UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ______
COMMISSION FILE NUMBER: 333-48221
NEBRASKA BOOK COMPANY, INC.
(Exact name of registrant as specified in its charter)
KANSAS 47-0549819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4700 SOUTH 19TH STREET
LINCOLN, NEBRASKA 68501-0529
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 421-7300
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.YES [ X] NO [ ]
TOTAL NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 12, 1999: 100
SHARES
TOTAL NUMBER OF PAGES: 14
EXHIBIT INDEX: PAGE 14
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NEBRASKA BOOK COMPANY, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
(Unaudited) (Unaudited)
September 30, March 31, September 30,
1999 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,588,568 $ 4,059,660 $ 13,810,986
Receivables 33,134,286 20,838,546 31,892,698
Inventories 53,341,309 49,878,561 48,989,391
Recoverable income tax - 4,902 -
Deferred income tax benefit 1,491,693 1,468,156 1,183,529
Prepaid expenses and other assets 273,258 376,748 117,568
------------- ------------- -------------
Total current assets 110,829,114 76,626,573 95,994,172
PROPERTY AND EQUIPMENT 34,242,974 31,212,534 30,427,825
Less accumulated depreciation (9,183,529) (8,024,049) (6,914,186)
------------- ------------- -------------
25,059,445 23,188,485 23,513,639
GOODWILL AND OTHER INTANGIBLES, net of amortization 40,935,484 35,562,090 37,828,175
OTHER ASSETS 4,064,919 4,313,208 3,424,269
------------- ------------- -------------
$ 180,888,962 $ 139,690,356 $ 160,760,255
============= ============= =============
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 29,756,939 $ 9,200,870 $ 25,417,046
Accrued employee compensation and benefits 3,926,125 3,825,893 3,009,538
Accrued interest 1,345,438 1,426,509 1,788,867
Accrued expenses 754,046 681,725 624,957
Income tax payable 3,249,301 - 550,705
Deferred revenue 308,896 376,556 331,745
Current maturities of long-term debt 3,674,093 5,644,838 1,984,782
Current maturities of capital lease obligations 104,744 - -
------------- ------------- -------------
Total current liabilities 43,119,582 21,156,391 33,707,640
LONG-TERM DEBT, net of current maturities 164,637,504 163,612,489 168,311,596
CAPITAL LEASE OBLIGATIONS, net of current maturities 164,338 - -
OTHER LONG-TERM LIABILITIES 212,239 191,074 170,802
DUE TO PARENT 3,379,893 2,277,266 1,243,991
STOCKHOLDER'S DEFICIT:
Common stock, voting, authorized 50,000 shares of
$1.00 par value; issued and outstanding 100 shares 100 100 100
Additional paid-in capital 41,257,722 30,904,931 30,967,876
Retained deficit (71,882,416) (78,451,895) (73,641,750)
------------- ------------- -------------
Total stockholder's deficit (30,624,594) (47,546,864) (42,673,774)
------------- ------------- -------------
$ 180,888,962 $ 139,690,356 $ 160,760,255
============= ============= =============
See notes to financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended September 30, Six Months Ended September 30,
1999 1998 1999 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
REVENUES, net of returns $ 111,612,649 $ 95,012,456 $ 144,009,814 $ 124,676,448
COSTS OF SALES 69,315,060 59,641,165 88,859,397 76,746,356
------------- ------------ ------------- -------------
Gross profit 42,297,589 35,371,291 55,150,417 47,930,092
OPERATING EXPENSES:
Selling, general and administrative 16,814,540 13,245,051 29,922,030 25,056,426
Depreciation 620,142 530,167 1,206,127 1,059,451
Amortization 2,106,785 1,600,371 3,694,542 3,367,422
------------- ------------ ------------- -------------
19,541,467 15,375,589 34,822,699 29,483,299
------------- ------------ ------------- -------------
INCOME FROM OPERATIONS 22,756,122 19,995,702 20,327,718 18,446,793
OTHER EXPENSES (INCOME):
Interest expense 4,524,359 4,550,151 9,019,845 9,129,240
Interest income (79,155) (77,981) (99,535) (96,880)
Other income (289,681) (466,691) (530,972) (677,460)
------------- ------------ ------------- -------------
4,155,523 4,005,479 8,389,338 8,354,900
------------- ------------ ------------- -------------
INCOME BEFORE INCOME TAXES 18,600,599 15,990,223 11,938,380 10,091,893
INCOME TAX EXPENSE 7,546,648 6,200,663 5,368,901 4,224,465
------------- ------------ ------------- -------------
NET INCOME $ 11,053,951 $ 9,789,560 $ 6,569,479 $ 5,867,428
============= ============= ============= =============
See notes to financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
(UNAUDITED)
- --------------------------------------------------------------------------------
Additional
Common Paid-in Retained
Stock Capital Deficit Total
------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, April 1, 1998 $ 100 $ 30,935,250 $ (79,509,178) $ (48,573,828)
Contributed capital - 32,626 - 32,626
Net income - - 5,867,428 5,867,428
------- ------------- -------------- --------------
BALANCE, September 30, 1998 $ 100 $ 30,967,876 $ (73,641,750) $ (42,673,774)
======= ============= ============== ==============
BALANCE, April 1, 1999 $ 100 $ 30,904,931 $ (78,451,895) $ (47,546,864)
Contributed capital - 10,352,791 - 10,352,791
Net income - - 6,569,479 6,569,479
------- -------------- --------------- ---------------
BALANCE, September 30, 1999 $ 100 $ 41,257,722 $ (71,882,416) $ (30,624,594)
======= ============== =============== ===============
See notes to financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
- --------------------------------------------------------------------------------
Six Months Ended September 30,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,569,479 $ 5,867,428
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 1,206,127 1,059,451
Amortization of intangibles 4,382,551 4,037,844
Loss on disposal of assets 9,860 22,392
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables (12,163,698) (10,509,552)
Inventories 1,465,312 (178,677)
Recoverable income tax 319,630 4,125,957
Prepaid expenses and other assets 238,098 72,382
Other assets 553,107 (678,192)
Accounts payable 19,529,994 10,998,203
Accrued employee compensation and benefits (143,525) (787,704)
Accrued interest (81,071) 320
Accrued expenses 72,321 126,217
Income taxes payable 3,248,336 798,796
Deferred revenue (67,660) (132,172)
Other long-term liabilities 21,165 20,198
Due to parent 1,102,627 995,900
----------- -----------
Net cash flows from operating activities 26,262,653 15,838,791
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,119,433) (1,895,458)
Bookstore acquisitions, net of cash acquired (15,852,506) -
Proceeds from sale of property and equipment 52,969 31,883
Software development costs (156,992) (107,230)
----------- -----------
Net cash flows from investing activities (17,075,962) (1,970,805)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs (32,478) (207,871)
Principal payments on long-term debt (945,730) (288,645)
Principal payments on capital lease obligations (32,366) -
Net decrease in revolving credit facility - (5,400,000)
Capital contribution 10,352,791 32,626
----------- -----------
Net cash flows from financing activities 9,342,217 (5,863,890)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,528,908 8,004,096
CASH AND CASH EQUIVALENTS, Beginning of period 4,059,660 5,806,890
------------ ------------
CASH AND CASH EQUIVALENTS, End of period $ 22,588,568 $ 13,810,986
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid (refunded) during the period for:
Interest $ 8,412,907 $ 8,233,975
Income taxes 706,483 (1,696,188)
See notes to financial statements.
