UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ______
COMMISSION FILE NUMBER: 333-48221
NEBRASKA BOOK COMPANY, INC.
(Exact name of registrant as specified in its charter)
KANSAS 47-0549819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4700 SOUTH 19TH STREET
LINCOLN, NEBRASKA 68501-0529
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (402) 421-7300
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.YES [ X] NO [ ]
TOTAL NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 2, 2000: 100
SHARES
TOTAL NUMBER OF PAGES: 13
EXHIBIT INDEX: PAGE 13
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEBRASKA BOOK COMPANY, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
(UNAUDITED)
-------------------------------------------------------------------------------------------------
June 30, March 31, June 30,
2000 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,573,970 $ 4,450,887 $ 5,270,567
Receivables 27,242,169 24,248,183 22,648,480
Inventories 81,249,866 61,809,630 73,852,504
Recoverable income tax 3,221,878 - 3,354,217
Deferred income taxes 1,598,793 1,598,793 1,491,693
Prepaid expenses and other assets 420,467 427,302 472,750
------------ ------------ ------------
Total current assets 120,307,143 92,534,795 107,090,211
PROPERTY AND EQUIPMENT 37,177,011 36,558,620 33,572,110
Less accumulated depreciation (11,478,128) (10,797,795) (8,589,721)
------------ ------------ ------------
25,698,883 25,760,825 24,982,389
GOODWILL AND OTHER INTANGIBLES, net of amortization 42,082,942 43,183,145 43,322,643
OTHER ASSETS 5,014,114 4,676,047 4,718,942
------------ ------------ ------------
$193,103,082 $166,154,812 $180,114,185
============ ============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 16,846,697 $ 16,145,566 $ 9,582,525
Accrued employee compensation and benefits 2,823,634 6,301,111 3,393,168
Accrued interest 3,703,800 1,349,224 3,798,990
Accrued expenses 330,195 819,010 648,474
Income tax payable - 553,893 -
Deferred revenue 625,231 552,251 457,693
Current maturities of long-term debt 4,769,334 4,456,324 6,042,442
Current maturities of capital lease obligations 28,498 59,181 131,587
Revolving credit facility 33,500,000 - 31,800,000
------------ ------------ ------------
Total current liabilities 62,627,389 30,236,560 55,854,879
LONG-TERM DEBT, net of current maturities 160,529,061 161,721,590 162,773,325
CAPITAL LEASE OBLIGATIONS, net of current maturities 44,407 64,856 159,139
OTHER LONG-TERM LIABILITIES 211,132 202,231 201,053
DUE TO PARENT 5,322,191 4,606,191 2,821,022
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 46,526,502 45,884,463 41,241,034
Accumulated deficit (82,157,700) (76,561,179) (82,936,367)
------------ ------------ ------------
Total stockholder's deficit (35,631,098) (30,676,616) (41,695,233)
------------ ------------ ------------
$193,103,082 $166,154,812 $180,114,185
============ ============ ============
</TABLE>
See notes to financial statements.
2
<PAGE>
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
-------------------------------------------------------------------------------
Three Months Ended June 30,
2000 1999
----------- -----------
REVENUES, net of returns $39,777,177 $32,299,891
COSTS OF SALES 24,595,859 19,577,106
----------- -----------
Gross profit 15,181,318 12,722,785
OPERATING EXPENSES:
Selling, general and administrative 16,086,634 12,977,447
Depreciation 533,052 585,985
Amortization 2,745,790 1,587,757
----------- -----------
19,365,476 15,151,189
----------- -----------
LOSS FROM OPERATIONS (4,184,158) (2,428,404)
OTHER EXPENSES (INCOME):
Interest expense 4,619,881 4,495,486
Interest income (21,662) (20,380)
Other income (491,718) (241,291)
----------- -----------
4,106,501 4,233,815
----------- -----------
LOSS BEFORE INCOME TAXES (8,290,659) (6,662,219)
INCOME TAX BENEFIT (2,694,138) (2,177,747)
----------- -----------
NET LOSS $(5,596,521) $(4,484,472)
=========== ===========
See notes to financial statements.
3
<PAGE>
NEBRASKA BOOK COMPANY, INC.
