UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 333-48225

NBC ACQUISITION CORP.

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		47-0793347 (I.R.S. Employer Identification No.)
4700 South 19th Street
Lincoln, Nebraska (Address of principal executive offices)		68501-0529 (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 o No o (NOTE: NBC Acquisition Corp. is a voluntary filer and is not subject to the filing requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934. Although not subject to these filing requirements, NBC Acquisition Corp. has filed all reports required under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ (do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Total number of shares of common stock outstanding as of February 14, 2011: 549,894 shares

Total Number of Pages: 30

Exhibit Index: Page 30

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NBC ACQUISITION CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

		December 31,				March 31,				December 31,
		2010				2010				2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	17,727,222			$	60,972,625			$	16,815,036
Receivables, net			74,824,680				57,987,794				75,572,125
Inventories			167,855,569				97,497,689				173,437,403
Recoverable income taxes			3,238,079				2,435,287				6,910,271
Deferred income taxes			7,311,559				6,247,559				7,654,801
Prepaid expenses and other assets			5,382,424				4,070,281				3,461,500
Total current assets			276,339,533				229,211,235				283,851,136
PROPERTY AND EQUIPMENT, net of depreciation & amortization			40,710,170				42,155,424				43,194,981
GOODWILL			218,356,730				215,571,126				215,571,126
CUSTOMER RELATIONSHIPS, net of amortization			75,596,680				79,902,820				81,338,200
TRADENAME			31,320,000				31,320,000				31,320,000
OTHER IDENTIFIABLE INTANGIBLES, net of amortization			5,784,128				5,295,324				5,804,983
DEBT ISSUE COSTS, net of amortization			5,671,849				9,964,874				11,119,154
OTHER ASSETS			4,011,313				2,850,632				3,716,768
		$	657,790,403			$	616,271,435			$	675,916,348
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	70,043,168			$	26,387,040			$	69,266,116
Accrued employee compensation and benefits			7,091,449				9,401,468				9,547,912
Accrued interest			8,655,779				7,666,997				8,692,984
Accrued incentives			5,962,172				6,313,933				6,231,547
Accrued expenses			4,621,111				9,051,651				7,338,275
Deferred revenue			2,975,106				1,299,960				2,865,460
Current maturities of long-term debt			199,585,345				54,403				52,967
Current maturities of capital lease obligations			661,733				846,053				813,609
Revolving credit facility			15,500,000				—				23,100,000
Total current liabilities			315,095,863				61,021,505				127,958,870
LONG-TERM DEBT, net of current maturities			252,138,755				451,343,069				451,258,315
CAPITAL LEASE OBLIGATIONS, net of current maturities			1,884,334				2,380,737				2,627,370
OTHER LONG-TERM LIABILITIES			1,601,801				2,278,963				2,115,997
DEFERRED INCOME TAXES			40,675,490				40,401,490				42,225,889
COMMITMENTS (Note 5)
REDEEMABLE PREFERRED STOCK
Series A redeemable preferred stock, $.01 par value, 20,000 shares authorized, 10,000 shares issued and outstanding at December 31, 2010 and 2009 and March 31, 2010, at redemption value			13,109,753				11,805,888				11,379,169
STOCKHOLDERS’ EQUITY:
Common stock, voting, authorized 5,000,000 shares of $.01 par value; issued and outstanding 549,894 at December 31, 2010 and 554,094 shares at March 31, 2010 and December 31, 2009			5,499				5,541				5,541
Additional paid-in capital			111,272,274				111,203,506				111,175,292
Note receivable from stockholder			(96,343	)			(92,755	)			(96,343	)
Accumulated deficit			(77,897,023	)			(64,076,509	)			(72,733,752	)
Total stockholders’ equity			33,284,407				47,039,783				38,350,738
		$	657,790,403			$	616,271,435			$	675,916,348

See notes to condensed consolidated financial statements.

NBC ACQUISITION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

		Quarter Ended December 31,								Nine Months Ended December 31,
		2010				2009				2010				2009
REVENUES, net of returns		$	69,229,390			$	66,658,584			$	414,420,701			$	412,138,559
COSTS OF SALES (exclusive of depreciation shown below)			41,674,309				38,597,654				253,903,858				252,368,739
Gross profit			27,555,081				28,060,930				160,516,843				159,769,820
OPERATING EXPENSES:
Selling, general and administrative			36,497,904				34,078,959				124,508,189				117,281,571
Depreciation			2,192,044				2,124,972				6,444,649				6,218,426
Amortization			2,152,060				2,684,564				6,556,949				8,320,843
			40,842,008				38,888,495				137,509,787				131,820,840
INCOME (LOSS) FROM OPERATIONS			(13,286,927	)			(10,827,565	)			23,007,056				27,948,980
OTHER EXPENSES:
Interest expense			12,853,453				12,848,937				38,504,475				36,605,337
Interest income			(55,694	)			(60,744	)			(139,770	)			(104,441	)
Loss on early extinguishment of debt			—				3,065,759				—				3,065,759
			12,797,759				15,853,952				38,364,705				39,566,655
LOSS BEFORE INCOME TAXES			(26,084,686	)			(26,681,517	)			(15,357,649	)			(11,617,675	)
INCOME TAX BENEFIT			(9,792,000	)			(11,127,000	)			(2,841,000	)			(4,845,000	)
NET LOSS		$	(16,292,686	)		$	(15,554,517	)		$	(12,516,649	)		$	(6,772,675	)
LOSS PER SHARE:
Basic		$	(30.23	)		$	(28.76	)		$	(24.95	)		$	(14.29	)
Diluted		$	(30.23	)		$	(28.76	)		$	(24.95	)		$	(14.29	)
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic			553,318				554,094				553,835				554,094
Diluted			553,318				554,094				553,835				554,094

See notes to condensed consolidated financial statements.

