SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): NOVEMBER 12, 1999
NEBRASKA BOOK COMPANY, INC.
(Exact name of registrant as specified in its charter)
KANSAS 333-48221 47-0549819
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
4700 SOUTH 19TH STREET
LINCOLN, NE 68501-0529
(Address of Principal executive offices)
(402) 421-7300
(Registrant's telephone number, including area code)
1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective November 12, 1999, Nebraska Book Company, Inc. (the
"Company"), a wholly-owned subsidiary of NBC Acquisition Corp. ("NBC"),
acquired certain assets and liabilities of Michigan College Book Company,
Inc. and Ned's Berkeley Book Company, Inc. (collectively referred to as
"Ned's Bookstores"), an independent college bookstore operation owned by Ned
and Fred Shure and Jack Barenfanger with 11 retail bookstores located in
Michigan and California. The gross purchase price, including the assumption
of liabilities and a covenant not to compete, was approximately $10.8
million. The net purchase price, which reflects average net working capital,
was approximately $10.2 million. The purchase price was determined based
upon arms length negotiations between the Company and Ned's Bookstores. The
Company will account for this acquisition under the purchase method of
accounting.
The acquisition of Ned's Bookstores was originally funded by available
cash. Subsequent to November 12, 1999, a portion of the purchase price was
funded through an approximately $4.6 million capital contribution from NBC.
NBC raised the $4.6 million in proceeds from the issuance of 87,922 shares
of its Class A Common Stock to certain shareholders, including HWH Capital
Partners, L.P. and members of senior management.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired (Pages 3-11)
Audited Financial Statements of Michigan College Book Company,
Inc. and Related Company:
Independent Auditors' Report
Combined Balance Sheet as of September 30, 1999
Combined Statement of Operations for the nine months ended
September 30, 1999
Combined Statement of Stockholders Equity for the nine months
ended September 30, 1999
Combined Statement of Cash Flows for the nine months ended
September 30, 1999
Notes to Combined Financial Statements
(b) Pro Forma Financial Information (Pages 12-20)
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1999
Notes to Unaudited Pro Forma Combined Balance Sheet
Unaudited Pro Forma Combined Statement of Operations for the six
months ended September 30, 1999 and year ended March 31, 1999
Notes to Unaudited Pro Forma Combined Statement of Operations
(c) 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*
- --------------------------------------------------------------------------------
* - Previously Filed
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Michigan College Book Company, Inc.
Ned's Berkeley Book Company, Inc.
Ypsilanti, Michigan
We have audited the accompanying combined balance sheet of Michigan College Book
Company, Inc. and related company (the "Company") as of September 30, 1999, and
the related combined statements of operations, stockholders equity, and cash
flows for the nine months ended September 30, 1999. The combined financial
statements include the accounts of Michigan College Book Company, Inc. and
related company, Ned's Berkeley Book Company, Inc. These companies are under
common ownership and common management. These financial statements are the
responsibility of the Companies management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of the Company as of
September 30, 1999, and the combined results of their operations and their
combined cash flows for the nine months ended September 30, 1999 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 29, 1999
3
<PAGE>
MICHIGAN COLLEGE BOOK COMPANY, INC. AND
RELATED COMPANY
COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,386,240
Receivables, net (Note C) 996,681
Inventories (Note E) 3,337,354
Prepaid expenses 32,311
-----------
Total current assets 5,752,586
-----------
PROPERTY AND EQUIPMENT (Note F) 1,046,215
Less accumulated depreciation (683,833)
-----------
362,382
-----------
Other assets 14,900
Long-term notes receivable, net (Note D) 1,769,602
-----------
$ 7,899,470
===========
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,459,778
Accrued expenses 574,828
Notes payable (Note G) 303,919
Notes payable with related parties (Note D) 544,999
-----------
Total current liabilities 6,883,524
-----------
COMMITMENTS (Note I)
STOCKHOLDERS EQUITY (Note A):
Common stock, voting, authorized 150,000 shares of 6,000
$1 par value; issued and outstanding 6,000 shares
Additional paid-in capital 60,168
Retained earnings 1,393,111
-----------
1,459,279
Less notes receivable from stockholders (Note D) (443,333)
-----------
Total stockholder's equity 1,015,946
-----------
$ 7,899,470
===========
See notes to combined financial statements.