</TABLE>
5
<PAGE>
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. MANAGEMENT REPRESENTATIONS - The balance sheet of Nebraska Book Company,
Inc. (the "Company") at March 31, 1999 was obtained from the Company's
audited balance sheet as of that date. All other financial statements
contained herein are unaudited and reflect all adjustments which are, in
the opinion of management, necessary to summarize fairly the financial
position of the Company and the results of the Company's operations for the
periods presented. All of these adjustments are of a normal recurring
nature. Because of the seasonal nature of the Company's operations, results
of operations of any single reporting period should not be considered as
indicative of results for a full year. Certain reclassifications have been
made to prior period financial statements to conform with current year
presentation. These statements should be read in conjunction with the
Company's audited financial statements for the year ended March 31, 1999
included in the Company's Annual Report on Form 10-K.
2. ACQUISITIONS - Effective June 4, 1999, the Company acquired all of the
outstanding common stock of Triro, Inc., an independent college bookstore
operation with 17 retail bookstores located in Texas, New Mexico, and
Arizona, for approximately $15.0 million, net of cash acquired. The Company
accounted for this acquisition under the purchase method of accounting.
Excess cost over fair value of net assets acquired of approximately $9.1
million has been recorded as goodwill and is being amortized over a period
of three years. The results of operations for Triro, Inc. have been
included in the results of the Company from the date of acquisition. The
acquisition of Triro, Inc. was funded in part through a $10.3 million
capital contribution from the Company's parent, NBC Acquisition Corp.
(NBC). NBC raised the $10.3 million in capital through the sale of 197,001
shares of its Class A Common Stock to certain shareholders, including HWH
Capital Partners, L.P. and members of senior management. The remaining
funding was provided through available cash funds and borrowings under the
Company's revolving credit facility. Also in conjunction with the
acquisition of Triro, Inc., the Company established an irrevocable standby
letter of credit for $52,000 which expires June 2, 2000.
The following table summarizing unaudited pro forma financial information
assumes the acquisition discussed above had occurred at the beginning of
each period presented. The unaudited pro forma financial information is not
necessarily indicative of what the actual results of operations would have
been had the acquisition occurred at the beginning of each period
presented, nor does it purport to indicate the results of future
operations.
Six Months Ended September 30,
1999 1998
------------- -------------
Pro Forma Information:
Revenues, net of returns $145,867,868 $137,160,632
Net income 5,888,364 5,222,609
3. INVENTORIES - Inventories are summarized as follows:
September 30, March 31, September 30,
1999 1999 1998
--------------------------------------------------------------------------
Wholesale $18,763,400 $25,944,411 $17,185,210
College bookstores 31,323,686 21,400,003 29,623,300
Complementary services 3,254,223 2,534,147 2,180,881
--------------------------------------------------------------------------
Inventories $53,341,309 $49,878,561 $48,989,391
==========================================================================
4. LONG-TERM DEBT - The Company's indebtedness includes a bank-administered
senior credit facility (the "Senior Credit Facility") provided through a
syndicate of lenders. The facility is comprised of a $27.5 million term
loan (the "Tranche A Loan"), a $32.5 million term loan (the "Tranche B
Loan") and a $50.0 million revolving credit facility (the "Revolving Credit
Facility"). The Revolving Credit Facility expires on March 31, 2004.
6
<PAGE>
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, up to a maximum of $50.0
million. The borrowing base at September 30, 1999 was $47.9 million. The
interest rate on the Senior Credit Facility is prime plus an applicable
margin of up to 1.50% or, on Eurodollar borrowings, LIBOR plus an
applicable margin of up to 2.50%. The Senior Credit Facility requires
excess cash flows as defined in the credit agreement dated February 13,
1998 (the "Credit Agreement") to be applied initially towards prepayment of
the term loans and then utilized to permanently reduce commitments under
the Revolving Credit Facility. The fiscal 1999 excess cash flow payment due
September 29, 1999 was waived by the lenders. Additional indebtedness
includes $110.0 million face amount of 8.75% senior subordinated notes due
2008 (the "Senior Subordinated Notes").
5. SEGMENT INFORMATION - The following segment reporting information is
provided in accordance with SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION.
The Company's operating segments are determined based on the way that
management organizes the segments for making operating decisions and
assessing performance. Management has organized the Company's segments
based upon differences in products and services provided. The Company has
three reportable segments: wholesale operations, college bookstore
operations and complementary services. The wholesale operations segment
consists primarily of selling used textbooks to college bookstores, buying
them back from students or college bookstores at the end of each school
semester and then reselling them to college bookstores. The college
bookstore operations segment encompasses the operating activities of the
Company's 87 college bookstores located on or adjacent to college campuses.
The complementary services segment includes book-related services such as a
centralized buying service, distance education materials, and computer
hardware and software.
