting the
acquisition of Triro, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized in the City of Lincoln, Nebraska, on
August 12, 1999.
NEBRASKA BOOK COMPANY, INC.
/s/ Mark W. Oppegard
---------------------------
Mark W. Oppegard
President, Chief Executive Officer and
Director
/s/ Alan G. Siemek
---------------------------
Alan G. Siemek
Treasurer, Chief Financial
Officer and Assistant Secretary
14
FIRST AMENDMENT TO THE CREDIT AGREEMENT
FIRST AMENDMENT, dated as of May 21, 1999 (this "First
Amendment"), to the Credit Agreement, dated as of February 13, 1998 (as amended,
supplemented, or otherwise modified from time to time, the "Credit Agreement"),
among NBC ACQUISITION CORP., a Delaware corporation ("Holdings"), NEBRASKA BOOK
COMPANY, INC., a Kansas corporation (the "Borrower"), the several banks and
other financial institutions or entities from time to time parties thereto (the
"Lenders") and THE CHASE MANHATTAN BANK, a New York banking corporation, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent").
W I T N E S S E T H:
WHEREAS, Holdings, the Borrower, the Lenders and the
Administrative Agent are parties to the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders amend the
Credit Agreement as set forth herein;
WHEREAS, the Lenders and the Administrative Agent are willing to
agree to such amendment to the Credit Agreement, subject to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, Holdings, the Borrower, the Lenders and the
Administrative Agent hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms which are defined in the Credit Agreement are used herein as therein
defined.
2. Amendment to Section 1.1 (Defined Terms). Section 1.1 of the
Credit Agreement is hereby amended by adding the following definition in proper
alphabetical order:
"1999 Acquisition": the acquisition by the Borrower of a chain of
16 off-campus college bookstores located in Texas, New Mexico and Arizona for an
aggregate purchase price not to exceed $15,500,000, plus or minus, as the case
may be, any amounts paid for changes in working capital prior to closing.
3. Amendment to Section 2.12 (Mandatory Prepayments and
Commitment Reductions). Section 2.12(a) of the Credit Agreement is hereby
amended by deleting such subsection in its entirety and substituting in lieu
thereof the following:
1
<PAGE>
(a) Unless the Required Prepayment Lenders shall otherwise agree,
if any Capital Stock shall be issued, or Indebtedness incurred, by
Holdings, the Borrower or any of their respective Subsidiaries, an
amount equal to 100% of the Net Cash Proceeds thereof shall be applied
on the date of such issuance or incurrence toward the prepayment of the
Term Loans and the reduction of the Revolving Credit Commitments as set
forth in Section 2.12(d); provided, however, that the foregoing
requirements of this paragraph (a) shall not apply to: (i) any Capital
Stock of Holdings issued to the Primary Investors in an aggregate amount
of up to $15,000,000 in order to finance Capital Expenditures and
acquisitions otherwise permitted by this Agreement, excluding the amount
referred to in the following clause (ii), (ii) the approximately
$10,000,000 equity contribution made in connection with the 1999
Acquisition, (iii) sales of Capital Stock of Holdings, after the Closing
Date, to directors, officers or employees of Holdings, the Borrower or
any Subsidiary in connection with permitted employee compensation and
incentive arrangements and (iv) any Indebtedness incurred in accordance
with Section 7.2 as in effect on the date of this Agreement.
4. Amendment to Section 7.8(h) (Limitation on Investments, Loans
and Advances). Section 7.8(h) is hereby amended by (a) inserting the words
"excluding any amounts attributed to acquisitions made prior to March 31, 1999,"
at the end of clause (i); (b) deleting clause (ii) therefrom and substituting
therefor the phrase "(ii) [RESERVED]"; and (c) deleting the period at the end
thereof and substituting therefor the symbol ";".