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDER'S DEFICIT
(UNAUDITED)
---------------------------------------------------------------------------------------------------
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, April 1, 1999 $100 $30,904,931 $(78,451,895) $(47,546,864)
Contributed capital - 10,336,103 - 10,336,103
Net loss - - (4,484,472) (4,484,472)
---- ----------- ----------- ------------
BALANCE, June 30, 1999 $100 $41,241,034 $(82,936,367) $(41,695,233)
==== ============ ============ ============
BALANCE, April 1, 2000 $100 $45,884,463 $(76,561,179) $(30,676,616)
Contributed capital - 642,039 - 642,039
Net loss - - (5,596,521) (5,596,521)
---- ----------- ------------ ------------
BALANCE, June 30, 2000 $100 $46,526,502 $(82,157,700) $(35,631,098)
==== =========== ============ ============
</TABLE>
See notes to financial statements.
4
<PAGE>
NEBRASKA BOOK COMPANY, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(UNAUDITED)
---------------------------------------------------------------------------------------------
Three Months Ended June 30,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,596,521) $ (4,484,472)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation 533,052 585,985
Amortization of intangibles 3,087,877 1,928,821
(Gain) Loss on disposal of assets 840 (9,515)
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables (2,993,986) (1,677,892)
Inventories (19,233,578) (18,995,883)
Recoverable income tax (3,221,878) (3,034,587)
Prepaid expenses and other assets 6,835 38,606
Other assets (413,425) (182,437)
Accounts payable 701,131 (644,420)
Accrued employee compensation and benefits (3,477,477) (676,482)
Accrued interest 2,354,576 2,372,481
Accrued expenses (488,815) (33,251)
Income taxes payable (553,893) (965)
Deferred revenue 72,980 81,137
Other long-term liabilities 8,901 9,979
Due to parent 716,000 543,756
------------ ------------
Net cash flows from operating activities (28,497,381) (24,179,139)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (477,258) (368,602)
Bookstore acquisitions, net of cash acquired (2,113,387) (15,837,358)
Proceeds from sale of property and equipment and other 107,859 18,711
Software development costs (108,138) (74,049)
------------ ------------
Net cash flows from investing activities (2,590,924) (16,261,298)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs - (32,477)
Principal payments on long-term debt (879,519) (441,560)
Principal payments on capital lease obligations (51,132) (10,722)
Net increase in revolving credit facility 33,500,000 31,800,000
Capital contribution 642,039 10,336,103
------------ ------------
Net cash flows from financing activities 33,211,388 41,651,344
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,123,083 1,210,907
CASH AND CASH EQUIVALENTS, Beginning of period 4,450,887 4,059,660
------------- ------------
CASH AND CASH EQUIVALENTS, End of period $ 6,573,970 $ 5,270,567
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 1,923,218 $ 1,781,941
Income taxes $ 365,633 $ 314,049
</TABLE>
See notes to financial statements.
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, 2000 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, 2000
included in the Company's Annual Report on Form 10-K.
2. INVENTORIES - Inventories are summarized as follows:
June 30, March 31, June 30,
2000 2000 1999
------------------------------------------------------------------------
Wholesale $35,725,548 $25,413,484 $35,968,945
College bookstores 41,221,728 31,137,643 34,747,571
Complementary services 4,302,590 5,258,503 3,135,988
------------------------------------------------------------------------
$81,249,866 $61,809,630 $73,852,504
========================================================================
3. LONG-TERM DEBT - The Company's indebtedness includes a bank-administered
senior credit facility (the "Senior Credit Facility") provided through a
syndicate of lenders. The facility is comprised of a $27.5 million term loan
(the "Tranche A Loan"), a $32.5 million term loan (the "Tranche B Loan") and
a $50.0 million revolving credit facility (the "Revolving Credit Facility").
The Revolving Credit Facility expires on March 31, 2004. Availability under
the Revolving Credit Facility is determined by the calculation of a
borrowing base that at any time is equal to a percentage of eligible
accounts receivable and inventory, up to a maximum of $50.0 million. The
borrowing base at June 30, 2000 was $50.0 million. The interest rate on the
Senior Credit Facility is prime plus an applicable margin of up to 1.50% or,
on Eurodollar borrowings, the Eurodollar rate 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. There was no excess cash flow payment obligation for fiscal 2000.
Additional indebtedness includes $110.0 million face amount of 8.75% senior
subordinated notes due 2008 (the "Senior Subordinated Notes").