The Company accounts for intersegment sales as if the sales were to third
parties (at current market prices). With the exception of cash and cash
equivalents, certain receivables and other assets, and inventories, assets,
net interest expense, and taxes are not allocated between the Company's
segments; instead, such balances are accounted for in a corporate
administrative division. The following table provides selected information
about profit or loss on a segment basis for the quarter and six months
ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Wholesale Bookstore Complementary
Operations Operations Services Total
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Quarter ended September 30, 1999:
External customer revenues $ 38,773,891 $ 68,204,799 $ 4,633,959 $ 111,612,649
Intersegment revenues 8,000,713 70,853 470,153 8,541,719
Depreciation and amortization expense 71,880 1,601,522 526,426 2,199,828
Income (loss) before interest and taxes 15,967,523 9,561,099 (662,153) 24,866,469
Quarter ended September 30, 1998:
External customer revenues $ 39,470,120 $ 52,720,955 $ 2,821,381 $ 95,012,456
Intersegment revenues 5,995,734 - 386,710 6,382,444
Depreciation and amortization expense 72,268 732,273 423,006 1,227,547
Income (loss) before interest and taxes 13,913,521 8,804,930 (500,854) 22,217,597
Six Months ended September 30, 1999:
External customer revenues $ 55,177,974 $ 81,260,086 $ 7,571,754 $ 144,009,814
Intersegment revenues 12,888,326 70,853 658,928 13,618,107
Depreciation and amortization expense 142,457 2,660,320 988,622 3,791,399
Income (loss) before interest and taxes 20,677,776 5,051,598 (1,316,924) 24,412,450
Six Months Ended September 30, 1998:
External customer revenues $ 54,402,846 $ 64,905,894 $ 5,367,708 $ 124,676,448
Intersegment revenues 10,119,939 - 610,308 10,730,247
Depreciation and amortization expense 143,535 1,465,710 846,524 2,455,769
Income (loss) before interest and taxes 18,660,773 5,370,318 (1,234,095) 22,796,996
</TABLE>
7
<PAGE>
The following table reconciles segment information presented above with
information as presented in the financial statements for the quarter and
six months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Quarter Ended September 30, Six Months Ended September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Total for reportable segments $ 120,154,368 $ 101,394,900 $157,627,921 $135,406,695
Elimination of intersegment revenues (8,541,719) (6,382,444) (13,618,107) (10,730,247)
------------- ------------- ------------- -------------
Total $ 111,612,649 $ 95,012,456 $144,009,814 $124,676,448
============= ============= ============= =============
Depreciation and Amortization Expense:
Total for reportable segments $ 2,199,828 $ 1,227,547 $ 3,791,399 $ 2,455,769
Corporate administration 527,099 902,991 1,109,270 1,971,104
------------- ------------- ------------- -------------
Total $ 2,726,927 $ 2,130,538 $ 4,900,669 $ 4,426,873
============= ============= ============= =============
Income Before Interest and Taxes:
Total for reportable segments $ 24,866,469 $ 22,217,597 $ 24,412,450 $ 22,796,996
Unallocated corporate
administrative costs (1,820,666) (1,755,204) (3,553,760) (3,672,743)
------------- ------------- ------------- -------------
Income before interest and taxes 23,045,803 20,462,393 20,858,690 19,124,253
Interest expense, net (4,445,204) (4,472,170) (8,920,310) (9,032,360)
------------- ------------- ------------- -------------
Income before income taxes $ 18,600,599 $ 15,990,223 $ 11,938,380 $ 10,091,893
============= ============= ============= =============
</TABLE>
The Company's revenues are attributed to countries based on the location of
the customer. Substantially all revenues generated are attributable to
customers located within the United States.
6. ACCOUNTING STANDARDS NOT ADOPTED - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES, which establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
Statement becomes effective, and will be adopted by the Company, in the
first quarter of fiscal 2002. The impact on the Company's financial
position and results of operations is not expected to be material.
7. SUBSEQUENT EVENT - Effective November 12, 1999, the Company acquired
certain assets and liabilities (as defined in the Agreement of Sale) of
Michigan College Book Company, Inc. and Ned's Berkeley Book Company, Inc.,
independent college bookstore operations under common ownership with 11
retail bookstores located in Michigan and California. The gross purchase
price, including the assumption of liabilities, is estimated to be $10.4
million. The net purchase price, which reflects average net working
capital, is estimated to be $9.8 million. This acquisition will be
accounted for under the purchase method of accounting and any excess cost
over fair value of net assets acquired will be recorded as goodwill and
amortized over a period of three years.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED WITH QUARTER ENDED SEPTEMBER 30, 1998.
REVENUES. Revenues for the quarters ended September 30, 1999 and 1998 and the
corresponding increase (decrease) in revenues were as follows:
Increase (Decrease)
-----------------------
1999 1998 Amount Percentage
-------------- ------------- ------------ ----------
Wholesale operations $ 46,774,604 $45,465,854 $ 1,308,750 2.9%
College bookstore operations 68,275,652 52,720,955 15,554,697 29.5%
Complementary services 5,104,112 3,208,091 1,896,021 59.1%
Intercompany eliminations (8,541,719) (6,382,444) (2,159,275) 33.8%
--------------- ----------- ------------ ----------
$111,612,649 $95,012,456 $16,600,193 17.5%
=============== =========== ============ ==========
The increase in wholesale revenues for the quarter ended September 30, 1999 was
due primarily to publisher price increases. The increase in college bookstore
revenues was attributable to the net addition of 28 new college bookstores
either through acquisition or startup since July 1, 1998, including 17 new
bookstores added through the Triro, Inc. acquisition, which occurred effective
June 4, 1999. Of the $15.6 million increase in college bookstore revenues, $14.6
million was attributable to new college bookstores with the remainder accounted
for by a 3.1% increase in same store revenues. Complementary services revenues
increased primarily due to growth in the Company's distance education and system
sales programs. As the Company's wholesale and college bookstore operations have
grown, the Company's intercompany transactions have also increased.