4
<PAGE>
MICHIGAN COLLEGE BOOK COMPANY, INC. AND
RELATED COMPANY
COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
REVENUES, net of returns $17,494,169
COSTS OF SALES 11,401,753
-----------
Gross profit 6,092,416
-----------
OPERATING EXPENSES:
Selling, general and administrative 3,498,117
Depreciation 38,240
-----------
3,536,357
-----------
INCOME FROM OPERATIONS 2,556,059
OTHER EXPENSES (INCOME):
Interest expense 137,419
Other income (6,941)
-----------
130,478
-----------
NET INCOME $ 2,425,581
===========
See notes to combined financial statements.
5
<PAGE>
MICHIGAN COLLEGE BOOK COMPANY, INC. AND
RELATED COMPANY
<TABLE>
<CAPTION>
COMBINED STATEMENT OF STOCKHOLDERS EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
- ---------------------------------------------------------------------------------------
Notes
Additional Receivable
Common Paid-in Retained From
Stock Capital Earnings Stockholders Total
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1999 $ 6,000 $ 60,168 $ 412,074 $ (540,000) $ (61,758)
Payments on notes receivable - - - 96,667 96,667
from stockholders
Distributions - - (1,444,544) - (1,444,544)
Net income - - 2,425,581 - 2,425,581
------- -------- ----------- ---------- -----------
BALANCE, September 30, 1999 $ 6,000 $ 60,168 $ 1,393,111 $ (443,333) $ 1,015,946
======= ======== =========== ========== ===========
</TABLE>
See notes to combined financial statements.
6
<PAGE>
MICHIGAN COLLEGE BOOK COMPANY, INC. AND
RELATED COMPANY
COMBINED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,425,581
Adjustment to reconcile net income to net cash flows
from operating activities:
Depreciation 38,240
Changes in operating assets and liabilities:
Receivables, net 1,760,142
Inventories 3,030,154
Prepaid expenses 12,410
Accounts payable (1,177,492)
Accrued expenses 151,916
-----------
Net cash flows from operating activities 6,240,951
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (26,072)
-----------
Net cash flows from investing activities (26,072)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term notes receivable (1,173,434)
Proceeds from issuance of short-term debt 599,319
Principal payments on short-term debt (700,000)
Net decrease in revolving credit facility (2,300,000)
Payments on notes receivable with stockholders 96,667
Distributions to stockholders (1,444,544)
-----------
Net cash flows from financing activities (4,921,992)
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,292,887
CASH AND CASH EQUIVALENTS, Beginning of year 93,353
-----------
CASH AND CASH EQUIVALENTS, End of year $ 1,386,240
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 137,204
===========
Income taxes $ -
===========
See notes to combined financial statements.
7
<PAGE>
MICHIGAN COLLEGE BOOK COMPANY, INC. AND
RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
A. NATURE OF OPERATIONS
BASIS OF PRESENTATION - The combined financial statements include the
accounts of Michigan College Book Company, Inc. and Ned's Berkley Book
Company, Inc. (the "Company") which are under common ownership and
management. All significant intercompany balances and transactions between
the combined companies have been eliminated.
NATURE OF OPERATIONS - The Company participates in the college bookstore
industry mainly through retailing of new and used college textbooks. The
Company also wholesales college textbooks and retails men's and women's
casual wear.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of cash on
hand and in the bank as well as short-term investments with maturities of
three months or less when purchased.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost is
determined using the retail inventory method on the first-in, first-out
(FIFO) basis.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is determined using a combination of the straight-line and
accelerated methods. The majority of property and equipment have estimated
useful lives of five to seven years, with the exception of certain leasehold
improvements which are depreciated over the lesser of 39 years or the lease
term.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of financial
instruments including cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value as of September 30, 1999, because of
the relatively short maturity of these instruments.
REVENUE RECOGNITION - The Company recognizes revenue from product sales at
the time of sale.