NBC ACQUISITION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

														Note
		Common Stock								Additional				Receivable
		Shares								Paid-in				From				Accumulated								Comprehensive
		Issued				Amount				Capital				Stockholder				Deficit				Total				Income
BALANCE, April 1, 2009			554,094			$	5,541			$	111,142,082			$	(92,715	)		$	(64,815,242	)		$	46,239,666
Interest accrued on stockholder note			—				—				—				(3,628	)			—				(3,628	)		$	—
Share-based compensation attributable to stock options			—				—				33,210				—				—				33,210				—
Cumulative preferred dividend			—				—				—				—				(1,145,835	)			(1,145,835	)			—
Net loss			—				—				—				—				(6,772,675	)			(6,772,675	)			(6,772,675	)
BALANCE, December 31, 2009			554,094			$	5,541			$	111,175,292			$	(96,343	)		$	(72,733,752	)		$	38,350,738			$	(6,772,675	)
BALANCE, April 1, 2010			554,094			$	5,541			$	111,203,506			$	(92,755	)		$	(64,076,509	)		$	47,039,783
Interest accrued on stockholder note			—				—				—				(3,588	)			—				(3,588	)		$	—
Share-based compensation attributable to stock options			—				—				68,768				—				—				68,768				—
Repurchase of common stock			(4,200	)			(42	)			—				—				—				(42	)			—
Cumulative preferred dividend																			(1,303,865	)			(1,303,865	)
Net loss			—				—				—				—				(12,516,649	)			(12,516,649	)			(12,516,649	)
BALANCE, December 31, 2010			549,894			$	5,499			$	111,272,274			$	(96,343	)		$	(77,897,023	)		$	33,284,407			$	(12,516,649	)

See notes to condensed consolidated financial statements.

NBC ACQUISITION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		Nine Months Ended December 31,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(12,516,649	)		$	(6,772,675	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Share-based compensation			438,810				789,162
Provision for losses on receivables			1,317,433				414,247
Depreciation			6,444,649				6,218,426
Amortization			6,556,949				8,320,843
Amortization of debt issue costs and bond discount			4,726,563				3,607,128
Loss on early extinguishment of debt			—				3,065,759
Loss on disposal of assets			155,235				140,783
Deferred income taxes			(710,000	)			(3,705,000	)
Changes in operating assets and liabilities, net of effect of acquisitions:
Receivables			(18,107,676	)			(15,429,548	)
Inventories			(66,299,510	)			(79,043,123	)
Recoverable income taxes			(802,792	)			(4,040,688	)
Prepaid expenses and other assets			(1,300,227	)			639,374
Other assets			(1,210,911	)			(319,543	)
Accounts payable			43,780,593				42,631,870
Accrued employee compensation and benefits			(2,310,019	)			(4,232,297	)
Accrued interest			988,782				7,643,180
Accrued incentives			(351,761	)			120,847
Accrued expenses			(4,430,540	)			(856,976	)
Deferred revenue			1,675,146				1,906,186
Other long-term liabilities			(823,674	)			(190,334	)
Net cash flows from operating activities			(42,779,599	)			(39,092,379	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(4,965,710	)			(4,025,625	)
Acquisitions, net of cash acquired			(9,317,813	)			(2,304,343	)
Proceeds from sale of property and equipment			21,708				93,674
Software development costs			(916,314	)			(441,156	)
Net cash flows from investing activities			(15,178,129	)			(6,677,450	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock			(42	)			—
Proceeds from issuance of long-term debt			—				199,000,000
Payment of financing costs			(66,660	)			(9,834,721	)
Principal payments on long-term debt			(40,250	)			(193,112,511	)
Principal payments on capital lease obligations			(680,723	)			(606,371	)
Borrowings under revolving credit facility			43,700,000				85,000,000
Payments under revolving credit facility			(28,200,000	)			(61,900,000	)
Net cash flows from financing activities			14,712,325				18,546,397
NET DECREASE IN CASH AND CASH EQUIVALENTS			(43,245,403	)			(27,223,432	)
CASH AND CASH EQUIVALENTS, Beginning of period			60,972,625				44,038,468
CASH AND CASH EQUIVALENTS, End of period		$	17,727,222			$	16,815,036
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash (received) paid during the period for:
Interest		$	32,789,130			$	25,355,029
Income taxes			(1,328,208	)			2,900,688
Noncash investing and financing activities:
Unpaid consideration associated with bookstore acquisitions			—				450,000

See notes to condensed consolidated financial statements.

NBC ACQUISITION CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.

