SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 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, NE 68501-0529
(Address of Principal executive offices)
(402) 421-7300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [x]
There are no shares of the registrant's voting stock held by non-affiliates
of the Registrant.
There were 100 shares of common stock outstanding as of June 18, 1999.
DOCUMENTS INCORPORATED BY REFERENCE: None
Total Number of Pages: 55
Exhibit Index: Page 55
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TABLE OF CONTENTS
PART I:
Item 1 Business......................................................... 3
Item 2 Properties.......................................................13
Item 3 Legal Proceedings................................................14
Item 4 Submission of Matters to a Vote of Security Holders..............14
PART II:
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters.............................................15
Item 6 Selected Financial Data..........................................15
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations...................16
Item 7A Quantitative and Qualitative Disclosures about Market Risk.......22
Item 8 Financial Statements and Supplementary Data......................23
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disc1osure.............................41
PART III:
Item 10 Directors and Executive Officers of the Registrant...............42
Item 11 Executive Compensation...........................................43
Item 12 Security Ownership of Certain Beneficial Owners and Management...46
Item 13 Certain Relationships and Related Transactions...................47
PART IV:
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.........................................48
Signatures.................................................................52
Supplemental Information to be Furnished...................................52
Financial Statement Schedule II - Valuation and Qualifying Accounts........53
Exhibit Index..............................................................55
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PART I.
ITEM 1. BUSINESS.
Recapitalization and Public Registration
Effective September 1, 1995, Nebraska Book Company, Inc. (the "Company")
was acquired in a leveraged buyout by NBC Acquisition Corp. ("NBC"), a
corporation owned by investment partnerships affiliated with Olympus Advisory
Partners, Inc. and certain other investors (the "1995 Transaction"). The 1995
Transaction was accounted for as a purchase business combination.
Pursuant to a merger agreement dated January 6, 1998 among NBC; certain
shareholders of NBC, including members of senior management; and NBC Merger
Corp., a newly created, indirect wholly-owned subsidiary of HWH Capital
Partners, L.P.("HWH"), NBC Merger Corp. merged with and into NBC (the "Merger")
with NBC as the surviving corporation. As a result of the Merger, which occurred
on February 13, 1998, certain NBC stockholders received a total of approximately
$165.9 million. In addition, upon the consummation of the Merger, the Company
repaid approximately $82.0 million of outstanding indebtedness. As a result of
the early extinguishment of debt in fiscal 1998, the Company recognized a $4.0
million extraordinary loss, net of taxes.
Concurrently with the consummation of the Merger, the Company entered into a
senior secured credit agreement (the "Credit Agreement") with The Chase
Manhattan Bank ("Chase"), as administrative agent, and other lenders providing
for the following facilities (the "Senior Credit Facility"): (i) a $50.0 million
revolving credit facility maturing on March 31, 2004 which was undrawn at
closing (the "Revolving Credit Facility"); (ii) a $27.5 million tranche A term
loan, maturing on March 31, 2004 (the "Tranche A Term Loan"); and (iii) a $32.5
million tranche B term loan, maturing on March 31, 2006 (the "Tranche B Term
Loan" and, together with the Tranche A Term Loan, the "Term Loans"). In
addition, the Company also raised approximately $103.6 million from the issuance
of senior subordinated notes (the "Senior Subordinated Notes"). NBC raised a
total of $91.6 million, which it contributed to the Company as equity (the
"Equity Contribution"), through: (i) the sale of approximately $45.6 million of
NBC Acquisition Corp. Class A Common Stock to HWH; (ii) the reinvestment of
approximately $4.4 million in NBC Acquisition Corp. Class A Common Stock by the
Company's senior management; and (iii) net proceeds of approximately $41.6
million from the issuance of senior discount debentures (the "Senior Discount
Debentures").
The Merger, the repayment of substantially all of the Company's outstanding
indebtedness, the Equity Contribution, the issuance by the Company of the Senior
Subordinated Notes, the issuance by NBC of the Senior Discount Debentures, the
Company's borrowings under the Senior Credit Facility and the application of all
proceeds thereof are collectively referred to as the "Recapitalization."
During fiscal 1999, the Company and NBC filed Registration Statements on
Form S-4 with the Securities and Exchange Commission for purposes of registering
debt securities to be issued in exchange for the Company's Senior Subordinated
Notes and NBC's Senior Discount Debentures. The Securities and Exchange
Commission declared such Registration Statements effective on July 14, 1998. All
notes were tendered in the offer to exchange which was completed on August 13,
1998.
General
The Company is one of the largest wholesale distributors of used college
textbooks in North America, offering approximately 90,000 textbook titles and
selling more than 7.1 million books annually at approximately 2,000 college
campuses. In addition, the Company owns or manages 65 bookstores on or adjacent
to college campuses through which it sells a variety of new and used textbooks
and general merchandise. The Company is also a leading provider of distance
education materials to students in nontraditional courses, which include
correspondence and corporate education courses. Furthermore, the Company
provides the college bookstore industry with a variety of services including
in-store promotions, buying programs, marketing services and proprietary
information systems. With origins dating to 1915, the Company has built a
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consistent reputation for excellence in order fulfillment, shipping performance
and customer service. For the fiscal year ended March 31, 1999, the Company's
revenues were $217.5 million.
The Company entered the wholesale used textbook market following World War
II, when the supply of new textbooks could not meet the demand created by the
return of ex-GI students. In 1964, the Company became a national, rather than
regional, wholesaler of used textbooks as a result of its purchase of The
College Book Company of California. During the 1970's the Company continued its
focus on the wholesale business. However, realizing the synergies that exist
between wholesale operations and college bookstore operations, in the 1980's it
expanded its efforts in the college bookstore market with a new strategy. Under
this new strategy the Company operates bookstores on or near larger campuses,
typically where the institution-owned college bookstore is contract-managed by a
competitor or where the Company does not have a significant wholesale presence.
Today, the Company services the college bookstore industry through its
wholesale, college bookstore and services operations.
Wholesale. The Company is one of the largest wholesale distributors of used
college textbooks in North America. Its wholesale operations consist 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 Company purchases used textbooks from and resells
them to college bookstores at many of the nation's largest college campuses,
including: University of Texas, University of Southern California, Indiana
University, University of Arizona, Brigham Young University, University of
Washington and University of Minnesota. Historically, because the demand for
used textbooks has consistently outpaced supply, the Company's wholesale sales
have been determined primarily by the amount of used textbooks that it could
purchase. The Company's strong relationships with the management of
approximately 2,000 independently-owned college bookstores have provided
important access to valuable market information regarding the campus-by-campus
supply and demand of textbooks, as well as an ability to procure large
quantities of a wide variety of textbooks. The Company provides an
internally-developed Buyer's Guide to its customers, which lists over 41,000
textbook titles with such details as author, new copy retail price and the
Company's repurchase price.
College bookstores. College bookstores are the primary outlets for sales of
new and used textbooks to students. The Company operates 65 college bookstores
on or adjacent to college campuses of which eight are operated on physical
premises which are owned by and leased from the educational institution (i.e.,
"contract-managed"). Its college bookstores are located at some of the nation's
largest college campuses including: University of Nebraska, University of
Michigan, University of Maryland, Arizona State University, Pennsylvania State
University, University of Kansas, Cornell University, Baylor University,
Oklahoma State University, University of Tennessee and Ohio University. In
addition to generating profits, the Company's college bookstore operations
provide an exclusive source of used textbooks for sale across the Company's
wholesale distribution network. The Company generally focuses its college
bookstore operations at colleges where the Company otherwise would not have a
significant representation.
Complementary Services. In fiscal 1998, the Company completed two
acquisitions representing new initiatives for it in the college bookstore
industry. In January 1998, the Company acquired Collegiate Stores Corporation
("CSC"), a centralized buying service for over 450 college bookstores across the
United States. Through the enhanced purchasing power of such a large group of
bookstores, participating bookstores are able to purchase certain general
merchandise at lower prices than those that would be paid by the stores
individually. Bookstores participating in CSC's programs also provide the
Company with another potential source of used textbooks. The Company is in the
process of developing incentives underlying the purchase and sale of used
textbooks for CSC program participants. With its acquisition of Specialty Books,
Inc. ("Specialty Books") in May 1997, the Company entered the distance education
market, which consists of providing education materials to students in
nontraditional college and other courses (such as correspondence courses,
continuing and corporate education courses and courses offered through
electronic media such as the Internet). Other services offered to college
bookstores include the sale of computer hardware and software, such as the
Company's turnkey bookstore management software, and related maintenance
contracts. These services generate revenue and assist the Company in enhancing
and developing customer relationships.
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Industry Segment Financial Information
Revenue, operating profit or loss and identifiable assets attributable to
each of the Company's industry segments are disclosed in the notes to the
financial statements presented in Item 8 of the Company's Form 10-K.
Business Strategy
The Company's objective is to strengthen its position as a leading provider
of products and services to the college bookstore market, thereby increasing
revenue and cash flow. In order to accomplish its goal, the Company intends to
pursue the following strategies:
Enhance growth in wholesale operations. The Company expects the stable
growth of its wholesale operations to continue, primarily as a result of an
expected increase in college enrollments and increased utilization of used
textbooks, as well as through the expansion of its own college bookstore
network.
Capitalize on college bookstore opportunities. The Company intends to expand
sales for its college bookstore operations by acquiring and opening bookstores
at selected college campuses and offering additional specialty products and
services at its existing bookstores. The Company also believes there are
significant opportunities to improve cash flow at its college bookstores by
reducing certain selling, general and administrative expenses and by realizing
economies of scale through increased purchasing power for textbooks and general
merchandise as a result of its affiliation with CSC.
Pursue additional growth opportunities. The Company intends to aggressively
pursue selected growth opportunities in several related markets, including:
o Complementary Services. The Company believes that its affiliation with
CSC will greatly enhance the Company's sales and marketing capabilities,
bolstering growth and positioning the Company as a dominant full-service
provider within the college bookstore industry, by increasing its
sources of used textbooks and providing access to CSC's marketing
programs and capabilities. During its first full year of operations
under the control of the Company, CSC contributed net revenues of $1.6
million.
o Distance Education. The distance education market is growing due to the
increased popularity of correspondence courses, continuing and corporate
education courses and courses offered through electronic media such as
the Internet. Through its acquisition of Specialty Books, the Company
believes that it is well positioned to take advantage of this growth
trend. During its first full year of operations under the control of the
Company, Specialty Books contributed net revenues of $6.0 million.
Industry Overview
Based on recent industry trade data, the college bookstore industry remains
strong, with approximately 5,000 college stores generating annual sales in
excess of $8.0 billion to college students and other consumers in North America.
Sales of textbooks and other education materials used for classroom instruction
comprise approximately two-thirds of this amount. The Company expects this
market will continue to grow as a result of anticipated increases in enrollment
at U.S. colleges attributable to the children of the baby boom generation
entering the college population.
Wholesale textbook market. The Company believes that used textbooks will
continue to be attractive to both students and college bookstores. Used
textbooks provide students with a lower-cost alternative to new textbooks and
bookstores typically achieve higher margins through the sale of used rather than
new textbooks.
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The pricing pattern of textbook publishing accounts for a large part of the
growth of the used book market. Because of copyright restrictions, each new
textbook is produced by only one publisher, which is free to set the new copy
retail price and discount terms to bookstores. Publishers generally offer new
textbooks at prices which enable college bookstores to achieve a gross margin of
23.0% to 25.0% on new textbooks. Historically, the high retail costs of new
textbooks and the higher margins achieved by bookstores on the sale of used
textbooks (approximately 33.0%) have encouraged the growth of the market for
used textbooks.
The used textbook cycle begins with new textbook publishers, who purposely
plan obsolescence into the publication of new textbooks. Generally, new editions
of textbooks are produced every two to four years. In the first year of a new
edition, there are few used copies of a new edition available. In the second and
third years, used textbooks become increasingly available. Simultaneously,
publishers begin to plan an updated edition. In years four and beyond, at the
end of the average life cycle of a particular edition, as publishers cut back on
original production, used textbooks generally represent a majority (in unit
terms) of the particular edition in use. While the length of the cycle varies by
title (and sometimes is indefinite, as certain titles are never updated), the
basic supply/demand progression remains fairly consistent.
The following example illustrates the life cycle of a used textbook as it is
purchased from the college bookstore by the wholesaler, then sold back to the
college bookstore which resells it to the student who, at the end of the
semester, sells it back to the college bookstore (assuming a new copy retail
list price of $100.00): The wholesaler begins the cycle by buying the used
textbook from the college bookstore for $32.00. The wholesaler will sell the
used textbook to the college bookstore for $50.00 or 50.0% of the new copy
retail price. The bookstore in turn, sells it to the student for 75.0% of the
new copy retail price, or $75.00 (earning a gross margin of 33.0%). This margin
compares favorably to the gross margin provided by sales of new textbooks, which
historically has been in the range of 23.0 to 25.0%. After using the textbook
for the semester, the student sells the book back to the college bookstore for
$28.00, and the bookstore again sells the used book to the wholesaler for
$32.00, for a net commission of $4.00. The wholesaler's mark-up of $18.00
(selling price of $50.00 less acquisition cost of $32.00) represents a gross
margin of 36.0%, not taking into account the periodic increase in prices of new
textbooks.
College bookstores begin to place orders with used textbook wholesalers once
professors determine which books will be required for their upcoming courses,
usually by the end of May for the fall semester and the end of November for the
spring semester. Bookstore operators must first determine their allocation
between new and used copies for a particular title but, in most cases, they will
order an excessive quantity of used books because: (i) used book demand from
students is typically strong and consistent; (ii) many operators only have
access to a limited supply from wholesalers and believe that not having used
book alternatives could create considerable frustration among students and with
the college administration; (iii) bookstore operators earn higher margins on
used books than on new books; and (iv) both new and used books are sold with
return privileges, eliminating any overstock risk (excluding freight charges) to
the college bookstore.
New textbook ordering usually begins in June, at which time the store
operator augments its expected used book supply by ordering new books. By this
time, publishers typically will have just implemented their annual price
increases. These regular price increases, which historically have run 4.0% to
5.0%, allow the Company and its competitors to buy used textbooks based on old
list prices (in May) and to almost simultaneously sell them based on new higher
prices, thereby creating an immediate margin increase.
While price is an important factor in the store operator's purchasing
decision, available supply, as well as service, usually determine with which
used textbook wholesaler a college bookstore will develop a strong relationship.
Pure exclusive supply arrangements in the Company's market are rare. However,
used textbook wholesalers that are able to significantly service a college
bookstore account typically receive preferential treatment from store operators,
both in selling and in buying used textbooks. Since the Company is usually able
to sell the vast majority of the used textbooks it is able to purchase, its
ability to obtain sufficient supply is the critical factor for the Company's
success.
College bookstore market. College stores generally fall into three
categories: (i) institutional - stores that are primarily owned and operated by
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institutions of higher learning (represent 60.0% of the market); (ii)
contract-managed - stores owned by institutions of higher learning and managed
by outside, private companies, typically found on-campus (represent 25.0% of the
market); and (iii) independent stores - privately owned and operated stores,
generally located off campus (represent 15.0% of the market). In general, the
"captive" portion of the college bookstore market includes those
contract-managed stores that sell their used textbooks to affiliated companies,
and institutional and independent stores to the extent that such used textbooks
are repurchased from students and are retained by the bookstore for resale
without involving a wholesaler.
The Company believes that sales at its college bookstores will continue to
grow as a result of increased enrollment at colleges and due to the increasing
number of products and services offered in these bookstores. In addition, it
believes that as a result of the development and implementation of management
information systems to improve productivity and customer service, as well as to
more easily and efficiently track and manage inventory, the profitability of its
college bookstores will increase.
Products and Services
Wholesale. The Company's wholesale operations are engaged in the
procurement and redistribution of textbooks on college campuses across the
nation.