ADVERTISING COSTS - Advertising costs are expensed as incurred and were
$136,051 for the period ended September 30, 1999.
INCOME TAXES - The Company is organized as a Subchapter S Corporation for
income tax purposes. Consequently, all income and related tax liabilities
flow through to the stockholders. No provision or liability for federal
income taxes has been recorded in the accompanying financial statements.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.
8
<PAGE>
ACCOUNTING STANDARDS - 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 Company will be required to
adopt this statement on January 1, 2001. The impact on the Company's
financial position and results of operations has not been determined.
C. RECEIVABLES
Receivables are summarized as follows at September 30, 1999:
Trade receivables $ 941,931
Employee receivable 20,220
Other 48,621
---------
1,010,772
Less allowance for doubtful accounts (14,091)
---------
$ 996,681
=========
D. RELATED PARTIES
Notes receivable from related parties, unsecured,
interest of Prime plus one percent, 9.25% at
September 30, 1999, terms of repayment undefined. $1,400,000
Notes receivable from related parties, unsecured,
non-interest bearing, terms of repayment undefined. 360,627
---------
Notes receivable - related parties 1,760,627
Notes receivable - other 36,985
---------
1,797,612
Less allowance for doubtful accounts (28,010)
---------
Total long-term notes receivable $1,769,602
=========
Notes payable to related parties, unsecured, non-interest
bearing, terms of repayment undefined. $ 396,032
Notes payable to stockholders, non-interest bearing,
unsecured, terms of repayment undefined. 98,967
Notes payable to related parties, unsecured, interest
of 12.25%, terms of repayment undefined. 50,000
---------
Total notes payable with related parties $ 544,999
=========
Included in selling, general and administrative expenses is $16,200 of
rent paid to certain owners of the Company under a verbal agreement to
lease office and warehouse facilities.
9
<PAGE>
The following item has been classified as a reduction of stockholders
equity at September 30, 1999:
The Company has unsecured, non-interest bearing notes receivable from
stockholders in the amount of $443,333 at September 30, 1999. There
are no settlement terms for these notes receivable.
E. INVENTORIES
Inventories are summarized as follows at September 30, 1999:
Wholesale $ 173,451
College bookstores 3,163,903
----------
$3,337,354
==========
F. PROPERTY AND EQUIPMENT
A summary of the cost of property and equipment follows at September 30,
1999:
Leasehold improvements $ 372,710
Information systems 252,565
Equipment 222,736
Automobiles and trucks 75,721
Furniture and fixtures 53,843
Construction in process 68,640
----------
$1,046,215
==========
G. NOTES PAYABLE
Notes payable consist of amounts due to individuals bearing interest from 9%
to 12% which have been extended verbally beyond their contractual maturities
and are currently due on demand.
H. LINE OF CREDIT
The Company has a $2,500,000 revolving line of credit with a bank which
accrues interest based on the prime rate (8.25% at September 30, 1999). The
line of credit is collateralized by substantially all of the assets of the
Company. The average borrowings under the line of credit for the period
ended September 30, 1999 were approximately $1,600,000 at an average rate of
7.82%. The balance as of September 30, 1999 was $0.
10
<PAGE>
I. COMMITMENTS
The Company leases bookstore facilities under noncancelable operating leases
expiring at various dates through fiscal 2006. Certain lease payments are
based on a percentage of sales, ranging from 3.0% to 8%. Aggregate minimum
lease payments under these agreements for the years ending September 30,
1999 are as follows:
2000 $ 594,257
2001 467,620
2002 315,188
2003 236,972
2004 79,019
Thereafter 69,073
----------
$1,762,129
==========
Total rent expense for the nine months ended September 30, 1999 was
approximately $484,421. Percentage rent expense for the nine months ended
September 30, 1999 was approximately $25,680.
J. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) profit sharing plan for employees who have
completed six months of continuous service. The eligible employees may elect
to contribute up to the maximum allowable in accordance with the applicable
Internal Revenue Code Sections. The Company does not match the employees
contribution.