GROSS PROFIT. Gross profit for the quarter ended September 30, 1999 increased
$6.9 million, or 19.6%, to $42.3 million from $35.4 million for the quarter
ended September 30, 1998. This increase was primarily due to higher revenues,
combined with an increase in gross margin percent. Gross margin for the quarter
ended September 30, 1999 increased to 37.9% from 37.2% for the quarter ended
September 30, 1998 despite an increasing proportion of sales coming from college
bookstore operations, which historically have had lower margins than wholesale
and complementary services operations. This increase was primarily due to an
increase in used textbook sales through the Company's bookstores, which generate
a consolidated average gross margin of 58.0% compared to an average gross margin
of 37.0% for external wholesale sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the quarter ended September 30, 1999 increased $3.6
million, or 26.9%, to $16.8 million from $13.2 million for the quarter ended
September 30, 1998. Selling, general and administrative expenses as a percentage
of revenues were 15.1% and 13.9% for the quarters ended September 30, 1999 and
September 30, 1998, respectively. The increase in expenses resulted primarily
from the expected higher expense base associated with the Company's expansion of
its operations through bookstore acquisitions and startups.
AMORTIZATION EXPENSE. Amortization expense for the quarter ended September 30,
1999 increased $0.5 million, or 31.6%, to $2.1 million from $1.6 million for the
quarter ended September 30, 1998. This increase was the result of additional
amortization of goodwill related to recent acquisitions, including Triro, Inc.,
and was partially offset by a non-compete agreement becoming fully-amortized in
August, 1998.
INCOME TAXES. The Company's effective tax rate for the quarter ended September
30, 1999 was 40.6% as compared to 38.8% for the quarter ended September 30,
1998. This increase in expense was primarily the result of non-deductible
amortization on goodwill associated with the Triro, Inc. acquisition.
9
<PAGE>
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH SIX MONTHS ENDED SEPTEMBER 30,
1998.
REVENUES. Revenues for the six months ended September 30, 1999 and 1998 and the
corresponding increase (decrease) in revenues were as follows:
Increase (Decrease)
-----------------------
1999 1998 Amount Percentage
-------------- ------------- ------------ ----------
Wholesale operations $ 68,066,300 $ 64,522,785 $ 3,543,515 5.5%
College bookstore operations 81,330,939 64,905,894 16,425,045 25.3%
Complementary services 8,230,682 5,978,016 2,252,666 37.7%
Intercompany eliminations (13,618,107) (10,730,247) (2,887,860) 26.9%
-------------- ------------- ------------ ----------
$144,009,814 $124,676,448 $19,333,366 15.5%
============== ============= ============ ==========
The increase in wholesale revenues for the six months ended September 30, 1999
was due primarily to publisher price increases and a two percent increase in
units shipped. The increase in college bookstore revenues was attributable to
the net addition of 28 new college bookstores either through acquisition or
startup since April 1, 1998, including 17 new bookstores added through the
Triro, Inc. acquisition, which occurred effective June 4, 1999. Of the $16.4
million increase in college bookstore revenues, $15.8 million was attributable
to new college bookstores with the remainder accounted for by a 2.1% increase in
same store revenues. Same store revenues were up despite lower general
merchandise sales at stores located near colleges that achieved prominent
collegiate athletic championships during 1998. Complementary services revenues
increased primarily due to growth in the Company's distance education and system
sales programs. As the Company's wholesale and college bookstore operations have
grown, the Company's intercompany transactions have also increased.
GROSS PROFIT. Gross profit for the six months ended September 30, 1999 increased
$7.2 million, or 15.1%, to $55.1 million from $47.9 million for the six months
ended September 30, 1998. This increase was primarily due to higher revenues,
combined with relatively stable gross margins. Gross margin for the six months
ended September 30, 1999 decreased slightly to 38.3% from 38.4% for the six
months ended September 30, 1998. The Company was able to maintain stable margins
despite an increasing proportion of sales coming from college bookstore
operations, which historically have had lower margins than wholesale and
complementary services operations. That impact was offset primarily due to an
increase in used textbook sales through the Company's bookstores, which generate
a consolidated average gross margin of 58.0% compared to an average gross margin
of 37.0% for external wholesale sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the six months ended September 30, 1999 increased
$4.9 million, or 19.4%, to $29.9 million from $25.0 million for the six months
ended September 30, 1998. Selling, general and administrative expenses as a
percentage of revenues were 20.8% and 20.1% for the six months ended September
30, 1999 and September 30, 1998, respectively. The increase in expenses resulted
primarily from the expected higher expense base associated with the Company's
expansion of its operations through bookstore acquisitions and startups.
Additionally, the Company incurred all severance costs associated with the
resignation of the Company's former chief financial officer in June, 1999.
AMORTIZATION EXPENSE. Amortization expense for the six months ended September
30, 1999 increased $0.3 million, or 9.7%, to $3.7 million from $3.4 million for
the six months ended September 30, 1998. This increase was the result of
additional amortization of goodwill related to recent acquisitions, including
Triro, Inc., and was partially offset by a non-compete agreement becoming
fully-amortized in August, 1998.
INCOME TAXES. The Company's effective tax rate for the six months ended
September 30, 1999 was 45.0% as compared to 41.9% for the six months ended
September 30, 1998. This increase in expense was primarily the result of
non-deductible amortization on goodwill associated with the Triro, Inc.
acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity requirements are for debt service under
the Senior Credit Facility, the Senior Subordinated Notes and other outstanding
indebtedness, for working capital, and for capital expenditures. The Company has
historically funded these requirements primarily through internally generated
cash flow and funds borrowed under the Company's credit facility. At September
30, 1999, the Company's total indebtedness was approximately $168.6 million,
consisting of $57.8 million in Term Loans, $110.0 million of Senior Subordinated
Notes, and $0.8 million of other indebtedness, including capital lease
obligations.