Basis of Presentation — The condensed consolidated balance sheet of NBC Acquisition Corp. (the “Company”) and its wholly-owned subsidiary, Nebraska Book Company, Inc. (“NBC”), at March 31, 2010 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Company and the results of its operations and cash flows for the periods presented. All of these adjustments are of a normal recurring nature. All intercompany balances and transactions are eliminated in consolidation. 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 fiscal year.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2010 included in the Company’s Annual Report on Form 10-K. A description of our significant accounting policies is included in our 2010 Annual Report on Form 10-K. References in this Quarterly Report on Form 10-Q to the terms “we,” “our,” “ours,” and “us” refer collectively to the Company and its subsidiaries, including NBC, except where otherwise indicated and except where the context requires otherwise. We do not conduct significant activities apart from our investment in NBC. Operational matters discussed in this report, including the acquisition of college bookstores and other related businesses, refer to operations of NBC.

In our accompanying December 31, 2009 Condensed Consolidated Statement of Cash Flows we have revised our presentation of proceeds from, and principal payments of, our revolving credit facility to reflect the cash flows in connection with the borrowings and repayments under this revolver. Related amounts had previously been presented on a net basis, rather than in accordance with ASC Topic 230, “Statement of Cash Flows”, on a gross basis. This revision had no impact on the net proceeds from, and principal repayments of, this revolver or on our net cash flows from financing activities.

We have evaluated subsequent events through the filing date of this Form 10-Q.

2.

Earnings Per Share — Basic earnings per share data is computed by dividing earnings after the deduction of preferred stock dividends by the weighted-average number of common shares outstanding during the period. Diluted earnings per share data is calculated by dividing earnings after the deduction of preferred stock dividends by the weighted-average number of common shares outstanding and potential common shares including stock options, if any, with a dilutive effect. The information used to compute basic and dilutive earnings per share on income from continuing operations is as follows:

		Quarter Ended December 31,								Nine Months Ended December 31,
		2010				2009				2010				2009
Net Loss		$	(16,292,686	)		$	(15,554,517	)		$	(12,516,649	)		$	(6,772,675	)
Less: preferred stock dividends			(436,202	)			(383,334	)			(1,303,865	)			(1,145,835	)
Net loss available to common shareholders		$	(16,728,888	)		$	(15,937,851	)		$	(13,820,514	)		$	(7,918,510	)
Weighted-average common shares outstanding — basic			553,318				554,094				553,835				554,094
Effect of dilutive securities:
Potential shares of common stock, attributable to stock options			—				—				—				—
Weighted-average common shares outstanding — diluted			553,318				554,094				553,835				554,094

Weighted average common shares outstanding — diluted include the incremental shares that would be issued upon the assumed exercise of stock options, if the effect is dilutive. Options to purchase 89,391 and 80,153 shares of common stock were outstanding during the quarter and nine months ended December 31, 2010 and the quarter and nine months ended December 31, 2009, respectively, but were not included in the computation of diluted weighted-average common shares because their effect would have been antidilutive. During the quarter ended December 31, 2010, we purchased and immediately retired 4,200 shares of our common stock in connection with shares issued under the 2005 Restricted Stock Plan, which vested September 30, 2010.

3.

Inventories — Inventories are summarized as follows:

		December 31,				March 31,				December 31,
		2010				2010				2009
Bookstore Division		$	150,054,277			$	68,765,952			$	152,507,300
Textbook Division			15,448,373				26,132,007				17,200,765
Complementary Services Division			2,352,919				2,599,730				3,729,338
		$	167,855,569			$	97,497,689			$	173,437,403

4.

Goodwill and Other Identifiable Intangibles — During the nine months ended December 31, 2010, nineteen bookstore locations were acquired in fifteen separate transactions. The total purchase price, net of cash acquired, of such acquisitions was $8.7 million, of which $2.8 million was assigned to goodwill, $0.5 million was assigned to covenants not to compete with a weighted-average amortization period of 2.7 years, and $1.0 million was assigned to contract-managed relationships with a weighted-average amortization period of 4.7 years. The weighted-average amortization period for all covenants not to compete and contract-managed relationships entered into in connection with acquisitions occurring during the nine months ended December 31, 2010 was 4.1 years. Costs incurred to renew contract-managed relationships during the nine months ended December 31, 2010 were $0.3 million with a weighted-average amortization period of five years before the next renewal of such contracts. As of December 31, 2010, $0.3 million of prior year acquisition costs remained to be paid. During the nine months ended December 31, 2010, we paid $0.3 million of previously accrued consideration for bookstore acquisitions and contract-managed relationships occurring in prior periods.

Goodwill assigned to corporate administration represents the goodwill that arose when Weston Presidio gained a controlling interest in us on March 4, 2004 (the “March 4, 2004 Transaction”), as all goodwill was assigned to corporate administration. As is the case with a portion of our assets, such goodwill is not allocated between our reportable segments when management makes operating decisions and assesses performance. We have identified the Textbook Division, Bookstore Division and Complementary Services Division as our reporting units. Such goodwill is allocated to our reporting units for purposes of testing goodwill for impairment and calculating any gain or loss on the disposal of all or, where applicable, a portion of a reporting unit.