K. PENDING SALE OF COMPANY
On August 9, 1999 the owners of the Company signed a letter of intent to
sell certain assets of the Company. The assets to be sold include all
inventory, property and equipment, real property, and leasehold interests
for the retail and warehouse facilities. The anticipated closing date for
the sale is November 10, 1999.
11
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined balance sheet and statements of
operations of the Company have been prepared to give effect to the
acquisition of certain assets and liabilities of Ned's Bookstores and an
approximately $4.6 million capital contribution from NBC to assist in
financing the acquisition. The gross purchase price was approximately $10.8
million. At closing, the Company paid the former shareholders of Ned's
Bookstores approximately $10.0 million, exclusive of liabilities assumed of
$0.5 million, a $0.1 million payable for a covenant not to compete, and
additional liabilities incurred of $0.2 million related to the acquisition.
The Company acquired the inventory, prepaid expenses, and property and
equipment of Ned's Bookstores. Liabilities were assumed for the amount of
current assets acquired above $1.9 million.
The unaudited pro forma combined balance sheet and statements of
operations have been derived from, and should be read in conjunction with,
the historical financial statements and related notes of the Company and
Ned's Bookstores. The Company's historical statements of operations have
been adjusted to reflect the pro forma effects of the June 4, 1999
acquisition of Triro, Inc. as presented in the Company's Current Report on
Form 8-K/A (Amendment No. 2) and Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999 filed with the Securities and
Exchange Commission on December 29, 1999 and November 15, 1999,
respectively. The historical statement of operations for Ned's Bookstores
presented in the unaudited pro forma combined statement of operations for
the year ended March 31, 1999 reflects activity for Ned's Bookstores' fiscal
year ended December 31, 1998. Revenues and net income for Ned's Bookstores
for the three months ended March 31, 1999 were approximately $7.0 million
and $1.1 million, respectively. The unaudited pro forma combined statements
of operations assume that all such transactions occurred at the beginning of
each period presented. The unaudited pro forma combined balance sheet
assumes that the acquisition of Ned's Bookstores and capital contribution
from NBC occurred as of September 30, 1999.
The unaudited pro forma combined statements of operations are not
necessarily indicative of what the actual results of operations would have
been had the transactions occurred at the beginning of each period
presented, nor do they purport to indicate the results of future operations.
12
<PAGE>
NEBRASKA BOOK COMPANY, INC.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
Nebraska
Book Ned's Pro Forma
Company, Inc. Bookstores Adjustments Pro Forma
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,588,568 $ 1,386,240 $ (1,386,240)(A) $ 22,588,568
(10,036,566)(C)
4,612,988 (F)
5,423,578 (F)
Receivables 33,134,286 996,681 (1,197,185)(D) 32,933,782
Inventories 53,341,309 3,337,354 - 56,678,663
Deferred income tax benefit 1,491,693 - 57,487 (C) 1,549,180
Prepaid expenses and other assets 273,258 32,311 - 305,569
------------- ------------ ------------ -------------
Total current assets 110,829,114 5,752,586 (2,525,938) 114,055,762
PROPERTY AND EQUIPMENT 34,242,974 1,046,215 (683,833)(B) 34,605,356
Less accumulated depreciation (9,183,529) (683,833) 683,833 (B) (9,183,529)
------------- ------------ ------------ -------------
25,059,445 362,382 - 25,421,827
GOODWILL AND OTHER INTANGIBLES, net of amortization 40,935,484 - 7,967,697 (C) 48,903,181
OTHER ASSETS 4,064,919 14,900 (14,900)(A) 4,064,919
LONG-TERM NOTES RECEIVABLE - 1,769,602 (1,769,602)(A) -
------------- ------------ ------------ -------------
$ 180,888,962 $ 7,899,470 $ 3,657,257 $ 192,445,689
============= ============ ============ =============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 29,756,939 $ 5,459,778 $ (4,039,617)(E) $ 31,177,100