10
<PAGE>
Principal and interest payments under the Senior Credit Facility and the
Senior Subordinated Notes represent significant liquidity requirements for the
Company. Under the terms of the Tranche A and B Loans, the Company is required
to make principal payments totaling approximately $3.1 million in fiscal 2000,
$4.4 million in fiscal 2001, $6.3 million in fiscal 2002, $6.8 million in fiscal
2003, $8.5 million in fiscal 2004, $11.2 million in fiscal 2005 and $18.4
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 fiscal 1999 excess cash flow payment due September
29, 1999 was waived by the lenders. Loans under the Senior Credit Facility bear
interest at floating rates based upon the interest rate option selected by the
Company. The Senior Subordinated Notes require semi-annual interest payments at
a fixed rate of 8.75% and mature on February 15, 2008.
The Company's capital expenditures were $1.1 million and $1.9 million
for the six months ended September 30, 1999 and 1998, respectively. The Company
estimates that for fiscal 2000, approximately $2.5 million of capital
expenditures will be required, primarily for maintenance. Capital expenditures
consist primarily of bookstore opening costs, bookstore renovations, computer
upgrades and miscellaneous maintenance requirements. The Company's ability to
make capital expenditures is subject to certain restrictions under the Senior
Credit Facility.
Business acquisition expenditures were $15.9 million for the six months
ended September 30, 1999. Such expenditures included the acquisition of Triro,
Inc. and two college bookstores in Florida. There were no business acquisition
expenditures in the six months ended September 30, 1998.
The Company's principal sources of cash to fund its normal future
liquidity needs will be net cash from operating activities and borrowings under
the Revolving Credit Facility. Usage of the Revolving Credit Facility to meet
the Company's liquidity needs fluctuates throughout the year due to the
Company's distinct buying and selling periods, increasing substantially at the
end of each semester (May and December). Net cash flows from operating
activities for the six months ended September 30, 1999 were $26.3 million, an
increase of $10.5 million from $15.8 million for the six months ended September
30, 1998. This increase was primarily due to growth in accounts payable. The
acquisition of certain assets and liabilities of Michigan College Book Company,
Inc. and Ned's Berkeley Book Company, Inc. was originally funded by available
cash. The Company anticipates that approximately $4.0 million of the purchase
price will ultimately be funded by proceeds from the issuance of additional
shares of NBC's Class A common stock to certain shareholders, including HWH
Capital Partners, L.P. and members of senior management. Future acquisitions, if
any, may require additional debt or equity financing.
Access to the Company's principal sources of cash is subject to various
restrictions. The availability of additional borrowings under the Revolving
Credit Facility is subject to the calculation of a borrowing base which at any
time is equal to a percentage of eligible accounts receivable and inventory, up
to a maximum of $50.0 million. The Senior Credit Facility restricts the
Company's ability to make loans or advances and pay dividends, except that,
among other things, the Company may pay dividends to NBC (i) after August 15,
2003 in an amount not to exceed the amount of interest required to be paid on
NBC's Senior Discount Debentures and (ii) to pay corporate overhead expenses not
to exceed $250,000 per year and any taxes due by NBC. The indenture governing
the Senior Subordinated Notes (the "Indenture") restricts the ability of the
Company and its Restricted Subsidiaries (as defined in the Indenture) to pay
dividends or make other Restricted Payments (as defined in the Indenture) to
their respective stockholders, subject to certain exceptions, unless certain
conditions are met, including that (i) no default under the Indenture shall have
occurred and be continuing, (ii) the Company shall be permitted by the Indenture
to incur additional indebtedness and (iii) the amount of the dividend or payment
may not exceed a certain amount based on, among other things, the Company's
consolidated net income. Such restrictions are not expected to impact the
Company's ability to meet its cash obligations.
As of September 30, 1999, the Company could borrow up to $47.9 million
under the Revolving Credit Facility. The Revolving Credit Facility was unused at
September 30, 1999. In conjunction with certain bookstore acquisitions, the
Company established irrevocable standby letters of credit for $142,000 which
expire between October, 1999 and June, 2000. Amounts available under the
Revolving Credit Facility may be used for working capital and general corporate
purposes (including up to $10.0 million for letters of credit), subject to
certain limitations contained in the Senior Credit Facility.
11
<PAGE>
SEASONALITY
The Company's wholesale and bookstore operations experience two distinct
selling periods and the wholesale operations experience two distinct buying
periods. The peak selling periods for the wholesale operations occur prior to
the beginning of each school semester in August and December. The buying periods
for the wholesale operations occur at the end of each school semester in late
December and May. In fiscal 1999, approximately 45% of the Company's annual
revenues occurred in the second fiscal quarter (July-September), while
approximately 25% of the Company's annual revenues occurred in the fourth fiscal
quarter (January-March). The primary selling periods for the bookstore
operations are in September and January. Accordingly, the Company's working
capital requirements fluctuate throughout the year, increasing substantially at
the end of each semester, in May and December, as a result of the buying
periods. The Company funds its working capital requirements primarily through a
revolving credit facility, which historically has been repaid with cash provided
from operations.
IMPACT OF INFLATION
The Company's results of operations and financial condition are
presented based upon historical costs. While it is difficult to accurately
measure the impact of inflation due to the imprecise nature of the estimates
required, the Company believes that the effects of inflation, if any, on its
results of operations and financial condition have not been material. However,
there can be no assurance that during a period of significant inflation, the
Company's results of operations would not be adversely affected.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
programs may recognize a date using "00" as the year 1900 rather than the year
2000 (the "Year 2000 Issue"). This problem could cause a system failure or
miscalculations resulting in disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar routine business activities.
The Company has completed an assessment of the impact of the Year 2000
Issue on its operations, and has been modifying and will continue to modify and
replace portions of its software so that its internal computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company has been addressing the Year 2000 Issue consistently as part of its
regular program of updating and rewriting its internal corporate applications
during the last eight years. As a result, all of the Company's own 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 Company has identified and evaluated 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 have been developed to minimize the effect of any such disruptions on
day-to-day operations.