The changes in the carrying amount of goodwill, in total, by reportable segment and assigned to corporate administration, are as follows:

		Bookstore				Corporate
		Division				Administration				Total
Balance, April 1, 2009		$	53,346,251			$	162,089,875			$	215,436,126
Additions to goodwill:
Bookstore acquisitions			135,000				—				135,000
Balance, December 31, 2009		$	53,481,251			$	162,089,875			$	215,571,126
Balance, April 1, 2010		$	53,481,251			$	162,089,875			$	215,571,126
Additions to goodwill:
Bookstore acquisitions			2,785,604				—				2,785,604
Balance, December 31, 2010		$	56,266,855			$	162,089,875			$	218,356,730

The following table presents the gross carrying amount and accumulated impairment charge of goodwill:

		Gross carrying				Accumulated				Net carrying
		amount				impairment				amount
Balance, April 1, 2009		$	322,408,126			$	(106,972,000	)		$	215,436,126
Additions			135,000				—				135,000
Balance, December 31, 2009		$	322,543,126			$	(106,972,000	)		$	215,571,126
Balance, April 1, 2010		$	322,543,126			$	(106,972,000	)		$	215,571,126
Additions			2,785,604				—				2,785,604
Balance, December 31, 2010		$	325,328,730			$	(106,972,000	)		$	218,356,730

We perform a test for goodwill impairment annually or more frequently if impairment indicators exist. We completed the annual test for goodwill impairment by reporting unit during the fourth quarter for the year ended March 31, 2010 and no goodwill impairment was indicated. Due to the economic downturn and changes in comparable company market multiples, we determined in the first step of the goodwill impairment test conducted at March 31, 2009 that the carrying value of the Textbook and Bookstore Divisions exceeded their fair values, indicating that goodwill may be impaired. Having determined that goodwill may be impaired, we performed the second step of the goodwill impairment test which involves calculating the implied fair value of goodwill by allocating the fair value of the reporting unit to all of its assets and liabilities other than goodwill (including both recognized and unrecognized intangible assets) and comparing the residual amount to the carrying value of goodwill. As a result, we recorded an impairment charge of $107.0 million in fiscal year 2009. The impairment charge reduced our goodwill carrying value to $215.4 million as of March 31, 2009.

Fair value was determined using a market approach based primarily on a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”), and was deemed to be the most indicative of the Company’s fair value and was consistent in principle with the methodology used for goodwill evaluation in prior years. The EBITDA multiple approach requires that we estimate a certain valuation multiple of EBITDA derived from comparable companies and apply that multiple to our last twelve-month pro forma EBITDA. This total company fair value is allocated to the reporting units based upon their percentage of EBITDA. The fair value was also calculated using the income approach (discounted cash flow approach) and we concluded that it was supportive of the fair value based upon the EBITDA multiple approach. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions about future economic conditions and comparable company market multiples, among others. If we fail the first step of the goodwill impairment test, we are required, in the second step, to estimate the fair value of reporting unit assets and liabilities, including intangible assets, to derive the fair value of the reporting unit’s goodwill.

The following table presents the gross carrying amount and accumulated amortization of identifiable intangibles subject to amortization, in total and by asset class:

		December 31, 2010
		Gross								Net
		Carrying				Accumulated				Carrying
		Amount				Amortization				Amount
Customer relationships		$	114,830,000			$	(39,233,320	)		$	75,596,680
Developed technology			14,626,104				(12,496,117	)			2,129,987
Covenants not to compete			1,977,300				(1,135,783	)			841,517
Contract-managed relationships			5,292,261				(2,479,637	)			2,812,624
Other			1,585,407				(1,585,407	)			—
		$	138,311,072			$	(56,930,264	)		$	81,380,808

		March 31, 2010
		Gross								Net
		Carrying				Accumulated				Carrying
		Amount				Amortization				Amount
Customer relationships		$	114,830,000			$	(34,927,180	)		$	79,902,820
Developed technology			13,709,789				(12,137,672	)			1,572,117
Covenants not to compete			3,416,000				(2,268,172	)			1,147,828
Contract-managed relationships			4,555,740				(2,200,557	)			2,355,183
Other			1,585,407				(1,365,211	)			220,196
		$	138,096,936			$	(52,898,792	)		$	85,198,144

		December 31, 2009
		Gross								Net
		Carrying				Accumulated				Carrying
		Amount				Amortization				Amount
Customer relationships		$	114,830,000			$	(33,491,800	)		$	81,338,200
Developed technology			13,527,173				(11,728,170	)			1,799,003
Covenants not to compete			3,958,699				(2,530,782	)			1,427,917
Contract-managed relationships			4,305,740				(2,079,989	)			2,225,751
Other			1,585,407				(1,233,095	)			352,312
		$	138,207,019			$	(51,063,836	)		$	87,143,183

Information regarding aggregate amortization expense for identifiable intangibles subject to amortization is presented in the following table:

		Amortization
		Expense
Quarter ended December 31, 2010		$	2,152,060
Quarter ended December 31, 2009			2,684,564
Nine months ended December 31, 2010			6,556,949
Nine months ended December 31, 2009			8,320,843
Estimated amortization expense for the fiscal years ending March 31:
2011		$	8,121,263
2012			7,531,804
2013			6,997,101
2014			6,566,583
2015			6,363,644

Identifiable intangibles not subject to amortization consist solely of the tradename asset arising out of the March 4, 2004 Transaction and total $31,320,000. The tradename was determined to have an indefinite life based on our current intentions. We periodically review the underlying factors relative to this intangible asset. If factors were to change that would indicate the need to assign a definite life to this asset, we would do so and commence amortization.