The Company also publishes the Buyer's Guide, which lists over 41,000
textbooks according to author, title, new copy retail price and the Company's
repurchase price. The Buyer's Guide is an important part of the Company's
inventory control and book procurement system. The Company updates and reprints
the Buyer's Guide ten times each year and makes it available in both print and
various electronic formats, including on all of the Company's proprietary
information systems. A staff of dedicated professionals gathers information from
all over the country in order to make the Buyer's Guide into what the Company
believes to be the most comprehensive and up-to-date pricing and buying aid for
college bookstores. The Company also maintains a database of over 170,000 titles
in order to better serve its customers.
College bookstores. The Company operates 65 college bookstores on or
adjacent to college campuses of which eight are contract-managed by the Company.
These bookstores sell a wide variety of used and new textbooks, general books
and assorted general merchandise, including apparel, sundries and gift items.
Over the past three years, revenues of the Company's bookstores from activities
other than used and new textbook sales have been between 28.5% and 36.7% of
total revenues. The Company has been, and intends to continue, selectively
expanding its product offerings at its bookstores in order to increase sales and
profitability.
The college bookstore operations also provide consulting services to other
college bookstores. Using their industry experience, the Company's specialists
work with college bookstore managers to provide them with systems and support
services. The Company offers assistance in areas such as store planning, systems
and merchandise layouts.
Complementary Services. As a result of the Company's acquisition of CSC in
January 1998, it is able to offer a variety of products and services to CSC's
participating college bookstores. CSC offers apparel and general merchandise
through discount programs, develops and executes marketing programs and hosts
trade shows at which vendor's showcase their products. As a centralized buying
service for over 450 participating college bookstores, CSC has evolved into a
buying group with enough purchasing power to compete with larger, multi-location
store operators.
Through a joint venture with American Collegiate Marketing, CSC offers a
plastic bag program to college bookstores. This plastic bag program provides
bookstores the opportunity to purchase customized bags at a substantial discount
while the Company generates a profit due to receipt of revenue from advertising
inserts which are placed inside the bags. Other CSC marketing services include a
freight savings program, a check authorization program, and retail display
allowances for magazine displays.
CSC also provides an opportunity for interaction and exchange among buyers
and between buyers and vendors to the college bookstore market through an annual
trade show, which is held in February/March. Vendors pay CSC for the opportunity
to attend these trade shows.
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Additionally, a staff of experienced CSC professionals consult with the
management of bookstores both by telephone and in person. Services offered
include strategic planning, store review, merchandise planning and help with
most other operational aspects of the business. While consulting has
historically represented a relatively small component of CSC's business, it is
nonetheless strategically important to the ongoing success of this aspect of the
Company's business.
With its acquisition of Specialty Books in May 1997, the Company entered the
market for distance education products and services. Currently, the Company
provides students at over 50 colleges with textbooks and materials for use in
distance education courses, and is a leading provider of textbooks to
nontraditional programs and students such as correspondence or corporate
education students. The Company believes the fragmented distance education
market represents an opportunity for the Company to leverage its fulfillment and
distribution expertise in a rapidly growing sector. Beyond textbooks, the
Company offers services and specialty course materials to distance education
students including videotape duplication and shipping, shipping of specialty,
nontextbook course materials and a sales and ordering function. Students can
order distance education materials from the Company over the Internet. The
Company believes it can significantly increase the service operations revenues
from distance education products over the next several years.
Other services offered to college bookstores include services related to the
Company's turnkey bookstore management software and the sale of other software
and hardware, and related maintenance contracts. These services generate revenue
and assist the Company in gaining access to new sources of used textbooks. The
Company has an installed base of over 400 college bookstore locations for its
textbook management control systems, and it has installed its proprietary total
store management system at over 200 college bookstore locations. In total, over
600 college bookstore locations utilize the Company's software products.
Wholesale Procurement and Distribution
Historically, because the demand for used textbooks has consistently
exceeded supply, the Company's sales have been primarily determined by the
amount of used textbooks that it can purchase. The Company believes that, on
average, it is able to fulfill approximately 20% of its demand. As a result, the
Company's success has depended primarily on its inventory procurement, and the
Company continues to focus its efforts on obtaining inventory. In order to
ensure its ability to both obtain and redistribute inventory, the Company's
wholesale strategy has emphasized establishing and maintaining strong customer
and supplier relationships with college bookstores (primarily, independent and
institutional college bookstores) through its employee account representatives.
These 45 account representatives (as of March 31, 1999) are responsible for
procuring used textbooks from students, marketing the Company's services on
campus, purchasing overstock textbooks from bookstores and securing leads for
sale of the Company's automation products. The Company has been able to maintain
a competitive edge by providing superior service, made possible primarily
through the development and maintenance of ready access to inventory,
information and supply. Other components of the wholesale strategy and its
implementation include: (i) selectively paying a marginal premium relative to
competitors to entice students to sell back more books to the Company; (ii)
gaining access to competitive campuses (where the campus bookstore is
contract-managed by a competitor) by opening off-campus, Company-owned college
bookstores; (iii) using technology to gain efficiencies and to improve customer
service; (iv) maintaining a knowledgeable and experienced sales force that is
customer-service oriented; and (v) providing working capital flexibility for
bookstores making substantial purchases.
The two major used textbook purchasing seasons are at the end of each
academic semester, May/June and December/January. Although the Company makes
book purchases during other periods, the inventory purchased in May, before
publishers announce their price increases in June and July, allows the Company
to purchase inventory based on the lower retail prices of the previous year. The
combination of this purchasing cycle and the fact that the Company is able to
sell its inventory in relation to retail prices for the following year permits
the Company to realize additional gross margin. The Company advances cash to its
representatives during these two periods, and the representatives in turn buy
books directly from students, generally through the on-campus bookstore.
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The prices wholesalers pay for books are a function of a number of factors,
including the date on which a new edition is scheduled to be released, the
demand pattern for each book, the Company's existing supply and the anticipated
overall supply. Suggested purchase prices typically range from 5.0% to 33.0% of
the publisher's new copy retail price. The average price paid for books is
approximately 22.0% of new copy retail; bookstores and agents earn an additional
commission for allowing the Company to purchase books at their facilities. The
result is a total cost to the Company of between 8.0% and 40.0% of the new copy
retail price.
After the Company purchases the books, the Company arranges for shipment to
one of its two warehouses via common carrier. At the warehouse, the Company
refurbishes damaged books and categorizes and shelves all other books in a
timely manner, and enters them into the Company's on-line inventory system. The
Company, which does business in California under the tradename "College Book
Company of California," is the only major national used textbook wholesaler with
facilities in California. However, the Company's primary warehouse is located in
Nebraska. These two locations function as one facility allowing customers to
access inventory at both locations.
In order to ensure prompt, efficient and accurate order fulfillment, the
Company has developed a system of classifying both books and customers in its
database. Based on an in-depth analysis of orders received, inventory and
publishing trends for the preceding 18 months, the Company rates books on a
scale of 1-9, with 9 being the highest rating. A high rating generally indicates
that a book is in high demand. Highly rated books move out of inventory quickly,
and they produce relatively low gross margins because the Company must pay a
relatively higher price to purchase these books from students. In contrast,
lower-rated books produce higher margins because the Company pays less to
acquire the inventory. If the Company has not received any orders for a book for
six months, it gives that title no value for inventory purposes, and if there is
no demand for the title in 18 months, the Company may physically remove it from
inventory.
In a similar fashion, the Company also rates customers on a scale of 1-9,
based on a combination of how many used books the customer supplies to the
Company, whether or not the customer uses the Company's management systems,
credit quality and the volume of used books ordered by the customer. The Company
does not permit a customer to order a book with a higher rating than the
customer's. (For instance, a customer with a rating of 7 is unable to purchase
books with a rating of 8 or 9, but is able to order any title with a 7 rating or
below.) This system enables the Company to manage its inventory and its
relationships effectively despite the constraints placed on it by the fact that
demand for used books is greater than supply. The Company rates approximately
80.0% of its inventory 3 or lower, which allows most of its customers to
purchase sufficient quantities of even the more popular titles.
Customers place orders by phone, mail, fax or other electronic method. Upon
receiving an order, the Company removes the books from available inventory and
holds them for future shipping. Customers may return books within 60 days after
the start of classes if a written request is enclosed. Returns currently average
approximately 20.1% of sales and generally are attributable to course
cancellations or overstocking. The majority of returns are textbooks that the
Company is able to resell for the next semester. Because customers may change
their orders prior to the shipping date, the Company does not recognize revenue
until an order has been shipped.
College Bookstore Operations
An important aspect of the Company's business strategy is a program designed
to reach new customers through the opening of bookstores adjacent to college
campuses. In addition to generating sales of new and used textbooks and general
merchandise, these outlets enhance the Company's wholesale operations by
increasing the inventory of used books purchased from the campus.
A desirable campus for a Company-operated college bookstore is one on which
the Company does not currently buy or sell used textbooks either because a
competitor of the Company contract-manages the college's bookstore or the
college bookstore does not have a strong relationship with the Company. The
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Company generally will not open a location on a campus where it already has a
strong relationship with the college bookstore because some college bookstores
may view having a competing location as a conflict of interest.
The Company tailors each bookstore to fit the needs and lifestyles of the
campus on which it is located. Individual bookstore managers are given
significant planning and managing responsibilities, including, hiring employees,
controlling cash and inventory, and purchasing and merchandising product. The
Company has staff specialists to assist individual bookstore managers in such
areas as store planning, merchandise layout and inventory control.
As of March 31, 1999 the Company operated 65 college bookstores nationwide,
having expanded from 28 bookstores in 1993. During fiscal 1999 the Company
purchased/established eight new bookstores located in Miami, Florida;
Carbondale, Illinois; Des Moines, Iowa; Louisville, Kentucky; Richmond,
Kentucky; Binghamton, New York; and Richmond, Virginia, adding estimated
combined annual revenues in excess of $7.0 million. Subsequent to March 31,
1999, the Company acquired Triro Inc., a chain of 17 college bookstores located
in Texas, New Mexico, and Arizona. The purchase price consisted of $13.2 million
paid to the former shareholders and $1.9 million for the average annual debt
level. The actual amount of debt assumed and retired at closing was
approximately $3.2 million, which exceeded the average outstanding debt level of
$1.9 million due to the seasonal incurrence of debt to fund the buyback of used
textbooks at the end of the Spring semester. Offsetting the higher debt balances
at Closing was a compensating increase in net asset balances (consisting
primarily of inventory). Also subsequent to March 31, 1999, the Company
purchased new bookstores located in Daytona Beach, Florida and Orlando, Florida
at a cost of approximately $0.8 million and is in the process of starting up new
bookstores located in Arlington, Texas; Northridge, California and Johnson City,
Tennessee.
The table below highlights certain information regarding the Company's
bookstores opened through March 31, 1999.
Bookstores Approximate
Open at Bookstores Bookstores Bookstores Total
Beginning Added Closed at End of Square
of Fiscal During During Fiscal Footage
Fiscal Year Year Fiscal Year Fiscal Year(1) Year (in thousands)
----------- ---------- ----------- -------------- -------- --------------
1994 28 2 0 30 330
1995 30 5 0 35 364
1996 35 4 0 39 388
1997 39 12 1 50 438
1998 50 9 0 59 474
1999 59 8 2 65 537
- ------------
(1) In fiscal 1997, the management contract was not renewed on a
contract-managed bookstore. In fiscal 1999, the property leases at two
bookstore locations expired and were not renewed by the Company.
The Company plans to increase the number of bookstores in operation by at
least three bookstores annually. The bookstore expansion plan will focus on
campuses where the Company does not already have a strong relationship with the
on-campus bookstore. In determining to open a bookstore, the Company looks at
several criteria: (i) a large enough market to justify the Company's efforts
(typically this means a campus of at least 10,000 students); (ii) a site in
close proximity to campus with adequate parking and accessibility; (iii) the
potential of the bookstore to have a broad product mix (larger bookstores are
more attractive than smaller bookstores because a full line of general
merchandise can be offered in addition to textbooks); (iv) the availability of
top-quality management; and (v) certain other factors, including leasehold
improvement opportunities and personnel costs.
The 59 Company bookstores that were opened prior to April 1, 1998 averaged
approximately $2.0 million per store in annualized sales and produced sales per
10
<PAGE>
gross square foot of approximately $239 for the fiscal year ended March 31,
1999. The Company's bookstores have an average size of 8,300 gross square feet
but range in size from 900 to 50,000 square feet. The Company estimates that
leasehold improvements, furniture and fixtures, and automation with the
Company's PRISM system, the Company's proprietary total-store management system,
for new bookstores is approximately $100,000 per bookstore, after giving effect
to construction allowances.
Management Information Systems
The Company has committed substantial resources to its MIS operations. This
commitment reflects the Company's belief that it can significantly enhance
efficiency, profitability and competitiveness through investments in technology.
The Company's MIS operations process order entry, control inventory, generate
purchase orders and customer invoices, generate various sales reports and
process and retrieve textbook information. All the Company's bookstores operate
with state-of-the-art IBM RS/6000s. At the center of its MIS operations are the
Company's self-developed, proprietary software programs such as PRISM, its whole
store management system, PC-Text, its textbook management and inventory control
system, and PC-Trade, which tracks sales data. This software is maintained and
continuously enhanced by the Company, which is staffed by an experienced team of
development and design professionals. The Company believes that its MIS
capabilities will serve the Company's needs for the foreseeable future.
None of the Company's proprietary software programs are copyrighted, nor
does the Company have registered trademarks for the names of its software
programs, or for the term "Buyers' Guide." In addition to using its software
programs for its own management and inventory control, the Company licenses the
use of its software programs to bookstores. Although none of the Company's
software programs are material to its business, they enhance the efficiency and
cost-effectiveness of the Company's operations, and their use by bookstores that
are customers or suppliers of the Company tends to solidify the relationship
between the Company and such customers or suppliers, resulting in increased
sales or supplies for the Company.
MIS operations consist of three operating units: (i) the mainframe unit,
which develops and supports all systems utilized in the Company's warehouses and
corporate offices; (ii) a system sales unit, which markets the Company's college
store management systems to colleges; and (iii) the College Bookstore Management
Systems ("CBMS"), which develops and supports the systems that are sold to
bookstores.
The Company conducts training courses for all systems users at the Company's
headquarters in Lincoln, Nebraska. Classes are small and provide hands on
demonstrations of the various systems. Printed reference manuals and training
materials also accompany each system. The customer support unit of CBMS is
staffed with approximately 25 experienced personnel who are available 24 hours a
day to answer questions on a toll-free number.
Customers
The Company sells its products and services to approximately 2,000 college
bookstores in the United States, Canada and Puerto Rico for ultimate use by the
students of the respective colleges. The Company has had relationships with its
25 largest wholesale customers (which accounted for approximately 7.1% of fiscal
1999 revenues) for an average of 20 years. No one customer accounted for more
than 1.0% of the Company's fiscal 1999 revenues.
The Company's wholesale operations purchase from and resell used textbooks
to many of the nation's largest college campuses including: University of Texas,
University of Southern California, Indiana University, University of Arizona,
Brigham Young University, University of Washington and University of Minnesota.
The Company's college bookstores are located on many of the nation's largest
college campuses including: University of Nebraska, University of Michigan,
University of Maryland, Arizona State University, Pennsylvania State University,
University of Kansas, Cornell University, Baylor University, Oklahoma State
University, University of Tennessee and Ohio University.
11
<PAGE>
Competition
The Company's wholesale business competes in the used textbook wholesale
distribution market, which includes the sale of all used textbooks purchased
from students by an independent third party which are then redistributed through
college bookstores. This market represents less than half of the total used
textbook market. Sales to contract-managed stores, which do not enter this
market because contract-managed stores obtain virtually all of their supply of
used textbooks from within their chain of stores under common management,
represent approximately a quarter of the total used textbook market. Used
textbooks retained by college bookstores, which do not enter this market because
the used textbooks are simply resold by the same bookstores that purchased them,
represent approximately a third of the total used textbook market.