Accrued employee compensation and benefits 3,926,125 - - 3,926,125
Accrued interest 1,345,438 - - 1,345,438
Accrued expenses 754,046 574,828 (574,828)(A) 754,046
Income tax payable 3,249,301 - - 3,249,301
Deferred revenue 308,896 - - 308,896
Notes payable - 303,919 (303,919)(A) -
Notes payable with related parties - 544,999 (544,999)(A) -
Current maturities of long-term debt 3,674,093 - - 3,674,093
Current maturities of capital lease obligations 104,744 - - 104,744
Revolving credit facility - - 5,423,578 (F) 5,423,578
------------- ------------ ------------ -------------
Total current liabilities 43,119,582 6,883,524 (39,785) 49,963,321
LONG-TERM DEBT, net of current maturities 164,637,504 - 164,637,504
CAPITAL LEASE OBLIGATIONS, net of current maturities 164,338 - - 164,338
OTHER LONG-TERM LIABILITIES 212,239 - 100,000 (K) 312,239
DUE TO PARENT 3,379,893 - - 3,379,893
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock, authorized 50,000 shares of $1.00 par value; -
issued and outstanding 100 shares 100 6,000 (6,000)(G) 100
Additional paid-in capital 41,257,722 60,168 4,552,820 (H) 45,870,710
Notes receivable from stockholders - (443,333) 443,333 (I) -
Retained earnings (deficit) (71,882,416) 1,393,111 (1,393,111)(J) (71,882,416)
------------- ------------ ------------ -------------
Total stockholder's equity (deficit) (30,624,594) 1,015,946 3,597,042 (26,011,606)
------------- ------------ ------------ -------------
$ 180,888,962 $ 7,899,470 $ 3,657,257 $ 192,445,689
============= ============ ============ =============
</TABLE>
See notes to unaudited pro forma combined balance sheet.
13
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(A) Allocation of the purchase price is based on the fair value of the assets
and liabilities acquired. The Company acquired the inventory, prepaid
expenses, and property and equipment of Ned's Bookstores. Liabilities were
assumed for the amount of current assets acquired in excess of $1.9
million. The adjustment to eliminate the assets and liabilities that were
not acquired from the Ned's Bookstores shareholders is as follows:
Ned's Bookstores assets not acquired:
Cash $ (1,386,240)
Receivables (see note D) (996,681)
Long-term notes receivable (1,769,602)
Other assets (14,900)
-------------
Total assets (4,167,423)
-------------
Ned's Bookstores liabilities not acquired:
Accounts payable, net of working
capital adjustment (see note E) (3,990,113)
Accrued expenses (574,828)
Notes payable (303,919)
Related party notes payable (544,999)
-------------
Total liabilities (5,413,859)
-------------
Net liabilities not acquired $ 1,246,436
============
(B) Adjustment to record the basis in Ned's Bookstores' property and equipment
net of accumulated depreciation.
Ned's Bookstores accumulated depreciation $ 683,833
=========
(C) Adjustment to the net assets of Ned's Bookstores to reflect fair values
under purchase accounting and record the purchase price of Ned's
Bookstores. In addition to the net assets of Ned's Bookstores, an
adjustment was also recorded to establish a deferred tax asset related to
inventory. Ned's Bookstores was organized as a Subchapter S Corporation for
income tax purposes, therefore no deferred tax items were included in its
balance sheet as of September 30, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
Purchase price of Ned's Bookstores $ 10,036,566
Ned's Bookstores net assets at September 30, 1999 $ 1,015,946
Net liabilities of Ned's Bookstores not acquired (see note A) 1,246,436
-----------
Ned's Bookstores net assets acquired in acquisition 2,262,382
Additional liabilities incurred as a result of acquisition (151,000)
Remaining obligation under covenant not to compete (100,000)
Deferred tax asset associated with net assets acquired 57,487
-----------
2,068,869
-----------
Excess of purchase price over net assets acquired 7,967,697
Covenant not to compete 150,000
-----------
Goodwill $ 7,817,697
===========
</TABLE>
14
<PAGE>
(D) Adjustment to eliminate the business activities occurring between the
Company's wholesale operations and Ned's Bookstores and adjust for
receivables not assumed in the acquisition.