4. SEGMENT 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
college semester and then reselling them to college bookstores. The college
bookstore operations segment encompasses the operating activities of the
Company's 100 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 primarily accounts for intersegment sales as if the sales were
to third parties (at current market prices). Assets (excluding cash and cash
equivalents, certain receivables and other assets, and inventories), 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 quarters ended June 30, 2000 and 1999:
6
<PAGE>
<TABLE>
<CAPTION>
College
Wholesale Bookstore Complementary
Operations Operations Services Total
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Quarter ended June 30, 2000:
External customer revenues $17,602,642 $17,186,070 $4,988,465 $39,777,177
Intersegment revenues 6,167,163 48,424 450,892 6,666,479
Depreciation and amortization expense 74,463 2,395,248 450,966 2,920,677
Income (loss) before interest and taxes 4,728,394 (4,637,651) (366,167) (275,424)
Quarter ended June 30, 1999:
External customer revenues $16,404,083 $13,055,287 $2,840,521 $32,299,891
Intersegment revenues 4,887,613 - 286,049 5,173,662
Depreciation and amortization expense 70,577 1,058,798 462,196 1,591,571
Income (loss) before interest and taxes 4,323,867 (3,044,434) (580,384) 699,049
</TABLE>
The following table reconciles segment information presented above with
information as presented in the financial statements for the quarters ended
June 30, 2000 and 1999:
Quarter Ended June 30,
2000 1999
------------ ------------
Revenues:
Total for reportable segments $ 46,443,656 $ 37,473,553
Elimination of intersegment revenues (6,666,479) (5,173,662)
------------ ------------
Financial statement total $ 39,777,177 $ 32,299,891
============ ============
Depreciation and Amortization Expense:
Total for reportable segments $ 2,920,677 $ 1,591,571
Corporate administration 358,165 582,171
------------ ------------
Financial statement total $ 3,278,842 $ 2,173,742
============ ============
Income (Loss) Before Interest and Taxes:
Total for reportable segments $ (275,424) $ 699,049
Corporate administrative costs (3,417,016) (2,886,162)
------------ ------------
Loss before interest and taxes (3,692,440) (2,187,113)
Interest expense, net (4,598,219) (4,475,106)
------------ ------------
Loss before income taxes $ (8,290,659) $ (6,662,219)
============ ============
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.
5. NEW ACCOUNTING STANDARDS - In December 1999, the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin No. 101, REVENUE
RECOGNITION, which provides guidance and interpretations on the recognition,
presentation, and disclosure of revenue in financial statements filed with
the SEC. Subsequently, Staff Accounting Bulletin No. 101B was issued
delaying the implementation date of Staff Accounting Bulletin No. 101 until
no later than the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. The impact on the Company's financial position and
results of operations is not expected to be material.
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.
6. RELATED PARTY TRANSACTIONS - During the first quarter of fiscal 2001, the
Company entered into several agreements related to its WebPRISM and
CampusHub E-commerce software capabilities with a newly created entity,
TheCampusHub.com, Inc., which is partially owned by NBC's majority owner.
Such agreements included an equity option agreement providing the Company
the opportunity to acquire 25% of the initial common shares outstanding of
TheCampusHub.com, Inc.; a management services agreement effective for a
period of three years that reimburses the Company for certain direct costs
incurred on behalf of TheCampusHub.com, Inc. and also pays the Company
$500,000 per year for certain shared management and administrative support
and space; and a technology sale and license agreement that provides for the
Company to license its E-commerce software capabilities to TheCampusHub.com,
Inc. for $500,000 per year over a period of three years and provides
7
<PAGE>
TheCampusHub.com, Inc. with an option to purchase such software capabilities
from the Company during that three year period. The Company's Senior Credit
Facility was amended in April, 2000 to provide for these transactions. At
June 30, 2000, revenues attributable to the management services and
technology sale and license agreements totaled $0.2 million and reimbursable
direct costs incurred on behalf of TheCampusHub.com totaled $0.1 million.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2000 COMPARED WITH QUARTER ENDED JUNE 30, 1999.