The Company's two major competitors in the college store industry and used
textbook business are Follett Campus Resources ("Follett") and MBS Textbook
Exchange ("MBS"). The Company believes that its market share of the used college
textbook wholesale distribution market is comparable to that of Follett and MBS.
The remaining competitors are smaller regional companies, including Wallace
College Book Company, Budgetext, Texas Book Company and Southeastern Book
Company. Most of the leading companies in the industry also have an established
retail presence, either through direct store ownership/operation or through
contract-management.
Many of Follett's college bookstores are located on smaller campuses. The
size of the campus and Follett's presence there have precluded potential
competitors such as the Company from entering these markets, which in turn
affects both the Company's ability to buy books and its ability to add new
accounts. However, because it is required to supply used texts to all of its own
stores, Follett must balance the demands of its own bookstores with those of its
other independent customers.
MBS is controlled by the same shareholder that controls Barnes & Noble.
Consequently, MBS supplies approximately 350 Barnes & Noble college stores. MBS
faces the same challenges that Follett faces in supplying existing institutional
accounts. MBS has a strong systems division that competes actively with the
Company for new customers, and that also fulfills all of the needs of the Barnes
& Noble stores.
The Company's college bookstore operations, eight of which are
contract-managed, compete with other college campus bookstores, including the
on-campus bookstore in those locations where the Company's bookstore is
off-campus. Its two primary competitors in college bookstores are Follett, which
contract-manages approximately 580 stores, and Barnes & Noble, which
contract-manages approximately 350 stores.
There is only one centralized buying service that is similar to CSC, the
West Coast Buying Association ("WCBA"). Participation by college bookstores in
CSC's or WCBA's centralized buying service is voluntary, and college bookstores
may, and some do, belong to both buying associations.
Presently, the Company believes that its largest competitors in the
distance education market are Follett and MBS.
The Company also increasingly competes against the expansion of electronic
media as a source of textbook information, such as on-line resources and CD-ROM,
which may replace the need for students to purchase textbooks.
Governmental Regulation
The Company is subject to various federal, state and local environmental,
health and safety laws and regulations. Generally, these laws impose limitations
on the discharge of pollutants and the presence of hazardous substances in the
workplace and establish standards for vehicle and employee safety and for the
handling of solid and hazardous wastes. These laws include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clear Air Act, the Hazardous Materials
12
<PAGE>
Transportation Act and the Occupational Safety and Health Act. Future
developments, such as stricter environmental or employee health and safety laws
and regulations thereunder, could affect the Company's operations. The Company
does not currently anticipate that the cost of its compliance with, or of any
foreseeable liabilities under, environmental and employee health and safety laws
and regulations will have a material adverse affect on its business or financial
condition.
Employees
As of March 31, 1999 the Company had a total of 2,121 employees, of which
841 are full-time, 185 are part-time and 1,095 are temporary. The Company has no
unionized employees and believes that its relationship with its employees is
satisfactory.
In view of the seasonal nature of its wholesale business, the Company
utilizes seasonal labor to improve operating efficiency. The Company employs a
small number of "flex-pool" workers who are cross-trained in a variety of
warehouse functions. Over the past eight years, the Company has employed up to
50 flex-pool workers in the Nebraska and California facilities, thereby enabling
the Company to lower its wholesale operating expenses. Temporary employees
augment the flex-pool to meet periodic labor demands.
ITEM 2. PROPERTIES.
The Company owns its two warehouses (totaling 244,000 square feet) in
Lincoln, Nebraska (one of which is also the location of its headquarters), and
leases its 60,000 square foot warehouse in Cypress, California. The Cypress
lease expires on August 31, 2002 and has one five-year option to renew.
Listed below, set forth as of March 31, 1999, are the Company's college
bookstores, their location, college served and the school's enrollment. The
bookstores are leased by the Company unless otherwise noted:
<TABLE>
<CAPTION>
Institution Location Enrollment(1) Store Name
- ------------ --------- ------------- ----------------------
<S> <C> <C> <C>
University of Alabama Tuscaloosa, AL 19,200 The College Store
Northern Arizona University Flagstaff, AZ 20,400 The College Store
Northern Arizona University Flagstaff, AZ 20,400 University Text and Tools
Coconino Community College Flagstaff, AZ 5,500 Coconino Community College
Bookstore(2)
Arizona State University Tempe, AZ 44,000 The College Store
University of Arizona Tucson, AZ 34,000 Arizona Book Store
University of Arkansas-Little Rock Little Rock, AR 11,300 Campus Bookstore
Miami Dade Community College-Kendall Miami, FL 18,400 Lemox College Book & Supply
Georgia State University Atlanta, GA 24,000 Georgia Book Store
Southern Illinois University Carbondale, IL 23,000 Saluki Bookstore(2 locations)
Ball Sate University Muncie, IN 19,700 Collegiate Book Exchange
Valparaiso University Valparaiso, IN 3,500 University Book Center(2)
Drake University Des Moines, IA 5,600 University Book Store
(2 locations) (2)
University of Kansas Lawrence, KS 29,100 University Book Shop
Johnson County Community College Overland Park, KS 15,000 The College Store
University of Louisville Louisville, KY 21,100 College Book Warehouse
Eastern Kentucky University Richmond, KY 17,500 University Book & Supply
University of Maryland College Park, MD 32,500 Maryland Book Exchange
Prince Georges Community College Largo, MD 12,000 Prince Georges Community
College Bookstore(2)
University of Michigan Ann Arbor, MI 36,200 Michigan Book & Supply
University of Michigan Ann Arbor, MI 36,200 Ulrich's Bookstore
Ferris State University Big Rapids, MI 9,500 The College Store
Michigan State University East Lansing, MI 42,000 The College Store
Kettering Engineering &
Management Institute Flint, MI 2,600 Kettering Campus Store(2)
Eastern Michigan University Ypsilanti, MI 23,100 Campus Book & Supply
Mankato State University Mankato, MN 13,600 Maverick Bookstore
Chadron State College Chadron, NE 3,000 Eagle Book Shoppe
University of Nebraska - Kearney Kearney, NE 8,000 The Antelope Bookstore(2)
University of Nebraska - Lincoln Lincoln, NE 24,000 Nebraska Bookstore(2 locations)
Nebraska Wesleyan University Lincoln, NE 1,400 Plainsman Bookstore(2)
Wayne State College Wayne, NE 4,000 Student Bookstore
13
<PAGE>
University of Nevada Las Vegas Las Vegas, NV 21,300 Rebelbooks
State University of New York - Buffalo Amherst, NY 25,000 The College Store
State University of New York -
Binghamton Vestal, NY 11,800 Bookbridge
Cornell University Ithaca, NY 19,600 Triangle Book Shop
University of Akron Akron, OH 25,000 The College Store
Ohio University Athens, OH 19,200 Specialty Books
Wright State University Fairborn, OH 16,200 The College Store
Oklahoma State University Stillwater, OK 19,200 Cowboy Book
Indiana University of Pennsylvania Indiana, PA 14,000 The College Store
University of Pittsburgh Pittsburgh, PA 25,500 The College Store
Pennsylvania State University State College, PA 40,500 University Book Centre
College of Charleston Charleston, SC 10,000 University Books of
Charleston
Columbia College Columbia, SC 1,200 C-Squared Bookstore(2)
University of South Carolina Columbia, SC 26,000 South Carolina Bookstore
(2 locations)
University of Tennessee Knoxville, TN 26,000 Campus Bookstore
University of North Texas Denton, TX 25,200 Voertman's
University of Texas - Pan American and 12,700 &
South Texas Community College Edinburg, TX 7,200 South Texas Book & Supply
North Harris County Community College Houston, TX 9,200 College Bookstore
Texas Tech University Lubbock, TX 24,800 Spirit Shop
Texas Tech University Lubbock, TX 24,800 Double T Bookstores (3 locations)
San Antonio College, St. Philip's 22,000;
College, and Palo Alto 8,300; &
College San Antonio, TX 7,100 L&M
University of Texas - San Antonio San Antonio, TX 17,600 L&M - UTSA
Southwest Texas State San Marcos, TX 21,000 Colloquium Books (2 locations)
Baylor University Waco, TX 12,400 University Bookstore and
Spirit Shop
Virginia Polytechnic and
State University Blacksburg, VA 24,800 Tech Bookstore
Old Dominion University Norfolk, VA 18,000 Dominion Bookstore
Virginia Commonwealth University Richmond, VA 22,400 The College Store
</TABLE>
- ------------
(1) Source: National Association of College Stores. Includes part-time
students.
(2) Denotes properties leased from the educational institution
("contract-managed" stores). One location at Drake University is a
contract-managed store.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company believes that
currently it is not a party to any litigation the outcome of which would have a
material adverse affect on its financial condition or results of operations. The
Company maintains insurance coverage against claims in an amount which it
believes to be adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No items were submitted to a vote of security holders of the Company during
the fourth quarter of fiscal 1999.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There were no equity securities of the registrant sold by the registrant
during fiscal 1999. Although amended Registration Statement No. 333-48221 was
filed and became effective in fiscal 1999, disclosure regarding the use of
proceeds pursuant to Rule 463 of the Securities Act of 1933 is not required in
as such registration statement provided for the registering of debt securities
to be exchanged for other debt securities of the Company.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical financial and other data
of the Company as of and for the fiscal years ended March 31, 1999, 1998 and
1997, the seven and five month periods ended March 31, 1996 and August 31, 1995,
respectively, and the fiscal year ended March 31, 1995. The selected historical
financial data was derived from the Company's audited financial statements. The
following table should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company and the related notes thereto included
in Item 8 herein.
<TABLE>
<CAPTION>
Seven Five Fiscal
Months Months Year
Ended Ended Ended
Fiscal Years Ended March 31, March 31, August 31, March 31,
1999(1) 1998(1) 1997(1) 1996(1) 1995 1995
---------- --------- --------- --------- --------- ---------
Statement of Operations Data: (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 217,516 $ 198,773 $ 172,600 $ 79,423 $ 83,328 $ 149,227
Cost of sales 137,709 125,632 110,466 51,866 52,753 96,317
---------- --------- --------- --------- --------- ---------
Gross profit 79,807 73,141 62,134 27,557 30,575 52,910
Operating expenses:
Selling, general, and
administrative 51,547 47,081 39,491 22,517 14,729 35,325
Depreciation 2,393 2,531 2,706 904 872 1,889
Amortization 6,149 5,626 4,072 2,259 - -
Stock compensation costs - 8,278 297 82 - -
---------- --------- --------- --------- --------- ---------
Income from operations 19,718 9,625 15,568 1,795 14,974 15,696
Other expenses (income):
Interest expense 17,508 11,284 10,760 6,035 952 766
Interest income (351) (328) (561) (433) (51) (224)
Other income (2) (1,100) (512) (390) (339) (469) (416)
---------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes and extraordinary item 3,661 (819) 5,759 (3,468) 14,542 15,570
Income tax expense (benefit) 2,604 306 2,325 (967) 5,583 5,950
---------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item 1,057 (1,125) 3,434 (2,501) 8,959 9,620
Extraordinary loss on
extinguishment of debt,
net of taxes - (4,021) - - - -
---------- --------- --------- --------- --------- ---------
Net income (loss) $ 1,057 $ (5,146)$ 3,434 $ (2,501)$ 8,959 $ 9,620
========== ========= ========= ========= ========= =========
Other Data:
EBITDA (3) $ 29,360 $ 26,572 $ 23,033 $ 5,379 $ 16,315 $ 18,001
Net cash flows from operating
activities 10,296 (2,842) 10,774 3,423 1,643 10,009
Net cash flows from financing
activities (6,976) 10,220 (7,471) 116,063 437 (2,087)
Net cash flows from investing
activities (5,067) (11,548) (3,427)(109,385) 371 (8,255)
Capital expenditures 2,842 3,690 2,243 838 801 8,260
Business acquisition
expenditures(4) 2,086 7,714 1,252 551 - 100
Number of bookstores open at
end of the period 65 59 50 39 36 35
Balance Sheet Data
(At End of Period):
Cash and cash equivalents $ 4,060 $ 5,807 $ 9,977 $ 10,101 $ 4,741 $ 2,291
Working capital 55,470 54,053 55,936 52,469 43,879 32,781
Total assets 139,690 148,777 127,169 129,023 92,505 75,179
Total debt, including current
maturities 169,257 175,985 79,524 86,712 9,376 8,940
</TABLE>
15
<PAGE>
(1) Effective February 13, 1998, NBC consummated a merger among NBC Merger
Corp., NBC and certain shareholders of NBC pursuant to which the Company's
outstanding debt and NBC's stock were restructured. Following the
Recapitalization, the results of operations of the Company included higher
interest costs due to the financing of the Recapitalization, and in fiscal
1998, non-recurring charges associated with the extinguishment of debt and
buyout of stock options. Effective September 1, 1995, NBC purchased all the
outstanding capital stock of Nebraska Book Company, Inc. in a transaction
accounted for as a purchase business combination. Following this
transaction, the results of operations of the Company contained higher
interest costs due to the financing of the acquisition and higher
amortization expense for goodwill and other intangibles created by the
acquisition.
(2) Other income primarily represents recurring income from ancillary
activities of the Company.
(3) EBITDA is defined as income from operations plus other income,
depreciation, amortization and non-cash charges relating to stock based
compensation expense in the amounts of $8,278 and $297 for the years ended
March 31, 1998 and 1997, respectively, and $82 for the seven months ended
March 31, 1996. The Company believes that EBITDA provides additional
information for determining its ability to meet debt service requirements.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles, and EBITDA does not necessarily indicate whether
cash flow will be sufficient for cash requirements. EBITDA should not be
considered by investors as an indicator of cash flows from operating
activities, investing activities and financing activities as determined in
accordance with generally accepted accounting principles. Items excluded
from EBITDA, such as depreciation and amortization, are significant
components in understanding and assessing the Company's financial
performance. EBITDA measures presented may not be comparable to similarly
titled measures presented by other issuers.
(4) Business acquisition expenditures represent established businesses
purchased by the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Fiscal Year Ended March 31, 1999 Compared with Fiscal Year Ended March 31, 1998.
Revenues. Revenues for the years ended March 31, 1999 and 1998 and the
corresponding increase (decrease) in revenues were as follows:
Increase (Decrease)
1999 1998 Amount Percentage
------------- -------------- ------------- -------
Wholesale operations $ 97,430,134 $ 90,595,190 $ 6,834,944 7.5%
College bookstore operations 120,745,188 110,584,757 10,160,431 9.2%
Complementary services 12,362,403 9,597,812 2,764,591 28.8%
Intercompany eliminations (13,021,413) (12,004,821) (1,016,592) 8.5%
------------- -------------- ------------- -------
$217,516,312 $ 198,772,938 $ 18,743,374 9.4%
============= ============== ============= =======
Wholesale sales for fiscal 1999 increased to $97.4 million from $90.6
million for fiscal 1998. The increase in wholesale sales was due primarily to
publisher price increases averaging 4% and product mix. College bookstore sales
for fiscal 1999 increased to $120.7 million from $110.6 million for fiscal 1998.
The increase in college bookstore sales was a result of same store sales
increases of 2.6% combined with the nine bookstores opened or acquired during
fiscal 1998, and the eight bookstores opened or acquired during fiscal 1999.
Complementary services sales for fiscal 1999 increased to $12.4 million from
$9.6 million for fiscal 1998 due to the acquisitions of Specialty Books on May
1, 1997 and Collegiate Stores Corporation on January 23, 1998. As the Company's
wholesale and college bookstore operations have grown, the Company's
intercompany transactions have also increased.