The Company has also distributed questionnaires to its vendors to assess
exposure to vendors failing to be Year 2000 compliant. Based upon responses to
such questionnaires, discussions with certain vendors, and information provided
in trade publications, the Company believes that its vendors are taking steps to
address the Year 2000 Issue. Nonetheless, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be corrected
in a timely manner.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Quarterly Report on Form 10-Q contains or incorporates by reference
certain statements that are not historical facts, including, most importantly,
information concerning possible or assumed future results of operations of the
Company and statements preceded by, followed by or that include the words "may,"
"believes," "expects," "anticipates," or the negation thereof, or similar
expressions, which constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). All
statements which address operating performance, events or developments that are
expected or anticipated to occur in the future, including statements relating to
volume and revenue growth, earnings per share growth or statements expressing
general optimism about future operating results, are forward-looking statements
within the meaning of the Reform Act. Such forward-looking statements involve
12
<PAGE>
risks, uncertainties and other factors which may cause the actual performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. For those statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Reform Act. Several
important factors could affect the future results of the Company and could cause
those results to differ materially from those expressed in the forward-looking
statements contained herein. The factors that could cause actual results to
differ materially include, but are not limited to, the following: increased
competition; ability to integrate recent acquisitions; loss or retirement of key
members of management; increases in the Company's cost of borrowing or inability
or unavailability of additional debt or equity capital; inability to purchase a
sufficient supply of used textbooks; changes in pricing of new and/or used
textbooks; changes in general economic conditions and/or in the markets in which
the Company competes or may, from time to time, compete; the impact of the
Internet on the Company's operations; 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk exposure is, and is expected to continue to
be, fluctuation in LIBOR interest rates. Of the $168.6 million in long-term debt
and capital lease obligations outstanding at September 30, 1999, approximately
$57.8 million is subject to fluctuations in the LIBOR rate. As provided in the
Company's Senior Credit Facility, exposure to interest rate fluctuations is
managed by maintaining fixed interest rate debt (primarily the Senior
Subordinated Notes) and by entering into interest rate swap agreements to
effectively convert certain variable rate debt into fixed rate debt. The Company
has separate five-year amortizing interest rate swap agreements with two
financial institutions whereby the Company's variable rate Tranche A and B Term
Loans have been effectively converted into debt with a fixed LIBOR rate of
5.815% plus an applicable margin (as defined in the Credit Agreement). The
current notional amount under each agreement is approximately $28.9 million.
Such notional amounts are reduced periodically by amounts equal to the scheduled
principal payments on the Tranche A and B Term Loans. The Company is exposed to
credit loss in the event of nonperformance by the counterparties to the interest
rate swap agreements. The Company anticipates the counterparties will be able to
fully satisfy their obligations under the agreements.
Certain quantitative market risk disclosures have changed significantly since
March 31, 1999 as a result of an upward movement in interest rates. The
following table reflects significant changes in the risks disclosed at March 31,
1999. Weighted average variable rates are based on implied forward rates in the
yield curve as of the date specified.
September 30, March 31,
1999 1999
-------------- --------------
Fair Values:
Fixed rate debt $ 108,004,874 $ 112,061,953
Interest rate swaps 700,900 (564,380)
Overall Weighted Average Interest Rates:
Variable rate debt 8.85% 8.12%
Interest rate swap receive rate 6.20% 5.54%
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement of Sale dated as of September 30, 1999 between and among
Nebraska Book Company, Inc., Michigan College Book Company, Inc.,
Ned's Berkeley Book Company, Inc., Ned Shure, Fred Shure, and Jack
Barenfanger, filed as Exhibit 2.1 to Nebraska Book Company, Inc. Form
8-K dated November 12, 1999, is incorporated herein by reference.
10.1 Memorandum of Understanding, dated as of July 1, 1999 between Nebraska
Book Company, Inc. and Alan Siemek, Chief Financial Officer
27 Financial Data Schedule [EDGAR filing only]
(b) Reports On Form 8-K
Current Report on Form 8-K/A filed August 3, 1999 reporting the acquisition
of Triro, Inc. and submitting audited financial statements of Triro, Inc.
for the years ended March 31, 1999 and 1998 and unaudited pro forma
financial information as of and for the year ended March 31, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized in the City of Lincoln, Nebraska, on
November 12, 1999.
NEBRASKA BOOK COMPANY, INC.
/S/ Mark W. Oppegard
-----------------------------
Mark W. Oppegard
President, Chief Executive Officer and
Director
/S/ Alan G. Siemek
-----------------------------
Alan G. Siemek
Treasurer, Chief Financial
Officer and Assistant Secretary
14
MEMORANDUM OF UNDERSTANDING
This MEMORANDUM OF UNDERSTANDING (this "Memorandum") dated as of
July 1, 1999, sets forth the mutual and binding understanding of Alan Siemek
(the "Executive") regarding the material terms of employment of Executive by
Nebraska Book Company, Inc. (the "Company"). For good and fair value and
consideration, the parties agree as follows:
o POSITION:
Executive shall be employed as Chief Financial Officer of the Company.
o TERM:
The term of Executive's employment hereunder (the "Term") shall be from
the date hereof to March 31, 2001, unless extended or earlier terminated
in accordance with this Memorandum or otherwise by agreement of the
parties. The Term shall be automatically extended for additional periods
of one year each unless either party gives at least 120 day prior
written notice to the other of the intention to terminate the
Executive's employment hereunder at the end of the then current Term.
o BASE SALARY:
Executive will be paid a base salary at the rate of $155,000 per annum.
Increases in base salary for Executive shall be determined by the Board
of Directors of the Company (the "Board") after due consideration of the
recommendation of the Chief Executive Officer of the Company (the
"CEO"). Increases in base salary thereafter shall be determined annually
in the same manner.
o SIGNING BONUS:
Executive shall receive a Signing Bonus of $40,000 by July 10, 1999.
o INCENTIVE BONUSES:
Executive shall be afforded the opportunity to earn an Incentive Bonus
with respect to each of fiscal years 2000 and 2001 based upon the
attainment of financial objectives established by the Board (or a
committee thereof), following consideration of the recommendation of the
CEO.
o STOCK OWNERSHIP:
Executive shall purchase 3,177 shares of the Common Stock (the
"Purchased Shares") of NBC Acquisition Corp. ("NBC Acquisition") for
$166,688.36. The Executive shall pay for the Purchased Shares by
delivery of $16,688.36 to NBC Acquisition and a Note in the principal
amount of $150,000 in the form attached hereto as Appendix A.