REVENUES. Revenues for the quarters ended June 30, 2000 and 1999 and the
corresponding increase (decrease) in revenues were as follows:
Increase (Decrease)
----------------------
2000 1999 Amount Percentage
----------- ------------ ---------- -----------
Wholesale operations $23,769,805 $21,291,696 $2,478,109 11.6%
College bookstore operations 17,234,494 13,055,287 4,179,207 32.0%
Complementary services 5,439,357 3,126,570 2,312,787 74.0%
Intercompany eliminations (6,666,479) (5,173,662) (1,492,817) 28.9%
----------- ------------ ---------- ---------
$39,777,177 $32,299,891 $7,477,286 23.1%
=========== ============= ========== =========
The increase in wholesale revenues for the quarter ended June 30, 2000 was due
primarily to publisher price increases and an increase in units shipped. The
increase in college bookstore revenues was attributable to the net addition of
33 new college bookstores either through acquisition or startup since April 1,
1999. Of the $4.2 million increase in college bookstore revenues, $4.0 million
was attributable to new college bookstores with the remainder accounted for by a
2.1% increase in same store revenues. Complementary services revenues increased
primarily due to growth in the Company's distance education program. As the
Company's wholesale and college bookstore operations have grown, the Company's
intercompany transactions have also increased.
GROSS PROFIT. Gross profit for the quarter ended June 30, 2000 increased $2.5
million, or 19.3%, to $15.2 million from $12.7 million for the quarter ended
June 30, 1999. This increase was primarily due to higher revenues, partially
offset by a decrease in gross margin percent. Gross margin for the quarter ended
June 30, 2000 decreased to 38.2% from 39.4% for the quarter ended June 30, 1999,
primarily due to the increased intercompany transactions previously discussed.
Such increased intercompany transactions effectively delay the recognition of
the wholesale margin on sales to the Company's college bookstore operations
until those textbooks are sold to the student.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the quarter ended June 30, 2000 increased $3.1
million, or 24.0%, to $16.1 million from $13.0 million for the quarter ended
June 30, 1999. Selling, general and administrative expenses as a percentage of
revenues were 40.4% and 40.2% for the quarters ended June 30, 2000 and 1999,
respectively. Approximately $2.0 million of the increase in expenses resulted
from the expected higher expense base associated with the Company's expansion of
its operations through bookstore acquisitions and startups. The Company has also
incurred higher corporate-level expense in the quarter ended June 30, 2000,
primarily due to additional personnel and other costs designed to help manage
its continued growth.
AMORTIZATION EXPENSE. Amortization expense for the quarter ended June 30, 2000
increased $1.1 million, or 72.9%, to $2.7 million from $1.6 million for the
quarter ended June 30, 1999. This increase was primarily the result of
additional amortization of goodwill related to recent acquisitions.
INCOME (LOSS) BEFORE INTEREST AND TAXES. Income (loss) before interest and taxes
for the quarters ended June 30, 2000 and 1999 and the corresponding increase
(decrease) in income (loss) before interest and taxes were as follows:
9
<PAGE>
Increase (Decrease)
----------------------
2000 1999 Amount Percentage
----------- ----------- ----------- ----------
Wholesale operations $ 4,728,394 $ 4,323,867 $ 404,527 9.4 %
College bookstore operations (4,637,651) (3,044,434) (1,593,217) (52.3)%
Complementary services (366,167) (580,384) 214,217 36.9 %
Corporate administration (3,417,016) (2,886,162) (530,854) (18.4)%
----------- ----------- ----------- -------
$(3,692,440) $(2,187,113) $(1,505,327) (68.8)%
=========== =========== =========== =======
The increase in wholesale income before interest and taxes was due primarily to
increased revenues. The loss before interest and taxes for college bookstore
operations increased primarily as a result of incremental goodwill amortization
expense of $1.2 million resulting from acquisitions. As described above,
corporate administrative costs have increased primarily as a result of costs
incurred to help manage the Company's growth.
INCOME TAXES. The Company's effective tax rate for the quarter ended June 30,
2000 was 32.5% as compared to 32.7% for the quarter ended June 30, 1999.
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, for capital expenditures and for certain
acquisitions. The Company has historically funded these requirements primarily
through internally generated cash flow and funds borrowed under the Company's
Revolving Credit Facility. At June 30, 2000, the Company's total indebtedness
was approximately $198.9 million, consisting of $54.8 million in Term Loans,
$110.0 million of Senior Subordinated Notes, $0.6 million of other indebtedness,
including capital lease obligations, and $33.5 million under the Revolving
Credit Facility.
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 $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.
There was no excess cash flow payment obligation for fiscal 2000. Loans under
the Senior Credit Facility bear interest at floating rates based upon the
interest rate option selected by the Company. The Senior Subordinated Notes
require semi-annual interest payments at a fixed rate of 8.75% and mature on
February 15, 2008.