16
<PAGE>
Gross profit. Gross profit for fiscal 1999 increased $6.7 million, or 9.1%,
to $79.8 million from $73.1 million for fiscal 1998. This increase was primarily
due to higher revenues. Gross margin percent remained relatively constant at
36.7% for fiscal 1999 as compared to 36.8% for fiscal 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1999 increased $4.4 million, or 9.5%, to
$51.5 million from $47.1 million for fiscal 1998. Selling, general and
administrative expenses as a percentage of revenues remained stable at 23.7% for
fiscal 1999 and fiscal 1998. The increase in expenses resulted primarily from
the higher expense base associated with the Company's expansion of its college
bookstore operations in fiscal 1999 and the full year effect of the fiscal 1998
bookstore and complementary services expansions.
Amortization expense. Amortization expense for the fiscal year ended March
31, 1999 increased $0.5 million, or 9.3%, to $6.1 million from $5.6 million for
the fiscal year ended March 31, 1998. This increase resulted primarily from a
full year of amortization on the goodwill associated with the fiscal 1998
acquisitions and amortization on the goodwill associated with the bookstores
acquired in fiscal 1999.
Stock compensation costs. There were no stock compensation costs for the
fiscal year ended March 31, 1999 as compared to $8.3 million in stock
compensation costs for the fiscal year ended March 31, 1998. This decrease is
primarily the result of the stock options bought out in fiscal 1998 in
connection with the Recapitalization. There was no compensation cost associated
with the stock options granted in fiscal 1999 since the exercise price was equal
to the estimated fair value of NBC's Class A Common Stock on the date of grant
(measurement date). The fair value of options granted was estimated at the date
of grant based upon the buy-out price as part of the Recapitalization on
February 13, 1998.
Interest expense, net. Interest expense, net for fiscal 1999 increased $6.2
million, or 56.6%, to $17.2 million from $11.0 million for fiscal 1998 as a
result of the impact of a full year of interest expense associated with the
additional debt incurred relating to the Recapitalization, which occurred on
February 13, 1998.
Other income. Other income for fiscal 1999 increased $0.6 million, or
114.9%, to $1.1 million from $0.5 million for fiscal 1998 primarily as a result
of the full year effect of income from ancillary activities at Specialty Books
and CSC.
Extraordinary loss on extinguishment of debt. During fiscal 1998, the
Company recorded an extraordinary loss of $6.5 million and an associated tax
benefit of $2.5 million as a result of early extinguishment of substantially all
of its previously outstanding debt as part of the Recapitalization.
Income taxes. Income taxes for fiscal 1999 were recorded at an effective tax
rate of 71.1% as compared with an effective tax rate of 37.4% for fiscal 1998.
The high effective tax rate in fiscal 1999 was the result of non-deductible
amortization on goodwill associated with recent acquisitions and a change in
estimate of income tax liabilities. The fiscal 1998 tax benefit generated by the
loss from operations was reduced as a result of non-deductible amortization on
goodwill associated with recent acquisitions and a change in estimate of income
tax liabilities.
17
<PAGE>
Fiscal Year Ended March 31, 1998 Compared with Fiscal Year Ended March 31, 1997.
Revenues. Revenues for the years ended March 31, 1998 and 1997 and the
corresponding increase (decrease) in revenues were as follows:
Increase (Decrease)
1998 1997 Amount Percentage
------------- -------------- ------------- ---------
Wholesale operations $ 90,595,190 $ 84,487,476 $ 6,107,714 7.2%
College bookstore operations 110,584,757 92,507,974 18,076,783 19.5%
Complementary services 9,597,812 4,921,922 4,675,890 95.0%
Intercompany eliminations (12,004,821) (9,317,179) (2,687,642) 28.8%
------------- -------------- ------------- ------
$198,772,938 $ 172,600,193 $ 26,172,745 15.2%
============= ============== ============= ======
Wholesale sales for fiscal 1998 increased to $90.6 million from $84.5
million for fiscal 1997. The increase in wholesale sales was due primarily to
publisher price increases averaging 4% and unit volume sales growth of 3%. In
part, this unit growth resulted from an increase in the number of college
bookstores operated by the Company, which increased the Company's ability to
procure book inventory, contributing an additional $1.5 million in purchases
from this source. College bookstore sales for fiscal 1998 increased to $110.6
million from $92.5 million for fiscal 1997. The increase in college bookstore
sales was a result of same store sales increases of 12.6% combined with the nine
bookstores opened or acquired during fiscal 1998 and the full year effect of
stores opened or acquired in fiscal 1997. Complementary services sales for
fiscal 1998 increased to $9.6 million from $4.9 million for fiscal 1997 due to
the acquisitions of Specialty Books on May 1, 1997 and Collegiate Stores
Corporation on January 23, 1998. As the Company's wholesale and college
bookstore operations have grown, the Company's intercompany transactions have
also increased.
Gross profit. Gross profit for fiscal 1998 increased $11.0 million, or
17.7%, to $73.1 million from $62.1 million for fiscal 1997. This increase was
primarily due to higher revenues, combined with an increase in gross margin
percent. Gross margin for fiscal 1998 increased to 36.8% from 36.0% for fiscal
1997. This increase was primarily due to an increase of $2.4 million in used
textbook sales through the Company's bookstores, which generates an average
gross margin of 58% compared to an average gross margin of 37% for wholesale
sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1998 increased $7.6 million, or 19.2%, to
$47.1 million from $39.5 million for fiscal 1997. Selling, general and
administrative expenses as a percentage of revenues increased to 23.7% for
fiscal 1998 from 22.9% for fiscal 1997. These increases resulted primarily from
the higher expense base associated with the Company's expansion of its college
bookstore operations in fiscal 1998 and the full year effect of the fiscal 1997
bookstore expansion.
Amortization expense. Amortization expense for the fiscal year ended March
31, 1998 increased $1.5 million, or 38.2%, to $5.6 million from $4.1 million for
the fiscal year ended March 31, 1997. This increase resulted primarily from a
full year of amortization on the goodwill associated with the bookstores
acquired in fiscal 1997 and amortization on the goodwill associated with the
fiscal 1998 acquisitions.
Stock compensation costs. Stock compensation costs for the fiscal year ended
March 31, 1998 increased $8.0 million to $8.3 million from $0.3 million for the
fiscal year ended March 31, 1997. This increase is the result of the stock
options bought out in connection with the Recapitalization.
Interest expense, net. Interest expense, net for fiscal 1998 increased $0.8
million, or 7.4%, to $11.0 million from $10.2 million for fiscal 1997 as a
result of the additional debt incurred relating to the Recapitalization, which
occurred on February 13, 1998.
18
<PAGE>
Extraordinary loss on extinguishment of debt. During fiscal 1998, the
Company recorded an extraordinary loss of $6.5 million and an associated tax
benefit of $2.5 million as a result of early extinguishment of substantially all
of its previously outstanding debt as part of the Recapitalization.
Income taxes. Income taxes for fiscal 1998 were recorded at an effective tax
rate of 37.4% as compared with an effective tax rate of 40.4% for fiscal 1997.
The fiscal 1998 tax benefit generated by the loss from operations was reduced as
a result of non-deductible amortization on goodwill associated with recent
acquisitions and a change in estimate of income tax liabilities.
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 Revolving Credit Facility. At
March 31, 1999, the Company's total indebtedness was approximately $169.3
million, consisting of approximately $58.7 million in Term Loans, $110.0 million
of the Senior Subordinated Notes and $0.6 million of other indebtedness. To
provide additional financing to fund the Recapitalization, NBC issued Senior
Discount Debentures which provided $41.6 million in net proceeds (face value of
$76.0 million less original issue discount of $31.0 million and deferred
financing costs of $3.4 million).
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 scheduled
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 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 Senior Discount
Debentures require semi-annual interest payments commencing August 15, 2003 at a
fixed rate of 10.75% and mature on February 15, 2009.
The Company's capital expenditures were $2.8 million, $3.7 million, and $2.2
million for the fiscal years ended March 31, 1999, 1998 and 1997, 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
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 $2.1 million, $7.7 million, and $1.3
million for the fiscal years ended March 31, 1999, 1998, and 1997, respectively.
Of the $7.7 million in business acquisition expenditures made for the fiscal
year ended March 31, 1998, approximately $6.2 million pertains to the
acquisitions of CSC, Specialty Books, and four South Carolina college
bookstores. The Company estimates that for fiscal 2000, it will make
approximately $18.0 million of business acquisition expenditures, including the
acquisition expenditures occurring subsequent to March 31, 1999 discussed in
Item 8, "Financial Statements and Supplementary Data" (Note O to the financial
statements).
Excluding the sale of additional shares of NBC's Class A Common Stock to
finance certain acquisition expenditures occurring subsequent to March 31, 1999
(discussed in Item 8, "Financial Statements and Supplementary Data"), the
Company's principal sources of cash to fund its future liquidity needs will be
net cash from operating activities and borrowings under the Revolving Credit
19
<PAGE>
Facility. Net cash flows provided from (used in) operating activities for the
year ended March 31, 1999 were $10.3 million, an increase of $13.1 million from
$(2.8) million for the year ended March 31, 1998. This increase was primarily
due to the combination of higher uses of cash in fiscal 1998 to fund increases
in working capital, stock compensation in excess of $8.0 million paid out in
fiscal 1998 in conjunction with the Recapitalization, and a $3.0 million
increase in cash interest paid during fiscal 1999 as a result of the additional
debt incurred in conjunction with the Recapitalization in fiscal 1998. 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). For the
year ended March 31, 1999, weighted-average borrowings under the Revolving
Credit Facility approximated $12.0 million, with actual borrowings ranging from
a low of no borrowings to a high of $35.4 million.
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. 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 the 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 Discount Debentures (the
"Indenture") restricts the ability of NBC 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) NBC 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, NBC's consolidated net income. The indenture governing the Senior
Subordinated Notes contains similar restrictions on the ability of the Company
and its Restricted Subsidiaries to pay dividends or make other Restricted
Payments to their respective stockholders. Such restrictions are not expected to
affect the Company's ability to meet its cash obligations.
As of March 31, 1999, the Company could borrow up to $32.4 million under the
Revolving Credit Facility. The Revolving Credit Facility was unused at March 31,
1999. Additionally, in conjunction with one of the bookstores acquired during
fiscal 1999, the Company established an irrevocable standby letter of credit for
$90,000 which expires October 29, 1999. 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
20
<PAGE>
Company believes that the effects of inflation, if any, on its results of
operations and financial condition have been minor. 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.
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 Annual Report on Form 10-K 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," "experts," "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
21
<PAGE>
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.
ITEM 7A. 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 $169.3 million in long-term
debt outstanding at March 31, 1999, approximately $58.7 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 the Company's variable
rate debt into fixed rate debt. During fiscal 1999, the Company entered into
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 Senior Credit Facility Agreement). The
current notional amount under each agreement is approximately $29.3 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.
The following table presents quantitative information about the Company's
market risk sensitive instruments (the weighted average variable rates are based
on implied forward rates in the yield curve at March 31, 1999):
<TABLE>
<CAPTION>
Fixed Rate Debt Variable Rate Debt Variable to Fixed Interest Rate Swaps
--------------------- --------------------- ------------------------------------
Weighted Weighted Weighted
Average Average Average
Principal Interest Principal Interest Notional Pay/Receive
Cash Flows Rate Cash Flows(1) Rate Amounts Rates
------------ ------- ------------ ------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year
Ended March 31:
2000 $ 16,913 8.76% $ 5,627,925 7.49% $ 57,286,458 5.81% / 5.10%
2001 18,824 8.76% 4,232,843 7.90% 53,471,354 5.81% / 5.51%
2002 20,949 8.76% 5,997,521 8.13% 48,170,833 5.81% / 5.72%
2003 23,317 8.76% 6,486,384 8.27% 41,413,542 5.81% / 5.85%
2004 25,950 8.76% 8,084,133 8.47% 12,275,000 5.81% / 5.95%
Thereafter 110,463,874 8.76% 28,258,694 8.76% - -
------------ ------- ------------ ------- ------------- -------------
Total $ 110,569,827 8.76% $ 58,687,500 8.12% $ 212,617,187 5.81% / 5.54%
============ ======= ============ ======= ============= =============
Fair Value $ 112,061,953 - $ 58,687,500 - $ (564,380) -
============ ============ =============
</TABLE>
(1) Principal cash flows represent scheduled principal payments and are
adjusted for anticipated excess cash flow payments (as defined in the
Credit Agreement underlying the Senior Credit Facility) to be applied
toward principal balances. For Fiscal 1999, the excess cash flow payment
approximates $3.6 million and is due September 29, 1999.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements of Nebraska Book Company, Inc. for the Years Ended
March 31, 1999, 1998, and 1997
Independent Auditors' Report...............................................24
Balance Sheets............................................................ 25
Statements of Operations...................................................26
Statements of Stockholders' Equity (Deficit)...............................27
Statements of Cash Flows...................................................28
Notes to Financial Statements..............................................29
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Nebraska Book Company, Inc.
Lincoln, Nebraska
We have audited the accompanying balance sheets of Nebraska Book Company,
Inc. (a wholly-owned subsidiary of NBC Acquisition Corp.) as of March 31, 1999
and 1998, and the related statements of operations, stockholder's equity
(deficit), and cash flows for each of the three years in the period ended March
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Nebraska Book Company, Inc. as of March 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1999 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 22, 1999
(June 4, 1999 as to Note O)
24
<PAGE>
NEBRASKA BOOK COMPANY, INC.
BALANCE SHEETS
- ------------------------------------------------------------------------------
March 31,
1999 1998
------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,059,660 $ 5,806,890
Receivables 20,838,546 21,383,146
Inventories 49,878,561 48,810,714
Recoverable income tax 4,902 4,374,048
Deferred income tax benefit 1,468,156 1,183,529
Prepaid expenses and other assets 376,748 189,950
------------- --------------
Total current assets 76,626,573 81,748,277
PROPERTY AND EQUIPMENT 31,212,534 28,716,839
Less accumulated depreciation (8,024,049) (5,984,932)
------------- --------------
23,188,485 22,731,907
GOODWILL AND OTHER INTANGIBLES, net
of amortization 35,562,090 41,498,725
OTHER ASSETS 4,313,208 2,798,270
------------- --------------
$ 139,690,356 $ 148,777,179
============= ==============
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 9,200,870 $ 14,418,843
Accrued employee compensation and benefits 3,825,893 3,797,242
Accrued interest 1,426,509 1,788,547
Accrued expenses 681,725 498,740
Deferred revenue 376,556 463,917
Current maturities of long-term debt 5,644,838 1,327,696
Revolving credit facility - 5,400,000
------------- --------------
Total current liabilities 21,156,391 27,694,985
LONG-TERM DEBT, net of current maturities 163,612,489 169,257,327
OTHER LONG-TERM LIABILITIES 191,074 150,604
DUE TO PARENT 2,277,266 248,091
COMMITMENTS (Note J)
STOCKHOLDER'S DEFICIT (Note A):
Common stock, voting, authorized 50,000 shares
of $1.00 par value; issued and outstanding
100 shares 100 100
Additional paid-in capital 30,904,931 30,935,250
Retained deficit (78,451,895) (79,509,178)
------------- --------------
Total stockholder's deficit (47,546,864) (48,573,828)
------------- --------------
$ 139,690,356 $ 148,777,179
============= ==============
See notes to financial statements.