<PAGE>
o STOCK OPTIONS:
Executive shall be granted options (the "Original Options") to purchase
6,353 shares of the Common Stock of NBC Acquisition. The Original
Options shall have an exercise price of $52.46722 per share. The
Original Options shall be exercisable as to 25% of the shares covered
thereby on October 1, 1999, and shall be exercisable as to an additional
25% of the shares covered thereby on each October 1st, 2000, 2001 and
2002, subject to Executive's continued employment with the Company on
such anniversary dates. Customary terms and conditions shall apply to
the Original Options.
For each of fiscal years 2000 and 2001, Executive shall be granted
additional options to acquire a number of shares of Common Stock of NBC
Acquisition to be determined by the Board, subject to the achievement by
the Company of annual performance targets to be established by the
Board. The additional options shall have an exercise price equal to the
fair market value per share as of the date of grant. Each additional
option shall be exercisable as to 25% of the shares covered thereby on
the date of grant and shall become exercisable as to an additional 25%
of the shares covered thereby on each of the first three anniversaries
of the date of grant of such option, subject to Executive's continued
employment with the Company on such anniversary dates. Customary terms
and conditions shall apply to such additional options.
o TAG-ALONG AND DRAG-ALONG RIGHTS:
In the event of a sale of the majority of the common stock of NBC
Acquisition, all shares of Common Stock of NBC Acquisition owned by
Executive (including shares hereafter acquired) shall be subject to
tag-along and drag-along rights, entitling and obligating Executive to
sell his shares ratably with, and on the same terms and conditions as,
other selling shareholders.
o NON-TRANSFERABILITY OF STOCK:
Other than the sale described above, Executive shall not sell, transfer,
pledge or convey any Common Stock or options of NBC Acquisition other
than (i) for estate planning purposes, to a family trust or family
partnership for the benefit of immediate members of the Executive's
family, (ii) upon Executive's death, to his estate, (iii) upon
Executive's disability or (iv) after an initial public offering of
Common Stock of NBC Acquisition, subject in each case (except iv) to the
tag-along and drag-along provisions of the immediately preceding
paragraph.
2
<PAGE>
o TERMINATION OF EMPLOYMENT PRIOR TO THE EXPIRATION OF TERM:
-TERMINATION BY THE COMPANY WITHOUT "CAUSE": Executive entitled to (i)
continued payment of base salary for 12 months, (ii) payment of
Incentive Bonus when otherwise due in respect of year of termination,
prorated through date of termination, and (iii) continuation for 12
months of any health, life insurance and disability insurance benefits
provided to the Executive immediately before such termination.
-DEATH/DISABILITY: Executive entitled to (i) payment of base salary
through the date of termination plus an additional six (6) months, and
(ii) payment of Incentive Bonus when otherwise due in respect of year of
termination, prorated through date of termination.
-EXECUTIVE VOLUNTARY RESIGNATION OR TERMINATION BY COMPANY FOR
"CAUSE": Executive entitled to payment of base salary through date of
termination.
-CAUSE DEFINED: "Cause" shall mean the Executive willfully neglects his
duties hereunder, is convicted of any felony or misdemeanor involving
moral turpitude, is guilty of gross misconduct in connection with the
performance of his duties hereunder, or materially breaches affirmative
or negative covenants or undertakings hereunder (including under
Appendix A).
o NON-COMPETITION AND CONFIDENTIALITY AGREEMENTS:
Executive agrees to be bound by the terms of the Non-Competition and
Confidentiality Agreement attached as Appendix B, which is hereby
incorporated by reference.
o FRINGE BENEFITS AND EMPLOYEE BENEFITS:
Customary fringe benefit plans and entitlements as currently provided by
the Company to its senior executives.
o COUNTERPARTS AND ADDITIONAL DOCUMENTATION:
This Memorandum may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument, and the signature of any party
to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart.
NEBRASKA BOOK COMPANY, INC.
By______________________________
Its: President
EXECUTIVE
--------------------------------
<PAGE>
Appendix A
SECURED PROMISSORY NOTE
$150,000 September ___, 1999
FOR VALUE RECEIVED, the undersigned, Alan Siemek, (the "Borrower"),
hereby promises to pay to NBC Acquisition Corp., a Delaware corporation (the
"Payee"), the principal sum of One Hundred Fifty Thousand Dollars ($150,000),
together with interest on the unpaid balance of such principal amount from the
date hereof at a rate of interest equal to 5.25% per annum payable on or before
September ___, 2009. Payment of interest shall commence on December 31, 1999 and
shall be payable thereafter annually on December 31 of each year.
Payments of principal and interest on this Note shall be paid to the
Payee at its principal office in Lincoln, Nebraska (or where otherwise specified
by the Payee), by certified or official bank check or personal check (subject to
collection) payable to the Payee. If the date set for any payment of principal
or interest o this Note is a Saturday, Sunday or legal holiday, such payment
shall be due on the next succeeding business day.
As of the date hereof, the Borrower has purchased from Payee 3,177
shares of its common stock, $0.01 par value per share, $150,000 of which was
paid in the form of this Note. This Note shall be secured by a pledge of the
Collateral (as defined in the Pledge and Security Agreement (as defined below))
by the Borrower to Payee as provided in that certain Pledge and Security
Agreement (the "Security Agreement"), dated as of the date hereof, between the
Payee and the Borrower.
In the event that the Borrower fails to make complete payment of accrued
principal or interest when due under this Note, the Payee may accelerate this
Note and may, by written notice to the Borrower, declare the entire unpaid
principal amount and all such accrued and unpaid interest therein to be
immediately due and payable and, thereupon, the unpaid principal amount and all
such accrued and unpaid interest shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived by the Borrower; PROVIDED, HOWEVER, the Payee shall only
have recourse against the Borrower for payment of One Hundred Thousand Dollars
($100,000) of the principal owing under this Note.
<PAGE>
In case this Note shall become mutilated, defaced or apparently
destroyed, lost or stolen, upon the written request of the Payee, the Borrower
shall issue and execute a new Note in exchange and substitution for the
mutilated or defaced Note or in lieu of and substitution for the note so
apparently destroyed, lost or stolen. Thereafter, no amount shall be due and
payable or owing under the mutilated, defaced or apparently destroyed, lost or
stolen Note.