The Company's capital expenditures were $0.5 million and $0.4 million for the
three months ended June 30, 2000 and 1999, respectively. Capital expenditures
consist primarily of leasehold improvements and furnishings for new bookstores,
bookstore renovations, computer upgrades and miscellaneous warehouse
improvements. 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 and $15.8 million for the
three months ended June 30, 2000 and 1999, respectively. The fiscal 2000
expenditures include primarily the acquisition of Triro, Inc. for $15.0 million,
net of cash acquired. Approximately $10.3 million of capital raised by NBC
through the issuance of 197,001 shares of NBC's Class A Common Stock to NBC's
majority owner and members of senior management was contributed to the Company
to assist in financing the acquisition of Triro, Inc. Future acquisitions, if
any, may require additional capital contributions.
During the first quarter of fiscal 2001, the Company entered into several
agreements related to its WebPRISM and CampusHub E-commerce software
capabilities with a newly created entity, TheCampusHub.com, Inc., which is
partially owned by NBC's majority owner. Such agreements included an equity
option agreement providing the Company the opportunity to acquire 25% of the
initial common shares outstanding of TheCampusHub.com, Inc.; a management
services agreement effective for a period of three years that reimburses the
Company for certain direct costs incurred on behalf of TheCampusHub.com, Inc.
and for certain shared management and administrative support and space; and a
technology sale and license agreement that provides for the Company to license
its E-commerce software capabilities to TheCampusHub.com, Inc. over a period of
three years and provides TheCampusHub.com, Inc. with an option to purchase such
software capabilities from the Company during that three year period. The
Company's Senior Credit Facility was amended in April, 2000 to provide for these
transactions.
10
<PAGE>
The Company's principal sources of cash to fund its future liquidity needs will
be 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 college semester
(May and December). Net cash flows used in operating activities for the three
months ended June 30, 2000 were $28.5 million, an increase of $4.3 million from
$24.2 million for the three months ended June 30, 1999. This increase was
primarily due to increased year-end bonuses, which are paid out in the first
quarter of the following fiscal year, and increased payout of salaries and wages
based upon one extra pay period in the quarter ended June 30, 2000.
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 affect the
Company's ability to meet its cash obligations.
As of June 30, 2000, the Company could borrow up to $50.0 million under the
Revolving Credit Facility. Of the amount available, $33.5 million was drawn by
the Company. 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 under the Senior
Credit Facility.
The Company believes that funds generated from operations, existing cash, and
borrowings under the Revolving Credit Facility will be sufficient to finance its
current operations, planned capital expenditures and internal growth for the
foreseeable future. Future acquisitions, if any, may require additional debt or
capital contributions.
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 college semester in August and December. The buying periods for the
wholesale operations occur at the end of each college semester in late December
and May. The primary selling periods for the bookstore operations are in
September and January. In fiscal 2000, approximately 42% of the Company's annual
revenues occurred in the second fiscal quarter (July-September), while
approximately 30% of the Company's annual revenues occurred in the fourth fiscal
quarter (January-March). Accordingly, the Company's working capital requirements
fluctuate throughout the year, increasing substantially at the end of each
college 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 will not be adversely affected.
"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
11
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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
to raise 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 and E-books 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 Eurodollar interest rates. Of the $198.9 million in long-term
debt and capital lease obligations outstanding at June 30, 2000, approximately
$88.3 million is subject to fluctuations in the Eurodollar 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 rate of 5.815% plus
an applicable margin (as defined in the Credit Agreement). The notional amount
under each agreement as of June 30, 2000 was approximately $27.4 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, 2000 as a result of market fluctuations and movement in interest
rates. The following table presents market risk disclosures that have changed
significantly since March 31, 2000:
June 30, March 31,
2000 2000
----------- -----------
Fair Values:
Fixed rate debt $85,413,076 $88,223,075
Interest rate swaps 1,586,705 1,735,657
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Second Amendment and Waiver, dated as of April 27, 2000, to the Credit
Agreement, dated as of February 13, 1998, among NBC Acquisition Corp.,
Nebraska Book Company, Inc., the Chase Manhattan Bank, and certain
other financial institutions.
27 Financial Data Schedule [EDGAR filing only]
(b) Reports On Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized in the City of Lincoln, Nebraska, on
August 2, 2000.
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
13