25
<PAGE>
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended March 31,
1999 1998 1997
----------- ----------- -----------
REVENUES, net of returns $217,516,312 $198,772,938 $172,600,193
COSTS OF SALES 137,709,320 125,632,403 110,465,930
----------- ----------- -----------
Gross profit 79,806,992 73,140,535 62,134,263
OPERATING EXPENSES:
Selling, general and administrative 51,546,776 47,080,571 39,491,174
Depreciation 2,392,701 2,531,181 2,705,687
Amortization 6,148,971 5,626,334 4,072,450
Stock compensation costs - 8,277,748 296,642
----------- ----------- -----------
60,088,448 63,515,834 46,565,953
----------- ----------- -----------
INCOME FROM OPERATIONS 19,718,544 9,624,701 15,568,310
OTHER EXPENSES (INCOME):
Interest expense 17,508,601 11,284,229 10,760,139
Interest income (351,231) (328,750) (561,494)
Other income (1,099,766) (511,812) (389,446)
----------- ----------- -----------
16,057,604 10,443,667 9,809,199
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 3,660,940 (818,966) 5,759,111
INCOME TAX EXPENSE 2,603,657 306,279 2,324,619
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,057,283 (1,125,245) 3,434,492
EXTRAORDINARY LOSS ON
EXTINGUISHMENT OF DEBT
(net of income tax benefit
of $2,460,238) - (4,020,893) -
----------- ----------- -----------
NET INCOME (LOSS) $ 1,057,283 $ (5,146,138) $ 3,434,492
============ ============ ============
See notes to financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
- ------------------------------------------------------------------------------
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
-------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, April 1, 1996 $ 100 $ 30,763,790 $ (2,501,203) $28,262,687
Net income - - 3,434,492 3,434,492
-------- ----------- ----------- -----------
BALANCE, March 31, 1997 100 30,763,790 933,289 31,697,179
Dividend to Parent
in conjunction
with Recapitalization - - (75,296,329) (75,296,329)
Contributed capital - 171,460 - 171,460
Net loss - - (5,146,138) (5,146,138)
-------- ----------- ----------- -----------
BALANCE, March 31, 1998 100 30,935,250 (79,509,178) (48,573,828)
Contributed capital - (30,319) - (30,319)
Net income - - 1,057,283 1,057,283
-------- ----------- ------------- -----------
BALANCE, March 31, 1999 $ 100 $ 30,904,931 $(78,451,895) $(47,546,864)
======== =========== ============= ===========
</TABLE>
See notes to financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------
Year Ended March 31,
1999 1998 1997
---------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,057,283 $(5,146,138)$ 3,434,492
Adjustment to reconcile net income
(loss) to net cash flows from operating
activities:
Depreciation 2,392,701 2,531,181 2,705,687
Amortization of intangibles 7,491,851 9,297,653 4,747,486
Original issue debt discount amortization - 2,525,000 282,500
Loss on disposal of assets 89,800 264,285 113,925
Deferred income taxes (883,200) (902,458) (278,326)
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables 368,840 (6,060,871) (798,645)
Inventories 18,827 (4,522,322) (789,386)
Recoverable income tax 4,369,146 (3,799,673) (574,375)
Prepaid expenses and other assets (123,460) 140,573 (123,502)
Other assets (1,019,776) 5,852 153,838
Accounts payable (5,297,973) 955,350 1,052,933
Accrued employee compensation and benefits 28,651 837,167 326,063
Accrued interest (362,038) 522,667 238,832
Accrued expenses 182,985 145,798 (19,620)
Income taxes payable - - (107,001)
Deferred revenue (87,361) 463,917 -
Other long-term liabilities 40,470 (348,082) 408,853
Due to parent 2,029,175 248,091 -
--------- ---------- -----------
Net cash flows from operating activities 10,295,921 (2,842,010) 10,773,754
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,842,036) (3,689,571) (2,242,816)
Bookstore acquisitions, net of cash acquired (2,085,881) (1,231,825) (1,252,345)
Acquisition of other businesses - (6,481,832) -
Proceeds from sale of property and equipment 97,586 64,754 68,585
Software development costs (236,328) (209,535) -
--------- ---------- -----------
Net cash flows from investing activities (5,066,659) (11,548,009) (3,426,576)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 170,000,000 -
Deferred financing costs (218,477) (11,037,054) -
Principal payments on long-term debt (1,327,696) (81,463,655) (7,471,157)
Net increase (decrease) in revolving
credit facility (5,400,000) 5,400,000 -
Dividend paid to parent in conjunction
with Recapitalization - (72,703,656) -
Capital contribution (30,319) 24,310 -
--------- ---------- -----------
Net cash flows from financing activities (6,976,492) 10,219,945 (7,471,157)
--------- ---------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,747,230) (4,170,074) (123,979)
CASH AND CASH EQUIVALENTS, Beginning of year 5,806,890 9,976,964 10,100,943
--------- ---------- -----------
CASH AND CASH EQUIVALENTS, End of year $ 4,059,660 $ 5,806,890 $ 9,976,964
========= ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid (refunded) during the period for:
Interest $16,527,759 $13,518,646 $ 9,555,267
Income taxes (2,911,464) 2,300,081 3,284,321
Noncash investing and financing activities:
Dividend to Parent in conjunction
with Recapitalization, unpaid and
accrued in accounts payable $ - $ 2,592,673 $ -
Common stock of Parent contributed
for acquisition of other businesses - 147,150 -
See notes to financial statements.
</TABLE>
28
<PAGE>
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. NATURE OF OPERATIONS
Nebraska Book Company, Inc. (the "Company") is a wholly-owned subsidiary of
NBC Acquisition Corp. NBC Acquisition Corp. ("NBC") was formed for the purpose
of acquiring all of the outstanding capital stock of the Company, effective
September 1, 1995. NBC did not have substantive operations prior to the
acquisition of the Company. The purchase price of the Company was $106.0
million, which was funded primarily through the issuance of long-term debt. The
acquisition was accounted for by the purchase method of accounting and resulted
in excess of cost over fair value of net assets acquired ("goodwill") of
approximately $28.1 million.
The Company participates in the college bookstore industry by providing used
textbooks to college bookstore operators, by operating its own college
bookstores and by providing proprietary college bookstore information systems
and consulting services.
Recapitalization: On February 13, 1998, NBC consummated a Merger Agreement
among NBC Merger Corp. (a newly created, indirect wholly-owned subsidiary of HWH
Capital Partners, LP. ["HWH"]), NBC and certain shareholders of NBC pursuant to
which the Company's outstanding debt and NBC's stock were restructured (the
"Recapitalization"). Significant components of the Recapitalization, together
with the applicable accounting effects, were as follows:
(i) HWH contributed $45.6 million in capital to NBC Merger Corp., which
was then merged into NBC, with NBC being the surviving corporation.
(ii) Existing management shareholders of NBC reinvested approximately $4.4
million in NBC. HWH and management shareholders were reissued
surviving corporation shares of NBC Class A Common Stock.
(iii) The Company obtained approximately $170.0 million in new debt
financing and retired substantially all of its existing debt. The
early extinguishment of debt resulted in an extraordinary loss on the
transaction.
(iv) NBC obtained approximately $45.0 million in debt financing through
the issuance of senior discount debentures (the "Senior Discount
Debentures").
(v) The Company paid a dividend of approximately $72.7 million to NBC to
be utilized in the repurchase of NBC Common Stock and accrued
approximately $2.6 million for additional costs of the
Recapitalization.
(vi) The Company agreed to purchase management's outstanding options under
NBC's 1995 Stock Incentive Plan, for a cash payment in lieu of the
options. This resulted in stock based compensation of approximately
$8.3 million for the year ended March 31, 1998. In addition, NBC
agreed to purchase all outstanding warrants for approximately $16.7
million.
(vii) NBC reacquired its outstanding shares of Class A and Class B Common
Stock of certain shareholders for approximately $149.2 million. NBC
accounted for this reacquisition of shares as a treasury stock
transaction, and such reacquired shares were retired. As the new
investor did not acquire substantially all of the common stock of
NBC, a new basis of accounting was not established in connection with
the Recapitalization.
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<PAGE>
In connection with the Recapitalization, a transaction fee of $4.0 million
was paid to HWH. Additionally, HWH was reimbursed approximately $0.1 million for
expenses incurred by HWH in conjunction with the Recapitalization. NBC charged
approximately $0.6 million of such costs to additional paid-in capital as
non-deductible costs of the Recapitalization. Of the remaining $3.5 million, the
Company and NBC recorded $2.6 million and $0.9 million , respectively, as debt
issue costs and are amortizing such costs over the life of the related debt.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are as follows:
Revenue Recognition: The Company recognizes revenue from product sales at
the time of shipment. The Company has established a program which, under certain
conditions, enables its customers to return product. The effect of this program
is estimated and the current period accounts are adjusted accordingly. The
Company recognizes revenues from the licensing of its software products upon
delivery or installation if the Company is contractually obligated to install
the software.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the estimates.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash on hand
and in the bank as well as short-term investments with maturities of three
months or less when purchased.
Inventories: Inventories are stated at the lower of cost or market.
Inventories for wholesale operations are determined on the weighted average cost
method. Other inventories are determined on the first-in, first-out cost method.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is determined using a combination of the straight-line and
accelerated methods. The majority of property and equipment have useful lives of
five to six years, with the exception of buildings which are depreciated over 30
years.
Software Development Costs: Development costs included in the research and
development of new software products and enhancements to existing software
products associated with the Company's proprietary college bookstore information
systems are expensed as incurred until technological feasibility has been
established. After technological feasibility is established, additional
development costs are capitalized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" and amortized over the lesser
of five years or the economic life of the related product. Recoverability of
such capitalized costs is evaluated based upon estimates of future undiscounted
net revenues. Software costs capitalized approximated $236,000 and $210,000 for
the fiscal years ended March 31, 1999 and 1998, respectively and pertained to
the Company's new Windows-based product, which was installed at one test site in
May, 1999 with two more test sites slated for the second quarter of fiscal 2000.
This product is anticipated to be available for general release to the public in
the third quarter of fiscal 2000.
Goodwill and Intangible Assets: Intangible assets were acquired through the
acquisition of 100% of the stock of the Company effective September 1, 1995, and
the acquisition of various bookstore operations and other businesses.
Recoverability of goodwill is evaluated based upon estimates of future
undiscounted operating income. Goodwill is amortized on a straight-line basis
over a period ranging from 3-15 years. Covenants not to compete are amortized on
a straight-line basis over 3 years.
Debt Issue Costs: The costs related to the issuance of debt are capitalized
and amortized to interest expense over the lives of the related debt.
30
<PAGE>
Derivative Financial Instruments: Interest rate swap agreements are utilized
by the Company to reduce the exposure to fluctuations in the interest rates on
its variable rate debt. The differential to be received or paid under such
agreements is recognized in income over the life of the agreements as
adjustments to interest expense.
Fair Value of Financial Instruments: The carrying amounts of financial
instruments including cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value as of March 31, 1999 and 1998, because
of the relatively short maturity of these instruments. The fair value of
long-term debt, including the current maturities and revolving credit facility,
was approximately $170.7 million and $176.0 million as of March 31, 1999 and
1998, respectively, based upon prevailing interest rates for the same or similar
debt issues. The fair value of the interest rate swap agreements (see note H)
approximated $564,000 as of March 31, 1999 using quotes from brokers and
represents the Company's cost of settlement if the existing agreements had been
settled on that date.
Stock Based Compensation: The company accounts for its stock-based
compensation under provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25").
Income Taxes: The Company files a consolidated federal income tax return
with its parent and follows a policy of recording an amount equal to the income
tax expense which the Company would have incurred had it filed a separate
return. The Company is responsible for remitting tax payments and collecting tax
refunds for the consolidated group. The amount due to parent represents the
cumulative reduction in tax payments made by the Company as a result of the tax
benefit of operating losses generated by the Company's parent. The Company
provides for deferred income taxes based upon temporary differences between
financial statement and income tax bases of assets and liabilities, and tax
rates in effect for periods in which such temporary differences are estimated to
reverse.
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.
Reclassifications: Certain items on the prior years' statements have been
reclassified to conform to the current year presentation.
C. ACQUISITIONS
In May 1997, the Company acquired the operations of Specialty Books, Inc.
located in Athens, Ohio. Specialty Books, Inc. is a distributor of distance
education material to various institutions of higher education as well as
corporate education and correctional facility education programs. Additionally,
Specialty Books, Inc. operated a college bookstore serving Ohio University,
which also was part of the acquisition. In November 1997, the Company acquired
the operations of South Carolina Bookstore, Inc. This acquisition included four
college bookstores, three located in Columbia, SC and one in Charleston, SC, as
well as a small regional wholesale textbook operation in Columbia, SC. In
January 1998, the operations of Collegiate Stores Corporation ("CSC") were
acquired by the Company. CSC is a centralized buying service for over 450
college bookstores across the United States, allowing the participating
bookstores to purchase certain books and general merchandise at lower prices
than those that would be paid by the stores individually through the enhanced
purchasing power of a large group.
These operations were acquired for a net of $6.2 million in cash and 3,924
shares of NBC's common stock at a price of $37.50/share as determined based upon
the estimated fair value of such shares at the time of acquisition. The fair
value used was based on a multiple between 7.5 and 8.0 of NBC's earnings from
operations (before amortization and depreciation expense), less debt, plus
available cash, divided by the diluted number of shares available. The multiple
utilized was based on comparable market valuations at the time of the
acquisition. The acquisitions were made utilizing cash on hand as well as
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<PAGE>
amounts borrowed under the Company's revolving credit facility. Each of the
acquisitions was accounted for as a purchase and the results of operations of
the acquired businesses are included in the results of the Company from their
respective dates of acquisition. As a result of the acquisitions, approximately
$6.6 million excess cost over fair value of net assets acquired was recorded as
goodwill by the Company.
The following table summarizing unaudited pro forma financial information
assumes the acquisitions discussed above had occurred on April 1, 1997.
Year Ended
PRO FORMA INFORMATION March 31, 1998
---------------------- ---------------
Sales, net of returns $215,322,319
Net income (loss) (4,780,341)
Additionally, the Company from time to time acquires bookstore operations,
which generally are minimal in their impact to the Company. The purchase
generally involves paying cash for the inventory and fixed assets, as well as an
amount for goodwill. In fiscal 1999, the Company acquired 6 bookstore
operations.
Goodwill recorded in the above transactions is amortized on a straight-line
basis over a period of three years.
D. RECEIVABLES
Receivables are summarized as follows:
March 31,
------------------------
1999 1998
Trade receivables, less allowance for --------- ----------
doubtful accounts of $165,899 and
$164,829 at March 31, 1999 and 1998,
respectively $11,112,281 $12,771,977
Receivables from book publishers for
returns 5,934,871 5,790,255
Advances for book buy-backs 1,721,953 1,446,732
Notes receivable, current portion - 55,798
Computer finance agreements, current
portion 95,999 92,201
Other 1,973,442 1,226,183
----------- -----------
$20,838,546 $21,383,146
=========== ===========
Trade receivables include the effect of estimated product returns. The amount
of product returns estimated at March 31, 1999 and 1998 is approximately $3.3
million and $2.5 million, respectively.
E. INVENTORIES
Inventories are summarized as follows:
March 31,
------------------------
1999 1998
----------- -----------
Wholesale $25,944,411 $23,974,308
College bookstores 21,400,003 21,889,631
Other 2,534,147 2,946,775
----------- -----------
$49,878,561 $48,810,714
=========== ===========
Wholesale inventories include the effect of estimated product returns. The
amount of product returns estimated at March 31, 1999 and 1998 is approximately
$1.6 million.