5.

Long-Term Debt — Indebtedness at December 31, 2010 includes an amended and restated bank-administered credit agreement (the “ABL Credit Agreement”), which provides for a $75.0 million asset-based revolving credit facility (the “ABL Facility”), of which $15.5 million was outstanding under revolving lines of credit and $0.9 million was outstanding under a letter of credit at December 31, 2010; $200.0 million of 10.0% senior secured notes (the “Senior Secured Notes”) issued by NBC at a discount of $1.0 million with unamortized bond discount of $0.5 million at December 31, 2010 (effective rate of 10.14%); $175.0 million of 8.625% senior subordinated notes (the “Senior Subordinated Notes”) issued by NBC; $77.0 million of 11.0% senior discount notes (the “Senior Discount Notes”) issued at a discount of $27.0 million; $0.2 million of other indebtedness; and $2.6 million of capital leases. The ABL Facility is scheduled to expire on the earlier of October 2, 2012 or the date that is 91 days prior to the earliest maturity of the Senior Secured Notes (due December 1, 2011), the Senior Subordinated Notes (due March 15, 2012), the Senior Discount Notes (due March 15, 2013), or any refinancing thereof.

Borrowings under the ABL Facility are subject to the Eurodollar interest rate, not to be less than 1.5%, plus an applicable margin ranging from 4.25% to 4.75% or a base interest rate. The base interest rate is the greater of a) the prime rate, b) the federal funds rate plus 0.5%, or c) the one-month Eurodollar loan rate plus 1.0%, not to be less than 2.5%, plus an applicable margin ranging from 3.25% to 3.75%. In addition, the applicable margin will increase 1.5% during the time periods from April 15 to June 29 and from December 1 to January 29 of each year. The interest rate as of December 31, 2010 was 8.0%. There also is a commitment fee for the ABL Facility ranging from 0.75% to 1.0%. The ABL Facility is secured by a first priority interest in substantially all of our and our subsidiaries’ property and assets, which also secure the Senior Secured Notes on a second priority basis.

The Senior Secured Notes pay cash interest semi-annually and mature on December 1, 2011. The Senior Subordinated Notes pay cash interest semi-annually and mature on March 15, 2012. The Senior Discount Notes, which became fully-accreted on March 15, 2008 and began to pay cash interest semi-annually on September 15, 2008, mature on March 15, 2013.

The ABL Credit Agreement requires us to maintain certain financial ratios and contains a number of other covenants that among other things, restricts our ability and the ability of certain of our subsidiaries to incur additional indebtedness, dispose of assets, make capital expenditures, investments, acquisitions, loans or advances and pay dividends, except that, among other things, NBC may pay dividends to us (i) in an amount not to exceed the amount of interest required to be paid on the Senior Discount Notes and (ii) to pay corporate overhead expenses not to exceed $250,000 per fiscal year and any taxes we may owe. In addition, under the ABL Facility, if availability, as defined in the ABL Credit Agreement, is less than the greater of 20% of the total revolving credit commitments and $15.0 million, we will be required to maintain a fixed charge coverage ratio of at least 1.10x measured for the last twelve-month period on a pro forma basis in order to maintain access to the funds under the ABL Facility. The calculated borrowing base as of December 31, 2010 was $74.1 million, of which $15.5 million was outstanding under revolving lines of credit, $0.9 million was outstanding under a letter of credit and $57.7 million was unused. At December 31, 2010, our pro forma fixed charge coverage ratio was 1.4x.

The indenture governing the Senior Discount Notes restricts our ability and the ability of certain of our subsidiaries to pay dividends or make certain other payments, subject to certain exceptions, unless certain conditions are met, including (i) no default under the indenture has occurred, (ii) we and certain of our subsidiaries maintain a consolidated coverage ratio of 2.0 to 1.0 on a pro forma basis and (iii) the amount of the dividend or payment may not exceed 50% of aggregate income from January 1, 2004 to the end of the most recent fiscal quarter plus cash proceeds received from the issuance of stock less the aggregate of payments made under this restriction (the “Restricted Payment Calculation”). If we do not meet the preceding conditions, we may still pay dividends or make certain other payments up to $15.0 million in the aggregate. At December 31, 2010, our pro forma consolidated coverage ratio was 1.4 to 1.0 and the amount distributable under the Senior Discount Notes was $15.0 million.