Elimination of intercompany receivables $ (200,504)
Adjustment for receivables not acquired (see note A) (996,681)
------------
$ (1,197,185)
============
(E) Adjustment to eliminate the business activities occurring between the
Company's wholesale operations and Ned's Bookstores, record additional
liabilities incurred as a result of the acquisition, and adjust for
liabilities not assumed in the acquisition.
Elimination of intercompany payables (see note D) $ (200,504)
Additional liabilities incurred as a result
of acquisition (see note C) 151,000
Adjustment for liabilities not acquired (see note A) (3,990,113)
-------------
$ (4,039,617)
=============
Accounts payable were assumed only to the extent that current assets
acquired exceeded Ned's Bookstores' average working capital of $1.9
million. Liabilities not acquired were determined as follows:
Current assets acquired:
Inventory $ 3,337,354
Prepaid expenses 32,311
------------
3,369,665
Less average working capital (1,900,000)
------------
Accounts payable assumed 1,469,665
Less total accounts payable (5,459,778)
------------
Liabilities not acquired $ (3,990,113)
============
(F) Adjustment to record additional borrowings under the revolving credit
facility which, in conjunction with the capital contribution from NBC, were
utilized to fund the acquisition. Such borrowings are comprised of the
following components:
Purchase price of Ned's Bookstores (see note C) $ 10,036,566
Proceeds from NBC capital contribution (4,612,988)
------------
Additional borrowings under revolving credit facility $ 5,423,578
============
(G) Adjustment to eliminate Ned's Bookstores common stock of $6,000.
15
<PAGE>
(H) Adjustment to eliminate Ned's Bookstores additional paid-in capital and
record the proceeds from NBC's capital contribution.
Proceeds from NBC capital contribution (see note F) $ 4,612,988
Elimination of Ned's Bookstores additional
paid-in capital (60,168)
-----------
$ 4,552,820
===========
(I) Adjustment to eliminate Ned's Bookstores notes receivable from stockholders
of $443,333.
(J) Adjustment to eliminate Ned's Bookstores retained earnings of $1,393,111.
(K) Adjustment to record obligation on $150,000 covenant not to compete
agreement established with Ned's Bookstores' principal accounting officer
at the time of acquisition. The remaining $50,000 of such obligation was
paid at closing.
16
<PAGE>
NEBRASKA BOOK COMPANY, INC.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1999
- ---------------------------------------------------------------------------------------------------------------------
Nebraska
Book Ned's Pro Forma
Company, Inc. Bookstores Adjustments Pro Forma
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
REVENUES, net of returns $ 145,867,868 $ 10,528,845 $ (167,259) (A) $ 156,229,454
COSTS OF SALES 89,914,694 6,775,988 (175,768) (A) 96,514,914
------------- ------------ ---------- -------------
Gross profit 55,953,174 3,752,857 8,509 59,714,540
OPERATING EXPENSES:
Selling, general and administrative 30,820,884 2,326,074 (87,027) (B) 33,059,931
Depreciation 1,277,296 25,202 - 1,302,498
Amortization 4,195,592 - 1,327,949 (C) 5,523,541
------------- ------------ ---------- -------------
36,293,772 2,351,276 1,240,922 39,885,970
------------- ------------ ---------- -------------
INCOME FROM OPERATIONS 19,659,402 1,401,581 (1,232,413) 19,828,570
OTHER EXPENSES (INCOME):
Interest expense 9,115,271 120,145 27,919 (D) 9,263,335
Interest income (99,810) - 49,897 (E) (49,913)
Other income (534,740) (6,941) 8,509 (A) (533,172)
------------- ------------ ---------- -------------
8,480,721 113,204 86,325 8,680,250
------------- ------------ ---------- -------------
INCOME BEFORE INCOME TAXES 11,178,681 1,288,377 (1,318,738) 11,148,320
INCOME TAX EXPENSE 5,290,317 - (11,537) (F) 5,278,780
------------- ------------ ---------- -------------
NET INCOME $ 5,888,364 $ 1,288,377 $(1,307,201) $ 5,869,540
============= ============ ========== =============
</TABLE>
See notes to unaudited pro forma combined statement of operations.