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<PAGE>
F. PROPERTY AND EQUIPMENT
A summary of the cost of property and equipment follows:
March 31,
---------------------------
1999 1998
----------- ------------
Land $ 2,385,293 $ 2,385,293
Buildings and improvements 13,714,392 12,997,096
Leasehold improvements 4,756,844 3,894,501
Furniture and fixtures 3,710,158 2,984,270
Information systems 5,841,875 5,080,869
Automobiles and trucks 362,966 502,998
Machinery 344,531 323,248
Projects in process 96,475 548,564
---------- ----------
$31,212,534 $28,716,839
========== ==========
G. GOODWILL AND OTHER INTANGIBLES
Goodwill and intangible assets and related amortization are as follows:
March 31,
--------------------------
1999 1998
----------- ----------
Goodwill $37,624,132 $36,287,391
Covenants not to compete - 6,300,000
Debt issue costs 11,255,530 11,037,054
---------- ----------
48,879,662 53,624,445
Less: accumulated amortization 13,317,572 12,125,720
---------- ----------
$35,562,090 $41,498,725
========== ==========
H. LONG-TERM DEBT
On February 13, 1998, the Company obtained new financing as part of the
Recapitalization (See Note A). Substantially all of the Company's previous debt
facilities were paid off with the proceeds of the new financing. The early
retirement of the previous debt facilities resulted in an extraordinary loss for
the prepayment fees and unamortized discount on the subordinated notes as well
as the write-off of the debt issue costs on the retired debt. The new financing
included a bank-administered senior credit facility (the "Senior Credit
Facility") provided through a syndicate of investors. The facility was 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
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. The calculated borrowing base at March 31, 1999 was approximately
$32.4 million. The Revolving Credit Facility was unused at March 31, 1999;
however, in conjunction with one of the bookstores acquired during fiscal 1999,
the Company established an irrevocable standby letter of credit for $90,000
which expires October 29, 1999 and reduces the amount available to be borrowed
under the Revolving Credit Facility. 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%. Additionally, there
is a 0.5% commitment fee for the average daily unused amount. The average
borrowings under the Company's Revolving Credit Facilities for the years ended
March 31, 1999 and 1998 were approximately $12.0 million and $9.7 million at an
average rate of 9.6% and 10.0%, respectively.
The Senior Credit Facility is collateralized by substantially all of the
assets of the Company and its parent, NBC. Additionally, NBC has guaranteed the
prompt and complete payment and performance of the Company's obligations under
the Senior Credit Facility. The Senior Credit Facility also stipulates that
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<PAGE>
excess cash flows as defined in the credit agreement dated February 13, 1998
(the "Credit Agreement") shall be applied initially towards prepayment of the
term loans and then utilized to permanently reduce commitments under the
Revolving Credit Facility. For the year ended March 31, 1999, the 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 financial
statements. Aggregate maturities of long-term debt presented below represent
scheduled principal payments and are adjusted for such anticipated excess cash
flow payments to be applied toward principal balances.
Additional funding of the Recapitalization included the proceeds of $110.0
million face amount of 8.75% senior subordinated notes due 2008 (the "Senior
Subordinated Notes") and the issuance by NBC of senior discount debentures (the
"Senior Discount Debentures"). During fiscal 1999, the Company and NBC filed
Registration Statements on Form S-4 with the Securities and Exchange Commission
for purposes of registering debt securities to be issued in exchange for the
Company's Senior Subordinated Notes and NBC's Senior Discount Debentures. Such
Registration Statements were declared effective by the Securities and Exchange
Commission on July 14, 1998. All notes were tendered in the offer to exchange,
which was completed on August 13, 1998.
Borrowings consist of the following:
March 31,
----------------------
1999 1998
Tranche A Loan, due March 31, 2004, ---------- -----------
quarterly principal payments
beginning July 31, 1998, plus interest
at a floating rate based on LIBOR
plus 2.25% (7.25% at March 31, 1999) $ 26,562,500 $ 27,500,000
Tranche B Loan, due March 31, 2006,
quarterly principal payments
beginning July 31, 1998, plus interest
at a floating rate based on LIBOR
plus 2.50% (7.50% at March 31, 1999) 32,125,000 32,500,000
Senior subordinated notes, unsecured,
due February 15, 2008, semi-annual
interest payments, commencing August
15, 1998, at a fixed rate of 8.75% 110,000,000 110,000,000
Mortgage note payable with an
insurance company assumed with the
acquisition of a bookstore facility,
due December 1, 2013, monthly payments
of $6,446 including interest at 10.75% 569,827 585,023
------------ ------------
169,257,327 170,585,023
Less current maturities (5,644,838) (1,327,696)
------------ ------------
$163,612,489 $169,257,327
============ ============
The Senior Credit Facility requires the Company to maintain certain
financial ratios and contains a number of other covenants that among other
things, restrict the ability to incur additional indebtedness, dispose of
assets, make capital expenditures, 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 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 Credit
Agreement underlying the Senior Credit Facility was amended on May 21, 1999 to
permit the January 13, 1999 sale of 4,765 shares of NBC's Class A Common Stock
to the Company's Chief Operating Officer and the acquisition of Triro, Inc.
discussed in Note O to the financial statements.
The indenture governing the Senior Subordinated Notes 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
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<PAGE>
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.
During fiscal 1999, the Company entered into 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 the applicable
margin. The notional amount under each agreement was approximately $29.3 million
at March 31, 1999. 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. The Company settled a previous interest rate swap agreement in
February, 1998 as part of the Recapitalization at a cost to the Company of
approximately $450,000. Such cost is reflected in the statement of operations as
part of the extraordinary loss on extinguishment of debt.
At March 31, 1999, the aggregate maturities of long-term debt for the next
five years were as follows:
Fiscal Year
-----------
2000 $5,644,838
2001 4,251,667
2002 6,018,470
2003 6,509,701
2004 8,110,083
I. INCOME TAXES
The provision (benefit) for income taxes consists of:
Year Ended March 31,
-------------------------------------
1999 1998 1997
Current: --------- --------- ---------
Federal $2,967,333 $1,057,439 $2,192,687
State 519,524 151,298 410,258
Deferred (883,200) (902,458) (278,326)
--------- --------- ---------
$2,603,657 $ 306,279 $2,324,619
========== ========== ==========
In fiscal 1998, the actual income tax benefit associated with the
extraordinary item differs from the benefit computed by applying the Federal
income tax rate as a result of the effect of state income tax benefits
associated with the extraordinary loss. The income tax benefit allocated to the
extraordinary item consisted of the following:
Current $2,460,238
Deferred -
----------
$2,460,238
==========
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<PAGE>
The following represents a reconciliation between the actual income tax
expense (benefit) and income taxes computed by applying the Federal income tax
rate to income (loss) before income taxes and extraordinary item:
Year Ended March 31,
-----------------------------------
1999 1998 1997
------ ------ ------
Statutory rate 34.0% (34.0)% 34.0%
State income tax effect 6.4 (4.0) 4.0
Amortization in excess of
purchase price over net assets
acquired 17.5 31.6 0.4
Change in estimate of income tax
liabilities 10.0 30.7 -
Other 3.2 13.1 2.0
------ ------ ------
71.1% 37.4% 40.4%
====== ====== ======
The components of the deferred tax assets consist of the following:
March 31,
---------------------
1999 1998
Deferred income tax assets ---------- ---------
(liabilities), current:
Vacation accruals $ 372,749 $ 355,523
Inventory 456,360 480,432
Allowance for doubtful accounts 62,975 65,932
Product returns 618,637 374,515
Other (42,565) (92,873)
---------- ---------
1,468,156 1,183,529
---------- ---------
Deferred income tax assets,
noncurrent:
Deferred compensation agreements 72,532 60,241
Book over tax goodwill
amortization 944,676 438,564
Covenant not to compete 1,733,511 1,653,341
---------- ---------
2,750,719 2,152,146
---------- ---------
$4,218,875 $3,335,675
========== ==========
The non-current portion of deferred tax assets is classified in other
assets.
J. COMMITMENTS
The Company leases bookstore facilities and data processing equipment under
noncancelable operating leases expiring at various dates through fiscal 2011.
Certain of the leases are based on a percentage of sales, ranging from 3.0% to
9.0%. Aggregate minimum lease payments under these agreements for the years
ending March 31 are as follows:
Year Amount
---- ---------
2000 $ 4,233,000
2001 3,738,000
2002 3,310,000
2003 2,600,000
2004 1,970,000
Thereafter 4,899,000
-----------
$20,750,000
===========
Total rent expense for the years ended March 31, 1999, 1998 and 1997 was
approximately $6.2 million, $6.0 million and $4.6 million, respectively.
Percentage rent expense for the years ended March 31, 1999, 1998 and 1997 was
approximately $1.6 million, $1.5 million and $0.6 million, respectively.
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<PAGE>
K. RETIREMENT PLAN
The Company participates in and sponsors a 401(k) compensation deferral
plan. The plan covers substantially all employees. The plan provisions include
employee contributions based on a percentage of compensation along with a
sponsor base contribution in addition to a limited matching feature. The sponsor
contributions for the years ended March 31, 1999, 1998 and 1997 were
approximately $0.7 million, $0.7 million and $0.7 million, respectively.
L. DEFERRED COMPENSATION
The Company has a non-qualified deferred compensation plan for selected
employees. This plan allows participants to voluntarily elect to defer portions
of their current compensation. The amounts can be distributed upon death,
resignation or termination, voluntary or involuntary. Interest is accrued at the
prime rate adjusted semi-annually on January 1 and July 1 and is compounded as
of March 31. The liability for the deferred compensation is included in other
long-term liabilities.
M. STOCK-BASED COMPENSATION
NBC had three stock-based compensation plans established to provide for the
granting of options to purchase NBC Class A Common Stock, two of which are in
effect at March 31, 1999. Details regarding each of the three plans are as
follows:
1995 Stock Incentive Plan - This plan provided for granting of options to
purchase 200,000 shares of NBC Class A Common Stock to designated employees,
officers and directors. The options were to be in the form of incentive stock
options or non-qualified stock options. The options granted were to vest with
respect to a certain percentage of the options through March 31, 2000, provided
that NBC's cumulative earnings before interest, income taxes, depreciation and
amortization met certain targeted amounts as defined in the plan. The options
generally were to expire ten years from the date of grant and were granted at an
exercise price of $10 per share. All of the options were bought out as part of
the Recapitalization on February 13, 1998 (see Note A) and the plan was
terminated.
1998 Performance Stock Option Plan - This plan, which was adopted on June
30, 1998, provides for the granting of options to purchase 52,000 shares of
NBC's Class A Common Stock to selected members of senior management of NBC and
its affiliates. All options granted are intended to be nonqualified stock
options, although the plan also provides for incentive stock options. NBC will
grant a portion of the available options in fiscal years 1999-2002 upon the
attainment of pre-established financial targets. Twenty-five percent of the
options granted become exercisable immediately upon granting, with the remaining
options becoming exercisable in 25% increments over the subsequent three years
on the anniversary of the date of grant. The options have an exercise price of
not less than fair market value on the date the options are granted and expire
ten years from the date of grant. At March 31, 1999, 42,470 options were
available for grant under the plan.
1998 Stock Option Plan - This plan, which was also adopted on June 30, 1998,
provides for the granting of options to purchase 31,000 shares of NBC's Class A
Common Stock to selected employees, officers, and directors of NBC and its
affiliates. All options granted are intended to be nonqualified stock options,
although the plan also provides for incentive stock options. NBC will grant such
options at the discretion of a committee designated by the Board of Directors
(the Committee). Twenty-five percent of the options granted become exercisable
immediately upon granting, with the remaining options becoming exercisable in
25% increments over the subsequent three years on the anniversary of the date of
grant. Incentive stock options have an exercise price of not less than fair
market value on the date the options are granted, while the Committee determines
the exercise price for nonqualified options, which may be below fair market
value, at the time of grant. All options expire ten years from the date of
grant. At March 31, 1999, 17,800 options were available for grant under the
plan.
The Company accounts for its stock-based compensation plans under the
provisions of APB 25, which utilizes the intrinsic value method. No compensation
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<PAGE>
cost was recognized for the options granted in fiscal 1999 as the exercise price
was equal to the estimated fair value of NBC's Class A Common Stock on the date
of grant (measurement date). Compensation cost related to stock-based
compensation was $8,277,748 and $296,642 for the years ended March 31, 1998 and
1997, respectively.
A summary of the Company's stock-based compensation activity related to
stock options for each of the three plans for the three years ended March 31,
1999 is as follows:
Year Ended March 31,
1998 1997
--------------------- --------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
----------- --------- --------- ---------
1995 Stock Incentive Plan:
Outstanding - beginning of year 170,000 $ 10.00 170,000 $ 10.00
Granted 30,000 10.00 - -
Expired/terminated (200,000) 10.00 - -
Exercised - - - -
----------- --------- --------- ---------
Outstanding - end of year - $ - 170,000 $ 10.00
=========== ========= ========= =========
There were 17,000 options exercisable at March 31, 1997.
Year Ended March 31,
1999
-----------------------
Weighted-
Average
Exercise
Number Price
------------ ----------
1998 Performance Stock Option Plan:
Outstanding - beginning of year - $ -
Granted 9,530 52.47
Expired/terminated - -
Exercised - -
------------ ----------
Outstanding - end of year 9,530 $ 52.47
============ ==========
There were 2,382 options exercisable at March 31, 1999 with a
weighted-average exercise price of $52.47 per option. All options
outstanding at March 31, 1999 have an exercise price of $52.47 per option
and a weighted-average remaining contractual life of 9.8 years.
Year Ended March 31,
1999
-----------------------
Weighted-
Average
Exercise
Number Price
------------ ----------
1998 Stock Option Plan:
Outstanding - beginning of year - $ -
Granted 13,200 52.47
Expired/terminated - -
Exercised - -
------------ ----------
Outstanding - end of year 13,200 $ 52.47
============ ==========
There were 3,300 options exercisable at March 31, 1999 with a
weighted-average exercise price of $52.47 per option. All options
outstanding at March 31, 1999 have an exercise price of $52.47 per option
and a weighted-average remaining contractual life of 9.7 years.
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<PAGE>
If the Company accounted for its stock-based compensation using the fair
value method prescribed by SFAS No. 123, Accounting for Stock-Based
Compensation, the weighted-average fair value of options granted under the 1998
Performance Stock Option Plan and 1998 Stock Option Plan for the year ended
March 31, 1999 would have been $8.85 and $8.64 per option, respectively. The
fair value of options granted was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions:
Year Ended
March 31, 1999
-------------
Risk-free interest rate 4.50%
Dividend yield -
Expected volatility 1.00%
Expected life (years) 4
The weighted-average fair value of options granted under the 1995 Stock
Incentive Plan for the year ended March 31, 1998 was $42.47 per option. The fair
value was determined based upon the buy-out price as part of the
Recapitalization on February 13, 1998.
The pro forma impact on net income (loss) of accounting for stock-based
compensation using the fair value method required by SFAS 123 is as follows:
Year Ended March 31,
1999 1998 1997
-------------- -------------- --------------
Net income (loss):
As reported $ 1,057,283 $ (5,146,138) $ 3,434,492
Pro forma 995,295 (1,286,752) 3,502,981
N. 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 65 college bookstores located on or adjacent to
college campuses. The complimentary services segment includes book-related
services such as a centralized buying service, distance education materials, and
computer hardware and software.
The accounting policies of the Company's segments are the same as those
described in the summary of significant accounting policies in Note B. 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, taxes, and extraordinary item 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
and assets on a segment basis for the three years ended March 31, 1999.
39
<PAGE>
<TABLE>
College
Wholesale Bookstore Complementary
Operations Operations Services Total
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Year ended March 31, 1999:
External customer revenues $ 85,324,194 $ 120,745,188 $ 11,446,930 $ 217,516,312
Intersegment revenues 12,105,940 - 915,473 13,021,413
Depreciation and amortization
expense 319,702 3,171,027 1,894,323 5,385,052
Income (loss) before interest,
taxes and extraordinary item 22,662,669 7,399,011 (2,559,067) 27,502,613
Total assets 28,898,295 23,600,603 4,228,300 56,727,198
Year ended March 31, 1998:
External customer revenues $ 79,865,566 $ 110,584,757 $ 8,322,615 $ 198,772,938
Intersegment revenues 10,729,624 - 1,275,197 12,004,821
Depreciation and
amortization expense 404,384 2,618,451 822,056 3,844,891
Income (loss) before interest,
taxes and extraordinary item 20,873,859 6,835,911 (1,468,199) 26,241,571
Total assets 27,441,423 23,941,963 5,779,487 57,162,873
Year ended March 31, 1997:
External customer revenues $ 76,129,403 $ 92,507,974 $ 3,962,816 $ 172,600,193
Intersegment revenues 8,358,073 - 959,106 9,317,179
Depreciation and amortization
expense 586,429 1,544,848 216,905 2,348,182
Income (loss) before interest,
taxes and extraordinary item 18,842,924 5,590,228 (685,088) 23,748,064
Total assets 24,316,380 24,623,739 1,066,111 50,006,230
</TABLE>
The following table reconciles segment information presented above with
information as presented in the Company's financial statements for the three
years ended March 31, 1999.