This Note may be prepaid in whole or in part (principal amount to be
prepaid, plus accrued interest thereon through date of prepayment) at any time
without penalty.
This Note may be assigned by the Payee to any of his affiliates, members
of his immediate family or trusts, partnerships or limited liability companies
established for their benefit.
The provisions of this Note shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
conflicts of law rules thereof.
IN WITNESS WHEREOF, this Note has been duly executed and delivered by
Borrower on the date first above written.
BORROWER
--------------------------------
Alan Siemek
<PAGE>
Appendix B
NON-COMPETITION AND CONFIDENTIALITY AGREEMENT
Capitalized terms used herein without definition shall have the respective
meanings specified in the Memorandum of Understanding dated as of July 1, 1999
between Nebraska Book Company, Inc., and Allan Siemek (the "Memorandum of
Understanding").
I. Executive acknowledges that (i) the principal business of the Company
is the wholesale distribution of used college textbooks and the ownership (or
management) of college bookstores (the "Company Business"); (ii) he is one of
the limited number of persons who will develop such business; (iii) the business
of the Company is national and international in scope; and (iv) his work for the
Company will bring him into close contact with confidential information not
readily available to the public. Executive covenants and agrees that:
A. NON-COMPETITION. During the term of Executive's employment by
the Company or any of its affiliates and for a period of three years following
the termination (whether for cause or otherwise) of Executive's employment with
the Company and all of its affiliates (the "Restricted Period"), Executive shall
not in the United States of America or in any foreign country, directly or
indirectly, (i) engage in the Company Business for his own account; (ii) enter
the employ of, or render any services to, any person engaged in such activities;
or (iii) become interested in any person engaged in the Company Business,
directly or indirectly, as an individual, partner, shareholder, officer,
director, principal, agent, employee, trustee, consultant or in any other
relationship or capacity; provided, however, that Executive may work for or own
a college bookstore, if the annual sales of the company that owns such bookstore
do not exceed $10,000,000, and Executive may own, directly or indirectly, solely
as an investment, securities of any person which are traded on any national
securities exchange if Executive (a) is not a controlling person of, or a member
of a group which controls, such person and (b) does not, directly or indirectly,
own 1% or more of any class of securities of such person.
B. CONFIDENTIAL INFORMATION. During the term of Executive's
employment by the Company or any of its affiliates and during the Restricted
Period, Executive shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others except in connection with the
business and affairs of the Company, all confidential matters of the Company and
its affiliates, including, without limitation, trade "know-how," secrets,
consultant contracts, customer lists, subscription lists, details of consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans, new
personnel acquisition plans, methods of manufacture, technical processes,
designs and design projects, inventions and research projects and other business
affairs of the Company and its affiliates learned by Executive heretofore or
hereafter, and shall not disclose them to anyone outside of the Company and its
affiliates, either during or after employment by the Company or any of its
affiliates, except (i) as required in the course of performing duties hereunder,
(ii) with the Company's express written consent, (iii) if such information is or
becomes generally known by the public other than as a result of a breach hereof
or of a similar Non-Competition and Confidentiality Agreement, or (iv) as
required by law or judicial or administrative process.
<PAGE>
C. PROPERTY OF THE COMPANY. All memoranda, notes, lists, records
and other documents (and all copies thereof) made or compiled by Executive or
made available to Executive concerning the business of the Company or any of its
affiliates shall be the Company's property and shall be delivered to the Company
promptly upon the termination of Executive's employment with the Company or any
of its affiliates or at any other time on request.
D. EMPLOYEES OF THE COMPANY. During the Restricted Period,
Executive shall not, directly or indirectly, hire, solicit or encourage to leave
the employment of the Company or any of its affiliates, any employee of the
Company or its affiliates or hire any such employee who has left the employment
of the Company or any of its affiliates within one year of the termination of
such employee's employment with the Company and all of its affiliates.
E. CONSULTANTS OF THE COMPANY. During the Restricted Period,
Executive shall not, directly or indirectly, hire, solicit or encourage to cease
to work with the Company or any of its affiliates any consultant who provides
consulting services material to the operation of the Company Business, then
under contract with the Company or any of its affiliates.
II. RIGHTS AND REMEDIES UPON BREACH. If Executive breaches, or threatens
to commit a breach of, any of the provisions of Paragraph I (the "Restrictive
Covenants"), the Company shall have the following rights and remedies, each of
which rights and remedies shall be independent of the other and severally
enforceable, and all of which rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
A. SPECIFIC PERFORMANCE. The right and remedy to have the
Restrictive Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
B. ACCOUNTING. The right and remedy to require Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits") derived or
received by Executive as the result of any transactions constituting a breach of
any of the Restrictive Covenants, and Executive shall account for and pay over
such Benefits to the Company.
C. DISCONTINUANCE OF PAYMENT. The right and remedy to discontinue
the payment of any amounts owing under the Memorandum of Understanding.
III. SEVERABILITY OF COVENANTS. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.
IV. BLUE-PENCILLING. If any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration of
such provision or the area covered thereby, such court shall have the power to
reduce the duration or area of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001056758
<NAME> NEBRASKA BOOK COMPANY, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 22,588,568
<SECURITIES> 0
<RECEIVABLES> 33,310,185
<ALLOWANCES> 175,899
<INVENTORY> 53,341,309
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<DEPRECIATION> 9,183,529
<TOTAL-ASSETS> 180,888,962
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<BONDS> 164,801,842
0
0
<COMMON> 100
<OTHER-SE> (30,624,694)
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<SALES> 144,009,814
<TOTAL-REVENUES> 144,009,814
<CGS> 88,859,397
<TOTAL-COSTS> 88,859,397
<OTHER-EXPENSES> 34,309,937
<LOSS-PROVISION> (18,210)
<INTEREST-EXPENSE> 8,920,310
<INCOME-PRETAX> 11,938,380
<INCOME-TAX> 5,368,901
<INCOME-CONTINUING> 6,569,479
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,569,479
<EPS-BASIC> 65,695
<EPS-DILUTED> 65,695
</TABLE>