The indentures governing the Senior Subordinated Notes and the Senior Secured Notes contain similar restrictions on the ability of NBC and certain of its subsidiaries to pay dividends or make certain other payments. In addition, under the indentures to the Senior Subordinated Notes and the Senior Secured Notes, if there is no availability under the Restricted Payment Calculation, but NBC maintains the 2.0 to 1.0 consolidated coverage ratio on a pro forma basis, NBC may make dividends to us to meet the interest payments on the Senior Discount Notes. If NBC does not maintain the 2.0 to 1.0 ratio on a pro forma basis, it may still make payments, including dividends to us, up to $15.0 million in the aggregate. At December 31, 2010, NBC’s pro forma consolidated coverage ratio calculated under the indenture to the Senior Subordinated Notes was 1.7 to 1.0 and the ratio calculated under the indenture to the Senior Secured Notes was 1.8 to 1.0. The pro forma consolidated coverage ratio calculated under the indenture to the Senior Subordinated Notes differs from the ratio calculated under the indenture to the Senior Secured Notes because the indenture to the Senior Subordinated Notes excludes debt issue cost amortization only for debt instruments outstanding at the March 4, 2004 Transaction date from the calculation, whereas the indenture to the Senior Secured Notes excludes the higher debt issue cost amortization for the Senior Secured Notes and the ABL Facility, which were issued in October of 2009, from the same calculation. At December 31, 2010, the amount distributable by NBC under the most restrictive indenture was $6.5 million after applying $8.5 million of dividends NBC paid to us for the March 15, 2010 and September 15, 2010 interest on the Senior Discount Notes. Such restrictions are not expected to affect our ability to meet our cash obligations for the remainder of fiscal year 2011.

At December 31, 2010, we were in compliance with all of our debt covenants.

6.

Redeemable Preferred Stock — At December 31, 2010, we had 10,000 shares of Series A Redeemable Preferred Stock (“Preferred Stock”). Each share of the Preferred Stock has a par value of $1,000 and accrues dividends annually at 15.0% of the liquidation preference, which is equal to $1,000 per share, as adjusted. The Preferred Stock may be redeemed at the option of the holders of a majority of the Preferred Stock, on the occurrence of a change of control, as defined in our First Amended and Restated Certificate of Incorporation, at a redemption price per share equal to the liquidation preference plus accrued and unpaid dividends; provided that any redemption is subject to the restrictions limiting or prohibiting any redemptions contained in the ABL Credit Agreement. If we are unable to redeem all shares outstanding, the holders of the remaining outstanding shares will have the right to accrue dividends at the rate of 17.5% per annum.

Due to the nature of the redemption feature, we have classified the Preferred Stock as temporary equity and have measured the Preferred Stock at redemption value. As of December 31, 2010, there have been no changes in circumstance that would require the redemption of the Preferred Stock or permit the payment of cumulative preferred dividends. As of December 31, 2010, unpaid accumulated dividends were $3.1 million and are included in the redemption value of the Preferred Stock.

7.

Fair Value Measurements — The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard excludes lease classification or measurement (except in certain instances).

A three-level hierarchal disclosure framework that prioritizes and ranks the level of market price observability is used in measuring assets and liabilities at fair value on a recurring basis in the statement of financial position. Market price observability is impacted by a number of factors, including the type of asset or liability and its characteristics. Assets and liabilities with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

The three levels are defined as follows: Level 1 — inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets; Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Fair Value Measurements and Disclosures Topic of the FASB ASC also applies to disclosures of fair value for all financial instruments disclosed under the Financial Instruments Topic of the FASB ASC. The Financial Instruments Topic requires disclosures about fair value for all financial instruments, whether recognized or not recognized in the statement of financial position. For financial instruments recognized at fair value on a recurring basis in the statement of financial position, the three-level hierarchal disclosure requirements also apply.

Our revolving credit facility and long-term debt are not measured at estimated fair value on a recurring basis in the statement of financial position so they do not fall under the three-level hierarchal disclosure requirements. The fair value of our revolving credit facility approximates carrying value due to its short-term nature. The estimated fair value of the Senior Subordinated Notes, the Senior Discount Notes and the Senior Secured Notes, all of which are at a fixed rate, is determined utilizing the “market approach” based upon quoted prices for these instruments in markets that are not active. Other fixed rate debt (including capital lease obligations) estimated fair values are determined utilizing the “income approach”, calculating a present value of future payments based upon prevailing interest rates for similar obligations.

Estimated fair values for our revolving credit facility and our fixed rate long-term debt at December 31, 2010, March 31, 2010 and December 31, 2009 is summarized in the following table:

		December 31,				March 31,				December 31,
		2010				2010				2009
Carrying Values:
Revolving credit facility		$	15,500,000			$	—			$	23,100,000
Fixed rate debt			454,270,167				454,624,262				454,752,261
Fair Values:
Revolving credit facility		$	15,500,000			$	—			$	23,100,000
Fixed rate debt			407,400,000				438,537,000				402,993,000

We primarily account for intersegment sales as if the sales were to third parties (at current market prices). Certain assets, net interest expense and taxes (excluding interest and taxes incurred by NBC’s wholly-owned subsidiaries, NBC Textbooks LLC, Net Textstore LLC, College Book Stores of America, Inc. (“CBA”), Campus Authentic LLC, and Specialty Books, Inc.) are not allocated between our segments; instead, such balances are accounted for in a corporate administrative division.

EBITDA and earnings before interest, taxes, depreciation, amortization and loss on early extinguishment of debt (“Adjusted EBITDA”) are important measures of segment profit or loss utilized by the Chief Executive Officer and President (chief operating decision makers) in making decisions about resources to be allocated to operating segments and assessing operating segment performance.