(b) Section 7.8 is hereby amended by adding the following
paragraphs (i) and (j) at the end thereof:
(i) the 1999 Acquisition, provided that (i) the aggregate
purchase price for the 1999 Acquisition does not exceed $15,500,000,
plus or minus, as the case may be, any amounts paid for changes in
working capital prior to closing, and at least $10,000,000 of such
purchase price is funded by new capital contributions made to Holdings,
which are, in turn, contributed by Holdings to the Borrower, (ii) no
Default or Event of Default shall have occurred and be continuing after
giving effect to the 1999 Acquisition (iii) no Indebtedness shall be
assumed by the Borrower or any of its Subsidiaries in connection with
the 1999 Acquisition except to the extent otherwise permitted by this
Agreement and (iv) the Borrower shall be in pro forma compliance with
the covenants set forth in Section 7.1 after giving effect to the 1999
Acquisition; and
(j) other investments in an aggregate amount not to exceed $5
million at any one time outstanding.
5. Waiver. The Required Lenders and Administrative Agent hereby
expressly waive the application of Section 2.12(a) of the Credit Agreement, as
in effect prior to the date hereof, with respect to the sale, prior to the date
hereof, of Capital Stock of Holdings to Barry Major for Net Cash Proceeds in the
amount of $25,000.
6. Representations and Warranties. Each of Holdings and the
Borrower hereby confirms, reaffirms and restates the representations and
warranties set forth in Section 4 of the Credit Agreement. Each of Holdings and
the Borrower represents and warrants that, after giving effect to this First
Amendment, no Default or Event of Default has occurred and is continuing.
2
<PAGE>
7. Effectiveness. This First Amendment shall become effective as
of the date upon which the Administrative Agent receives counterparts of this
First Amendment duly executed by Holdings, the Borrower, the Required Lenders
and the Required Prepayment Lenders.
8. Continuing Effect of the Credit Agreement. This First
Amendment shall not constitute an amendment of any other provision of the Credit
Agreement not expressly referred to herein and shall not be construed as a
waiver or consent to any further or future action on the part of any Loan Party
that would require a waiver or consent of the Lenders or the Administrative
Agent. Except as expressly amended hereby, the provisions of the Credit
Agreement are and shall remain in full force and effect.
9. Counterparts. This First Amendment may be executed by the
parties hereto in any number of separate counterparts, each of which shall be
deemed to be an original, and all of which taken together shall be deemed to
constitute one and the same instrument.
10. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered in New York, New York by their
respective proper and duly authorized officers as of the day and year first
above written.
NBC ACQUISITION CORP.
By:________________________
Name:
Title:
NEBRASKA BOOK COMPANY, INC.
By:________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent and as a Lender
By:________________________
Name:
Title:
4
<PAGE>
ABN AMRO BANK N.V.
By:________________________
Name:
Title:
CERES FINANCE LTD.
By:_________________________________
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
By: ________________________________
Name:
Title:
ELC (CAYMAN) LTD.
By:_________________________________
Name:
Title:
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management as Investment Advisor
By:________________________________
Name:
Title:
5
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: ______________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By: ______________________________________
Name:
Title:
HELLER FINANCIAL, INC.
By: ______________________________________
Name:
Title:
NATIONAL CITY BANK
By: ______________________________________
Name:
Title:
PILGRIM PRIME RATE TRUST
By:_______________________________________
Name:
Title:
6
<PAGE>
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
By:_______________________________________
Name:
Title:
SOCIETE GENERALE
By: ______________________________________
Name:
Title:
STRATA FUNDING LTD.
By: ______________________________________
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By: ______________________________________
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST
By: ______________________________________
Name:
Title:
7
<PAGE>
WAREHOUSE HARTFORD
By:_______________________________________
Name:
Title:
WELLS FARGO BANK NATIONAL ASSOCIATION
By: ______________________________________
Name:
Title:
8
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001056758
<NAME> NEBRASKA BOOK COMPANY, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 5,270,567
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<RECEIVABLES> 22,814,379
<ALLOWANCES> 165,899
<INVENTORY> 73,852,504
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<PP&E> 33,572,110
<DEPRECIATION> 8,589,721
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<BONDS> 162,932,464
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<TOTAL-LIABILITY-AND-EQUITY> 180,114,185
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<INCOME-CONTINUING> (4,484,472)
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