17
<PAGE>
NEBRASKA BOOK COMPANY, INC.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
Nebraska
Book Ned's Pro Forma
Company, Inc. Bookstores Adjustments Pro Forma
--------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES, net of returns $ 241,120,287 $ 18,328,554 $ (356,835)(A) $ 259,092,006
COSTS OF SALES 153,436,111 12,371,954 (374,609)(A) 165,433,456
------------- ------------ ---------- -------------
Gross profit 87,684,176 5,956,600 17,774 93,658,550
OPERATING EXPENSES:
Selling, general and administrative 57,337,985 4,954,425 (443,849)(B) 61,848,561
Depreciation 2,750,085 103,488 - 2,853,573
Amortization 9,186,708 - 2,655,899 (C) 11,842,607
------------- ------------ ---------- -------------
69,274,778 5,057,913 2,212,050 76,544,741
------------- ------------ ---------- -------------
INCOME FROM OPERATIONS 18,409,398 898,687 (2,194,276) 17,113,809
OTHER EXPENSES (INCOME):
Interest expense 17,743,186 177,119 135,279 (D) 18,055,584
Interest income (329,822) - 97,624 (E) (232,198)
Other income (1,125,155) (15,873) 17,774 (A) (1,123,254)
------------- ------------ ---------- -------------
16,288,209 161,246 250,677 16,700,132
------------- ------------ ---------- -------------
INCOME BEFORE INCOME TAXES 2,121,189 737,441 (2,444,953) 413,677
INCOME TAX EXPENSE 3,146,651 - (648,854)(F) 2,497,797
------------- ------------ ---------- -------------
NET INCOME (LOSS) $ (1,025,462) $ 737,441 $(1,796,099) $ (2,084,120)
============= ============ ========== =============
</TABLE>
See notes to unaudited pro forma combined statement of operations.
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(A) Adjustment to eliminate the business activities occurring between the
Company's wholesale operations and Ned's Bookstores.
Six months Year
ended ended
September 30, 1999 March 31, 1999
------------------ ---------------
Commission income $ 8,509 $ 17,774
Wholesale revenues from book sales 167,259 356,835
--------- ---------
$ 175,768 $ 374,609
========= =========
(B) Adjustment to reflect saving the salary and benefit costs of the former
Ned's Bookstores' shareholders who were no longer employed following the
acquisition.
(C) Adjustment to record amortization on the excess of purchase price over net
assets acquired utilizing a three-year amortization period.
(D) Adjustment to eliminate interest costs associated with debt of Ned's
Bookstores which was not assumed by the Company and to record interest
costs associated with the utilization of the Company's revolving credit
facility to finance a portion of the acquisition. Interest expense under
the revolving credit facility was calculated utilizing a 9.1% and 9.6%
interest rate (average interest rate under the revolving credit facility
for the six months ended September 30, 1999 and the year ended March 31,
1999, respectively) and assuming that the Company utilized the revolving
credit facility approximately 60% of the year.
Six months Year
ended ended
September 30, 1999 March 31, 1999
------------------ ---------------
Ned's Bookstores interest expense $ (120,145) $(177,119)
Additional revolving credit
facility interest expense 148,064 312,398
---------- ---------
$ 27,919 $ 135,279
========== =========
(E) Adjustment to reduce interest income as a result of cash utilized to repay
the additional revolving credit facility indebtedness resulting from
financing the acquisition. The reduction in interest income was calculated
utilizing a 4.6% and 4.5% interest rate (average interest rate earned on
the Company's short-term investment account for the six months ended
September 30, 1999 and the year ended March 31, 1999, respectively) and
assuming that the Company was out of the revolving credit facility
approximately 40% of the year.
19
<PAGE>
(F) Adjustment to reflect the effect of pro forma adjustments on taxable income
and to record income tax expense for Ned's Bookstores at an assumed
effective tax rate of 38% (based on statutory rate).
Six months Year
ended ended
September 30, 1999 March 31, 1999
------------------ --------------
Ned's Bookstores income tax expense $ 489,583 $ 280,228
Effect of adjustments on
income tax expense (501,120) (929,082)
--------- ---------
$ (11,537) $(648,854)
========= =========
20
<PAGE>
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
January 25, 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
21