Year Ended March 31,
1999 1998 1997
------------ ------------- -------------
Revenues:
Total for reportable segments $230,537,725 $210,777,759 $181,917,372
Elimination of intersegment
revenues (13,021,413) (12,004,821) (9,317,179)
------------ ------------- -------------
Financial statement total $217,516,312 $198,772,938 $172,600,193
============ ============= =============
Depreciation and Amortization
Expense:
Total for reportable segments $ 5,385,052 $ 3,844,891 $ 2,348,182
Corporate administration 3,156,620 4,312,624 4,429,955
------------ ------------ -------------
Financial statement total $ 8,541,672 $ 8,157,515 $ 6,778,137
============ ============ =============
Income Before Interest, Taxes and
Extraordinary Item:
Total for reportable segments $ 27,502,613 $ 26,241,571 $ 23,748,064
Unallocated corporate
administrative costs (6,684,303) (16,105,058) (7,790,308)
------------ ------------- -------------
Financial statement total $ 20,818,310 $ 10,136,513 $ 15,957,756
============ ============= =============
Total Assets:
Total for reportable segments $ 56,727,198 $ 57,162,873 $ 50,006,230
Assets not allocated to segments:
Receivables 17,572,090 17,414,958 12,141,061
Recoverable income tax 4,902 4,374,048 574,375
Deferred income tax benefit 1,468,156 1,183,529 1,156,540
Property and equipment, net 23,188,485 22,731,907 21,902,556
Goodwill and other
intangibles, net 35,562,090 41,498,725 31,898,517
Other assets 3,653,180 2,798,270 1,719,118
Other 1,514,255 1,612,869 7,770,863
---------- ------------ -------------
Financial statement total $139,690,356 $148,777,179 $127,169,260
=========== ============ =============
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.
40
<PAGE>
O. SUBSEQUENT EVENT
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. The purchase price
consisted of $13.2 million paid to the former shareholders and $1.9 million for
the average annual debt level. The actual amount of debt assumed and retired at
closing was approximately $3.2 million, which exceeded the average outstanding
debt level of $1.9 million due to the seasonal incurrence of debt to fund the
buyback of used textbooks at the end of the Spring semester. Offsetting the
higher debt balances at Closing was a compensating increase in net asset
balances (consisting primarily of inventory). The Company will account for this
acquisition under the purchase method of accounting. Upon completion of the
closing balance sheet, any excess cost over fair value of net assets acquired
will be recorded as goodwill and amortized over a period of three years.
The acquisition of Triro, Inc. was funded in part through a $10.3 million
capital contribution from NBC to the Company. 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 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountants on accounting and
financial disclosure for the fiscal year ended March 31, 1999.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and members of the Board of Directors of the Company
and their ages are as follows:
Name Age Position
---------- ------- -------------------------------------------
Robert B. Haas 52 Chairman and Director
Douglas D. Wheat 48 Director
Mark W. Oppegard 49 Chief Executive Officer, President and Director
Bruce E. Nevius 47 Chief Financial Officer, Treasurer, and Assistant
Secretary
Barry S. Major 42 Chief Operating Officer
William H. Allen 56 Vice President of Warehouse Operations
Thomas A. Hoff 51 Vice President of Retail Division
Larry R. Rempe 51 Vice President of Information Systems
Kenneth F. Jirovsky 55 Vice President of Sales and Marketing
Ardean A. Arndt 57 Vice President of Administration and Secretary
John D. Baumeister 52 Assistant Treasurer
The business experience, principal occupation and employment as well as the
periods of service of each of the directors and executive officers of the
Company during the last five years are set forth below.
Robert B. Haas became Chairman and a Director of the Company upon the
consummation of the Recapitalization. Mr. Haas has been actively involved in
private investments since 1978. He has served as Chairman of the Board and Chief
Executive Officer of Haas Wheat since 1995; he has also been Chairman of the
Board and Chief Executive Officer of Haas Wheat Advisory Partners Incorporated
since 1992 and Chairman of the Board of Haas & Partners Incorporated since 1989
(each of which is a private investment firm specializing in leveraged
acquisitions). Mr. Haas serves as a director of Specialty Foods Acquisition
Corporation, Specialty Foods Corporation (a producer of specialty food
products), Sybron International Corporation, Smarte Carte Corporation and Walls
Holding Company, Inc. and is the Chairman of the Board of Playtex Products, Inc.
(a consumer products company).
Douglas D. Wheat became a Director of the Company upon the consummation of
the Recapitalization. Mr. Wheat has been President of Haas Wheat since 1995 and
President of Haas Wheat Advisory Partners Incorporated since 1992; he was
Co-Chairman of Grauer & Wheat, Inc. (a private investment firm) from 1989 to
1992 and Senior Vice President of Donaldson, Lufkin & Jenrette Securities
Corporation from 1985 to 1989. Mr. Wheat serves as a director of Specialty Foods
Acquisition Corporation, Specialty Foods Corporation, Smarte Carte Corporation,
Walls Holding Company, Inc. and Playtex Products, Inc.
Mark W. Oppegard has served in the college bookstore industry for 29 years
(all of which have been with the Company and its parent, NBC (since its
inception in 1995)) and became Chief Executive Officer of the Company and
President, Secretary and a Director of NBC upon consummation of the
Recapitalization on February 13, 1998. Additionally, Mr. Oppegard has served as
President of the Company since 1992 and as a Director of the Company since 1995.
Prior to the Recapitalization, Mr. Oppegard served as Vice President, Secretary,
Assistant Treasurer and a Director of NBC between 1995 and 1998. Prior to 1992,
Mr. Oppegard served in a series of positions at the Company, including Vice
President of the college bookstore operations. He is currently a director of
NACSCORP, INC., a distribution company serving the college bookstore industry.
Bruce E. Nevius has served in the college bookstore industry for 23 years
(all of which have been with the Company and its parent, NBC (since its
inception in 1995)) and became Vice President and Treasurer of NBC upon
consummation of the Recapitalization on February 13, 1998. Mr. Nevius has served
as Chief Financial Officer of the Company since 1995 and Treasurer and Assistant
Secretary of the Company since 1984. From 1976 to 1984, Mr. Nevius served as
Controller of the Company. Prior thereto, he served in various positions for
Lincoln Industries, Inc. ("Lincoln"), a holding company that owned the Company
42
<PAGE>
until 1995.
Barry S. Major was named Chief Operating Officer of the Company in January,
1999. Prior to joining the Company, Mr. Major served in various executive
management positions at SITEL Corporation, a company listed on the New York
Stock Exchange that provides outsourced telephone and Internet-based sales and
customer service. Joining SITEL Corporation in 1995 as the Executive Vice
President of Finance, Mr. Major was named Chief Financial Officer in 1996 and
assumed the role of President of the North America Region in 1997. Between 1985
and 1995, Mr. Major served in a series of positions, including President in
1995, Executive Vice President, and Senior Vice President/Credit Manager, with
American National Corporation, a multi-bank holding company operating three
banks throughout Omaha and Southeast Nebraska.
William H. Allen has served in the college bookstore industry for 34 years
(of which 25 have been with the Company and its parent, NBC (since its inception
in 1995)) and has been Vice President of Warehouse Operations for the Company
since 1994. Between 1974 and 1994, Mr. Allen served in a series of positions,
including assistant manager of the wholesale operations. Prior to joining the
Company in 1974, Mr. Allen was employed by the Missouri Store Company, a
predecessor of MBS.
Thomas A. Hoff has served in the college bookstore industry for 12 years
(all of which have been with the Company and its parent, NBC (since its
inception in 1995)) and has been Vice President of Retail Division for the
Company since 1992. Mr. Hoff served as an assistant to the Vice President of
College Bookstore Operations between 1987 and 1992.
Larry R. Rempe has served in the college bookstore industry for 13 years
(all of which have been with the Company and its parent, NBC (since its
inception in 1995)) and has been Vice President of Information Systems for the
Company since 1986. Prior to that time Mr. Rempe served in various positions for
Lincoln.
Kenneth F. Jirovsky has served in the college bookstore industry for 38
years (all of which have been with the Company and its parent, NBC (since its
inception in 1995)) and has been Vice President of Sales and Marketing for the
Company since 1986. Prior to 1986 Mr. Jirovsky served in a series of positions,
including assistant manager of the wholesale operations.
Ardean A. Arndt has served in the college bookstore industry for 14 years
(all of which have been with the Company and its parent, NBC (since its
inception in 1995)) and has served as Vice President of Administration and
Secretary for the Company since 1985. Between 1981 and 1985, Mr. Arndt was Vice
President of Administration for Lincoln.
John D. Baumeister has served in the college bookstore industry for 33 years
(all of which have been with the Company and its parent, NBC (since its
inception in 1995)) and has served as Assistant Treasurer for the Company since
1988. Prior to 1988 Mr. Baumeister served in a series of positions, including
sixteen years as an account representative.
ITEM 11. EXECUTIVE COMPENSATION.
The following tables and paragraphs provide information concerning
compensation paid by the Company for the last two fiscal years to its Chief
Executive Officer and to the four other most highly compensated executive
officers earning in excess of $100,000 in annual salary and bonuses;
compensation paid to Directors; and employment contracts in place with executive
officers.
The table presented below summarizes annual and long-term compensation,
including stock compensation awarded under the NBC Acquisition Corp. 1998
Performance Stock Option Plan, to such persons for the last two fiscal years:
43
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------- ------------
Number
of Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary Bonus Options (1) Compensation (2)
- ---------------------------- ----- --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Mark W. Oppegard - President,
Chief Executive Officer and
Director 1999 $197,808 $ - - $ 2,985
1998 176,539 - - 3,017
Barry S. Major - Chief
Operating Officer 1999 40,769 60,000 9,530 -
1998 - - - -
Larry R. Rempe - Vice
President of Information
Systems 1999 106,846 - - 3,092
1998 102,846 - - 3,017
Kenneth F. Jirovsky - Vice
President of Sales and
Marketing 1999 100,923 - - 3,376
1998 98,923 - - 3,017
William H. Allen - Vice
President of Warehouse
Operations 1999 100,923 - - 3,376
1998 85,923 - - 3,521
</TABLE>
(1) The stock options were granted at an exercise price of $52.47/share
("Founder's Price"). Such exercise price is considered to be
representative of the fair market value of the NBC Class A Common Stock
underlying the stock options at January 4, 1999 (date of grant) based
upon the buy-out price as part of the Recapitalization on February 13,
1998.
(2) Consists of Company matching contributions to the NBC Retirement Plan
and life insurance premiums paid by the Company on the executive's
behalf.
Presented below is information in tabular format regarding individual grants
of stock options to certain executive officers of the Company under the NBC
Acquisition Corp. 1998 Performance Stock Option Plan for the year ended March
31, 1999:
Options Granted During the Year Ended March 31, 1999
Individual Grants Grant Date Value
- ---------------------------------------------------------- --------------------
Number % of Total
of Options
Securities Granted to Grant
Underlying Employees Exercise Date
Options in Fiscal Price Expiration Present
Name Granted 1999 Per Share Date Value(1)
- -------------------------- --------- --------- --------- --------- ---------
Barry S. Major - Chief
Operating Officer 9,530 41.9% $52.47 01/04/09 $84,376
(1) Grant date present value was determined using a Black-Scholes option
pricing model, assuming a 4.63% risk-free interest rate, 1.0% expected
volatility, and an expected life of approximately 4 years.
44
<PAGE>
The following table provides information concerning each exercise of stock
options by certain executive officers of the Company under the NBC Acquisition
Corp. 1998 Performance Stock Option Plan during the year ended March 31, 1999 as
well as the value of unexercised options as of March 31, 1999:
Aggregated Option Exercises During the Year Ended March 31, 1999
and Option Value as of March 31, 1999
Number
of Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options at Options at
March 31, 1999 March 31, 1999
------------- -------------
Shares
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ------------------------------ ----------- -------- ------------- -------------
Barry S. Major - Chief
Operating Officer - $ - 2,382/7,148 $-/$-
Compensation of Directors
Directors of the Company receive no compensation for services but are
reimbursed for out-of-pocket expenses.
Employment Agreements
Upon consummation of the Recapitalization, the Company entered into
employment agreements expiring March 31, 2001 with Mark W. Oppegard and six
other senior executive officers of the Company. Subsequent thereto, on December
22, 1998, the Company entered into a similar employment agreement expiring March
31, 2001 with its newly-appointed Chief Operating Officer, Barry S. Major. Such
agreements (the "Employment Agreements") with the eight aforementioned senior
executive officers (each, an "Executive") provide for an annual base salary as
determined by the Board of Directors, for incentive compensation based upon the
attainment of financial objectives to be established by the Board of Directors
(or a committee thereof) after considering the recommendation of the chief
executive officer, and for customary fringe benefits. The amounts of salaries
are as follows: Mr. Oppegard, $225,000 per annum; Mr. Major, $200,000 per annum;
Mr. Rempe, $109,000 per annum; Mr. Jirovsky, $102,000 per annum; and Mr. Allen,
$102,000 per annum. The Employment Agreements provide that their term will be
automatically extended from year to year after March 31, 2001, unless terminated
upon specified notice by either party.
The Employment Agreements also provide that each Executive will be granted a
number of options to acquire shares of NBC Acquisition Corp. Class A Common
Stock determined by the Board of Directors. Each such option has an exercise
price not to be less than the fair market value per share as of the date of
grant and is exercisable as to 25% of the shares covered thereby on the date of
grant and as to an additional 25% of the shares covered thereby on each of the
first three anniversaries of the date of grant, subject to the Executive's
continued employment by the Company on such dates.
The Employment Agreements also provide for specified payments to the
Executive in the event of termination of employment by the Company without
"cause" (as defined in the respective agreements) and in the event of death or
disability of the Executive during the term. The Employment Agreements also
contain customary confidentiality obligations and three year non-competition
agreements for each Executive.
45
<PAGE>
Finally, the Employment Agreements provide that, prior to the consummation by
NBC of an initial public offering of NBC Acquisition Corp. Common Stock, the
Executives will not sell, transfer, pledge or otherwise dispose of any shares of
NBC Acquisition Corp. Common Stock, except for certain transfers to immediate
family members, in the event of disability and for estate planning purposes. The
Employment Agreements also provide that, in the event of the sale of a majority
of the outstanding NBC Acquisition Corp. Common Stock, the Executives will have
the option, and (at the option of HWH) will be required, to sell their shares
ratably with, and on the same terms and conditions as, the other selling
shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As a result of the Recapitalization, all shares of common stock of the
Company are owned by NBC. The information in the following table sets forth the
ownership of NBC Acquisition Corp. Class A Common Stock by each person who
beneficially owns more than 5.0% of the outstanding shares of the Class A Common
Stock, and each named director, executive officer, and all directors and
executive officers of the Company treated as a group who beneficially own shares
of the Class A Common Stock as of June 18, 1999. To the knowledge of the
Company, each of such holders of shares has sole voting and investment power as
to the shares owned unless otherwise noted. The address for each executive
officer and director is 4700 South 19th Street, Lincoln, Nebraska 68501 unless
otherwise noted.