The following table provides selected information about profit or loss on a segment basis:

										Complementary
		Bookstore				Textbook				Services
		Division				Division				Division				Total
Quarter ended December 31, 2010:
External customer revenues		$	40,268,360			$	22,894,766			$	6,066,264			$	69,229,390
Intersegment revenues			105,418				9,123,396				2,522,714				11,751,528
Depreciation and amortization expense			2,300,835				1,531,120				269,516				4,101,471
Earnings before interest, taxes, depreciation and amortization (EBITDA)			(8,368,722	)			5,818,599				625,382				(1,924,741	)
Quarter ended December 31, 2009:
External customer revenues		$	35,946,154			$	23,643,734			$	7,068,696			$	66,658,584
Intersegment revenues			628,558				8,990,245				1,402,820				11,021,623
Depreciation and amortization expense			2,255,745				1,518,921				682,558				4,457,224
Earnings before interest, taxes, depreciation, amortization and loss on early extinguishment of debt (Adjusted EBITDA)			(6,432,938	)			5,960,451				556,068				83,581
Nine months ended December 31, 2010:
External customer revenues		$	308,409,724			$	85,183,518			$	20,827,459			$	414,420,701
Intersegment revenues			195,082				28,238,466				6,735,689				35,169,237
Depreciation and amortization expense			6,756,327				4,572,576				749,369				12,078,272
Earnings before interest, taxes, depreciation and amortization (EBITDA)			18,153,253				30,180,524				2,394,576				50,728,353
Nine months ended December 31, 2009:
External customer revenues		$	305,403,467			$	85,424,032			$	21,311,060			$	412,138,559
Intersegment revenues			1,385,982				31,728,270				4,581,679				37,695,931
Depreciation and amortization expense			6,885,874				4,559,710				2,042,835				13,488,419
Earnings before interest, taxes, depreciation, amortization and loss on early extinguishment of debt (Adjusted EBITDA)			22,175,114				31,831,524				1,669,013				55,675,651

The following table reconciles segment information presented above with consolidated information as presented in our condensed consolidated financial statements:

		Quarter Ended December 31,								Nine Months Ended December 31,
		2010				2009				2010				2009
Revenues:
Total for reportable segments		$	80,980,918			$	77,680,207			$	449,589,938			$	449,834,490
Elimination of intersegment revenues			(11,751,528	)			(11,021,623	)			(35,169,237	)			(37,695,931	)
Consolidated total		$	69,229,390			$	66,658,584			$	414,420,701			$	412,138,559
Depreciation and Amortization Expense:
Total for reportable segments		$	4,101,471			$	4,457,224			$	12,078,272			$	13,488,419
Corporate Administration			242,633				352,312				923,326				1,050,850
Consolidated total		$	4,344,104			$	4,809,536			$	13,001,598			$	14,539,269
Income Before Income Taxes:
Total Adjusted EBITDA for reportable segments		$	(1,924,741	)		$	83,581			$	50,728,353			$	55,675,651
Corporate Administration Adjusted EBITDA loss (including interdivision profit elimination)			(7,018,082	)			(6,101,610	)			(14,719,699	)			(13,187,402	)
			(8,942,823	)			(6,018,029	)			36,008,654				42,488,249
Depreciation and amortization			(4,344,104	)			(4,809,536	)			(13,001,598	)			(14,539,269	)
Consolidated income (loss) from operations			(13,286,927	)			(10,827,565	)			23,007,056				27,948,980
Interest and other expenses, net			(12,797,759	)			(15,853,952	)			(38,364,705	)			(39,566,655	)
Consolidated loss before income taxes		$	(26,084,686	)		$	(26,681,517	)		$	(15,357,649	)		$	(11,617,675	)

Our 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.

9.

Accounting Pronouncements Not Yet Adopted — In December 2010, the FASB issued Accounting Standards Update 2010-28, “Intangibles — Goodwill and Other (Topic 350) — When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“Update 2010-28”). Update 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. Update 2010-28 becomes effective for us in fiscal year 2012 and any impairment to be recorded upon adoption will be recognized as an adjustment to beginning retained earnings. Early adoption is not permitted. Management has not yet determined if the update will have a material impact on the consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue Recognition (Topic 605) — Multiple Deliverable Arrangements” (“Update 2009-13”). Update 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. The update addresses how to separate deliverables and how to measure and allocate arrangement considerations to one or more units of account. Update 2009-13 becomes effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. An entity may elect to adopt the standard on a retrospective basis. We expect to apply this standard on a prospective basis beginning April 1, 2011. Management has determined that the update will not have a material impact on the consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update 2009-14, “Software (Topic 985) — Certain Revenue Arrangements That Include Software Elements” (“Update 2009-14”). Update 2009-14 clarifies what guidance should be used in allocating and measuring revenue from vendors that sell or lease tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole. The amendments in this update do not affect software revenue arrangements that do not include tangible products nor do they affect software revenue arrangements that include services if the software is essential to the functionality of those services. Update 2009-14 becomes effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. An entity may elect to adopt the standard on a retrospective basis. We expect to apply this standard on a prospective basis beginning April 1, 2011. Management has determined that the update will not have a material impact on the consolidated financial statements.

10.