Amount and
Nature of
Beneficial Percent of
Title of Class/Name of Beneficial Owner Ownership(1) Class
- ------------------------------------------------------- ------------ ---------
Class A Common Stock:
Owning Greater Than 5% of Shares:
HWH (2) 1,060,330 91.8%
============ =========
Ownership of Management:
Robert B. Haas (2) 1,060,330 91.8%
Mark W. Oppegard 22,966 2.0%
Larry R. Rempe 15,748 1.4%
Bruce E. Nevius 11,436 1.0%
Thomas A Hoff 11,364 1.0%
Kenneth F. Jirovsky 10,030 0.9%
Ardean A. Arndt 8,624 0.7%
William H. Allen 7,624 0.7%
Barry S. Major 6,671 0.6%
Douglas D. Wheat (2) - -
------------ ---------
Total for Directors and Executive Officers as a Group 1,154,793 100.0%
============ =========
(1) Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting and investment power with respect to the shares
of NBC Acquisition Corp. Class A Common Stock.
(2) The sole general partner of HWH is a limited partnership, and the sole
general partner of the limited partnership is a corporation controlled
by Mr. Haas. Mr. Wheat is a stockholder, director and officer of the
corporation. The address of HWH and of Messrs. Haas and Wheat is 300
Crescent Court, Suite 1700, Dallas, Texas 75201.
46
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective June 4, 1999, the Company acquired all of the outstanding common
stock of Triro, Inc. The acquisition of Triro, Inc. was funded in part through a
$10.3 million capital contribution from NBC to the Company. NBC raised the $10.3
million in capital through the sale of 197,001 shares of its Class A Common
Stock at a price of $52.47 per share (based upon the buy-out price as part of
the Recapitalization on February 13, 1998) to certain shareholders, including
190,595 shares to HWH; 2,000 shares to the Company's Chief Executive Officer and
1,906 shares to the Company's Chief Operating Officer.
As of March 31, 1999, NBC reported notes receivable from stockholders and
associated interest receivable of approximately $361,000. Approximately $133,000
of such notes originated during the leveraged buyout of the Company by Olympus
Advisory Partners, Inc. in 1995. In conjunction with the buyout, the Company's
executive officers were given the opportunity to acquire shares of NBC's Class A
Common Stock with a portion of the purchase price of such shares being provided
to the officers in the form of interest bearing notes. Such notes are dated
August 31, 1995, become due August 31, 2002, and bear interest at the applicable
Federal rate for mid-term loans. The largest aggregate amount outstanding at any
time during the year ended March 31, 1999 under a note due from the Company's
Chief Executive Officer was approximately $85,000, bore interest at a rate of
6.04%, and was repaid in full in December, 1998.
The remaining balance of such notes originated pursuant to the terms of an
employment agreement dated December 22, 1998 with the Company's newly-appointed
Chief Operating Officer, Barry S. Major. In January, 1999, NBC issued 4,765
shares of its Class A Common Stock to Mr. Major at a price of $52.47 per share,
receiving $25,000 in cash and a $225,000 note maturing January 19, 2009 and
bearing interest at 5.25% per year. The largest aggregate amount outstanding
under this note at any time during the year ended March 31, 1999 was
approximately $228,000.
During fiscal 1998 and in conjunction with the Recapitalization, NBC
simultaneously granted the remaining 30,000 options authorized under the NBC
1995 Stock Incentive Plan to the Company's senior executive officers and then
bought out and cancelled all 200,000 unexercised options at a cost of
approximately $8.5 million, of which $0.2 million was paid out subsequent to
March 31, 1998. Such officers reinvested an aggregate of approximately $4.4
million of the proceeds from the buyout to purchase approximately 8.7% of NBC's
Class A Common Stock.
47
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements and Financial Statement Schedules.
(1) Financial Statements of Nebraska Book Company, Inc.
Index to Financial Statements.
Independent Auditors' Report.
Balance Sheets as of March 31, 1999 and 1998.
Statements of Operations for the Years Ended March 31, 1999, 1998
and 1997.
Statements of Stockholders' Equity (Deficit) for the Years Ended
March 31, 1999, 1998 and 1997.
Statements of Cash Flows for the Years Ended March 31, 1999, 1998
and 1997.
Notes to Financial Statements.
(2) Financial Statement Schedules.
Independent Auditors' Report on Schedule.
Schedule II - Valuation and Qualifying Accounts.
(3) Management Contract and Compensatory Plan Arrangement Exhibits.
Exhibits 10.4 through 10.11 are incorporated herein by reference.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31,
1999.
(c) Exhibits.
3.1 Certificate of Incorporation, as amended, of Nebraska Book
Company, Inc., filed as Exhibit 3.1 to Nebraska Book Company,
Inc. Registration Statement on Form S-4, as amended (File No.
333-48221), is incorporated herein by reference.
3.2 By-laws of Nebraska Book Company, Inc., filed as Exhibit 3.2 to
Nebraska Book Company, Inc. Registration Statement on Form S-4,
as amended (File No. 333-48221), is incorporated herein by
reference.
4.1 Indenture dated as of February 13, 1998 by and between Nebraska
Book Company, Inc. and United States Trust Company of New York,
as Trustee, filed as Exhibit 4.1 to Nebraska Book Company, Inc.
Registration Statement on Form S-4, as amended (File No.
333-48221), is incorporated herein by reference.
4.2 Exchange and Registration Rights Agreement dated as of February
13, 1998 by and between Nebraska Book Company, Inc. and Chase
Securities Inc., filed as Exhibit 4.2 to Nebraska Book Company,
Inc. Registration Statement on Form S-4, as amended (File No.
333-48221), is incorporated herein by reference.
4.3 Form of Initial Note of Nebraska Book Company, Inc. (included in
Exhibit 4.1 as Exhibit A), filed as Exhibit 4.3 to Nebraska Book
Company, Inc. Registration Statement on Form S-4, as amended
(File No. 333-48221), is incorporated herein by reference.
48
<PAGE>
4.4 Form of Exchange Note of Nebraska Book Company, Inc. (included
in Exhibit 4.1 as Exhibit B), filed as Exhibit 4.4 to Nebraska
Book Company, Inc. Registration Statement on Form S-4, as
amended (File No. 333-48221), is incorporated herein by
reference.
10.1 Credit Agreement dated as of February 13, 1998 by and among NBC
Acquisition Corp., Nebraska Book Company, Inc., the Chase
Manhattan Bank and certain other financial institutions, filed
as Exhibit 10.1 to Nebraska Book Company, Inc. Registration
Statement on Form S-4, as amended (File No. 333-48221), is
incorporated herein by reference.
10.2 Guarantee and Collateral Agreement, dated as of February 13,
1998 made by NBC Acquisition Corp. and Nebraska Book Company,
Inc. in favor of the Chase Manhattan Bank, as administrative
agent, filed as Exhibit 10.2 to Nebraska Book Company, Inc.
Registration Statement on Form S-4, as amended (File No.
333-48221), is incorporated herein by reference.
10.3 Purchase Agreement dated February 10, 1998 between Nebraska Book
Company, Inc. and Chase Securities Inc., filed as Exhibit 10.3
to Nebraska Book Company, Inc. Registration Statement on Form
S-4, as amended (File No. 333-48221), is incorporated herein by
reference.
10.4 Form of Memorandum of Understanding, dated as of February 13,
1998 between NBC Acquisition Corp. and each of Mark W. Oppegard,
Bruce E. Nevius, Larry R. Rempe, Kenneth F. Jirovsky, William H.
Allen, Thomas A. Hoff and Ardean A. Arndt, filed as Exhibit 10.4
to Nebraska Book Company, Inc. Registration Statement on Form
S-4, as amended (File No. 333-48221), is incorporated herein by
reference.
10.5 Memorandum of Understanding, dated as of December 22, 1998
between Nebraska Book Company, Inc. and Barry S. Major, Chief
Operating Officer, filed as Exhibit 10.1 to Nebraska Book
Company, Inc. Form 10-Q for the quarter ended December 31, 1998,
is incorporated herein by reference.
10.6 NBC Acquisition Corp. 1995 Stock Incentive Plan adopted August
31, 1995, filed as Exhibit 10.5 to Nebraska Book Company, Inc.
Registration Statement on Form S-4, as amended (File No.
333-48221), is incorporated herein by reference.
10.7 NBC Acquisition Corp. 1998 Performance Stock Option Plan adopted
June 30, 1998, filed as Exhibit 10.1 to Nebraska Book Company,
Inc. Form 10-Q for the quarter ended June 30, 1998, is
incorporated herein by reference.
10.8 NBC Acquisition Corp. 1998 Stock Option Plan adopted June 30,
1998, filed as Exhibit 10.2 to Nebraska Book Company, Inc. Form
10-Q for the quarter ended June 30, 1998, is incorporated herein
by reference.
10.9 NBC Acquisition Corp. Senior Management Bonus Plan adopted June
30, 1998, filed as Exhibit 10.3 to Nebraska Book Company, Inc.
Form 10-Q for the quarter ended June 30, 1998, is incorporated
herein by reference.
10.10 Form of Deferred Compensation Agreement by and between Nebraska
Book Company, Inc. and each of Mark W. Oppegard, Bruce E.
Nevius, Larry R. Rempe and Thomas A. Hoff, filed as Exhibit 10.6
to Nebraska Book Company, Inc. Registration Statement on Form
S-4, as amended (File No. 333-48221), is incorporated herein by
reference.
49
<PAGE>
10.11 NBC Acquisition Corp. 401(k) Savings Plan, filed as Exhibit 10.7
to Nebraska Book Company, Inc. Registration Statement on Form
S-4, as amended (File No. 333-48221), is incorporated herein by
reference.
10.12 Agreement for Purchase and Sale of Stock made January 9, 1998
between and among Nebraska Book Company, Inc. and Martin D.
Levine, the Lauren E. Levine Grantor Trust and the Jonathan L.
Levine Grantor Trust (the "Collegiate Stores Corporation
Agreement"), filed as Exhibit 10.8.1 to Nebraska Book Company,
Inc. Registration Statement on Form S-4, as amended (File No.
333-48221), is incorporated herein by reference.
10.13 First Amendment dated January 23, 1998 to the Collegiate Stores
Corporation Agreement, filed as Exhibit 10.8.2 to Nebraska Book
Company, Inc. Registration Statement on Form S-4, as amended
(File No. 333-48221), is incorporated herein by reference.
10.14 Commercial Lease Agreement made and entered into March 8, 1989,
by and between Robert J. Chaney, Mary Charlotte Chaney and
Robert J. Chaney, as Trustee under the Last Will and Testament
of James A Chaney, and Nebraska Book Company, Inc., filed as
Exhibit 10.9 to Nebraska Book Company, Inc. Registration
Statement on Form S-4, as amended (File No. 333-48221), is
incorporated herein by reference.
10.15 Lease Agreement entered into as of September 1, 1986, by and
between Odell Associates Limited Partnership and Nebraska Book
Company, Inc., filed as Exhibit 10.10 to Nebraska Book Company,
Inc. Registration Statement on Form S-4, as amended (File No.
333-48221), is incorporated herein by reference.
10.16 Lease Agreement entered into as of September 1, 1986, by and
between John B. DeVine, successor trustee of the Fred C. Ulrich
Trust, as amended, and Nebraska Book Company, Inc., filed as
Exhibit 10.11 to Nebraska Book Company, Inc. Registration
Statement on Form S-4, as amended (File No. 333-48221), is
incorporated herein by reference.
10.17 Lease Agreement entered into as of September 1, 1986 by and
between Odell Associates Limited Partnership and Nebraska Book
Company, Inc., filed as Exhibit 10.12 to Nebraska Book Company,
Inc. Registration Statement on Form S-4, as amended (File No.
333-48221), is incorporated herein by reference.
10.18 Lease Agreement made and entered into October 12, 1988 by and
between Hogarth Management and Nebraska Book Company, Inc.,
filed as Exhibit 10.13 to Nebraska Book Company, Inc.
Registration Statement on Form S-4, as amended (File No.
333-48221), is incorporated herein by reference.
10.19 Industrial Real Estate Lease dated June 22, 1987 by and between
Cyprus Land Company and Nebraska Book Company, Inc., filed as
Exhibit 10.14 to Nebraska Book Company, Inc. Registration
Statement on Form S-4, as amended (File No. 333-48221), is
incorporated herein by reference.
12. Statements regarding computation of ratios, filed as Exhibit 12
to Nebraska Book Company, Inc. Registration Statement on Form
S-4, as amended (File No. 333-48221), is incorporated herein by
reference.
24. Powers of Attorney (included on signature page).
27. Financial Data Schedule for the Year Ended March 31, 1999 [EDGAR
filing only].
50
<PAGE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are either not required
under the related instructions, are not applicable (and therefore have been
omitted), or the required disclosures are contained in the financial statements
included herein.
51
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEBRASKA BOOK COMPANY, INC.
/s/ Mark W. Oppegard
----------------------------------
Mark W. Oppegard
President, Chief Executive Officer and Director
June 18, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Mark W. Oppegard
----------------------------------
Mark W. Oppegard
President, Chief Executive Officer and Director
June 18, 1999
*
----------------------------------
Bruce E. Nevius
Treasurer, Chief Financial Officer and
Assistant Secretary
June 18, 1999
*
----------------------------------
Robert B. Haas
Chairman and Director
June 18, 1999
*
----------------------------------
Douglas D. Wheat
Director
June 18, 1999
*By: /s/ Mark W. Oppegard
----------------------------------
Mark W. Oppegard
Attorney-In-Fact
Supplemental Information to Be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act:
No annual report or proxy material for the fiscal year ended March 31, 1999
has been, nor will be, sent to security holders.
52
<PAGE>
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Nebraska Book Company, Inc.
Lincoln, Nebraska
We have audited the financial statements of Nebraska Book Company, Inc. (a
wholly-owned subsidiary of NBC Acquisition Corp.) as of March 31, 1999 and 1998
and for each of the three years in the period ended March 31, 1999, and have
issued our report thereon dated May 22, 1999 (June 4, 1999 as to Note O); such
report is included elsewhere in this Form 10-K. Our audits also included the
financial statement schedule listed in Item 14(a)(2). This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 22, 1999
53
<PAGE>
<TABLE>
<CAPTION>
NEBRASKA BOOK COMPANY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------------------------------------------------------
Charged to Charged to
Beginning of Costs and Other Net End of Year
Year Balance Expenses Accounts Charge-Offs Balance
------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1999
Allowance for doubtful accounts $ 164,829 $ 134,661 $ - $ (133,591) $ 165,899
YEAR ENDED MARCH 31, 1998
Allowance for doubtful accounts 239,296 180,491 - (254,958) 164,829
YEAR ENDED MARCH 31, 1997
Allowance for doubtful accounts 255,027 159,602 - (175,333) 239,296
</TABLE>
54
<PAGE>
EXHIBIT INDEX
24. Powers of Attorney (included on signature page).
27. Financial Data Schedule for the Year Ended March 31, 1999 [EDGAR filing
only].
55
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001056758
<NAME> NEBRASKA BOOK COMPANY, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,059,660
<SECURITIES> 0
<RECEIVABLES> 21,004,445
<ALLOWANCES> 165,899
<INVENTORY> 49,878,561
<CURRENT-ASSETS> 76,626,573
<PP&E> 31,212,534
<DEPRECIATION> 8,024,049
<TOTAL-ASSETS> 139,690,356
<CURRENT-LIABILITIES> 21,156,391
<BONDS> 163,612,489
0
0
<COMMON> 100
<OTHER-SE> (47,546,964)
<TOTAL-LIABILITY-AND-EQUITY> 139,690,356
<SALES> 217,516,312
<TOTAL-REVENUES> 217,516,312
<CGS> 137,709,320
<TOTAL-COSTS> 137,709,320
<OTHER-EXPENSES> 58,854,021
<LOSS-PROVISION> 134,661
<INTEREST-EXPENSE> 17,157,370
<INCOME-PRETAX> 3,660,940
<INCOME-TAX> 2,603,657
<INCOME-CONTINUING> 1,057,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,057,283
<EPS-BASIC> 10,573
<EPS-DILUTED> 10,573
</TABLE>