Related Party Transactions — In accordance with NBC’s debt covenants, NBC declared and paid $4.2 million in dividends to us during the nine months ended December 31, 2010 and 2009 to provide funding for interest due and payable on the Senior Discount Notes.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Acquisitions. Our Bookstore Division continues to grow its number of bookstores through acquisitions. We acquired three contract-managed bookstore locations in two separate transactions during the quarter ended December 31, 2010. We believe there are attractive opportunities for us to continue to expand our chain of bookstores across the country.

Revenue Results. Consolidated revenues for the quarter ended December 31, 2010 increased $2.6 million, or 3.9%, from the quarter ended December 31, 2009. The increase was primarily due to an increase in revenues in the Bookstore Division, which was partially offset by a decrease in revenues in the Textbook Division. Revenues increased in the Bookstore Division primarily due to an increase in additional revenue from new bookstores and to an increase in same-store sales. Revenues decreased in the Textbook Division primarily as a result of a decrease in units sold.

Adjusted EBITDA Results. Consolidated Adjusted EBITDA for the quarter ended December 31, 2010 decreased $2.9 million from the quarter ended December 31, 2009 primarily due to lower gross profit and higher selling, general and administrative expenses. EBITDA and Adjusted EBITDA are considered non-GAAP measures by the SEC, and therefore you should refer to the more detailed explanation of the measures that is provided later in this Item.

EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA is EBITDA adjusted for loss on early extinguishment of debt. There was no loss on early extinguishment of debt for the quarter and nine months ended December 31, 2010; therefore, Adjusted EBITDA equals EBITDA for those periods. As we are highly-leveraged and as our equity is not publicly-traded, management believes that the non-GAAP measures, EBITDA and Adjusted EBITDA, are useful in evaluating our results and provide additional information for determining our ability to meet debt service requirements. That belief is driven by the consistent use of the measures in the computations used to establish the value of our equity over the past 15 years and the fact that our debt covenants also use the measures, as further described later in this Item, to measure and monitor our financial results. Due to the importance of EBITDA and Adjusted EBITDA to our equity and debt holders, our chief operating decision makers and other members of management use EBITDA and Adjusted EBITDA to measure our overall performance, to assist in resource allocation decision-making, to develop our budget goals, to determine incentive compensation goals and payments, and to manage other expenditures among other uses.

With respect to covenant compliance calculations, EBITDA, as defined in the ABL Credit Agreement (hereinafter, referred to as “Credit Facility EBITDA”), includes additional adjustments to EBITDA. Credit Facility EBITDA is defined in the ABL Credit Agreement as: (1) consolidated net income, as defined therein; plus (2) the following items, to the extent deducted from consolidated net income: (a) income tax expense; (b) interest expense, amortization or write-off of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with indebtedness; (c) depreciation and amortization expense; (d) amortization of intangibles and organization costs; (e) any non-cash extraordinary, unusual or non-recurring expenses or losses; (f) any other non-cash charges; and (g) charges incurred on or prior to September 30, 2010 in connection with the restricted stock plan not to exceed $5.0 million in the aggregate; minus (3) the following items, to the extent included in the statement of net income for such period; (i) interest income; (ii) any extraordinary, unusual or non-recurring income or gains; and (iii) any other non-cash income. Credit Facility EBITDA is utilized when calculating the pro forma fixed charge coverage ratio under the ABL Credit Agreement. The pro forma consolidated coverage ratio under the indentures to the Senior Discount Notes, the Senior Subordinated Notes and the Senior Secured Notes uses EBITDA and the indentures define EBITDA similar to Credit Facility EBITDA except that charges incurred in connection with the restricted stock plan are not added back to consolidated net income. See Note 5 to the condensed consolidated financial statements for disclosure of certain of our financial covenants.

There are material limitations associated with the use of EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to net cash flows from operating activities or net income as determined by GAAP. Furthermore, EBITDA and Adjusted EBITDA do not necessarily indicate whether cash flows will be sufficient for cash requirements because the measures do not include reductions for cash payments for our obligation to service our debt, fund our working capital, make capital expenditures and make acquisitions or pay our income taxes and dividends; nor are they a measure of our profitability because they do not include costs and expenses such as interest, taxes, depreciation, amortization, and loss on early extinguishment of debt, which are significant components in understanding and assessing our financial performance. Even with these limitations, we believe EBITDA and Adjusted EBITDA, when viewed with both our GAAP results and the reconciliations to operating cash flows and net income, provide a more complete understanding of our business than otherwise could be obtained absent this disclosure. EBITDA and Adjusted EBITDA measures presented may not be comparable to similarly titled measures presented by other companies.

Challenges and Expectations

We expect that we will continue to face challenges and opportunities similar to those which we have faced in the recent past and, in addition, new and different challenges and opportunities. NBC’s three tranches of debt (the Senior Secured Notes, the ABL Facility and the Senior Subordinated Notes) each may mature within a period of six months of each other starting with the ABL Facility, which may mature on the earlier of October 2, 2012 or 91 days prior to the earliest maturity of the Senior Secured Notes, the Senior Subordinated Notes, the Senior Discount Notes, or any refinancing thereof, effectively September 1, 2011. As a consequence, we may be required to refinance the other tranches of debt in our capital structure in order to refinance the ABL Facility. We are currently working on a refinancing with our investment bankers. Due to our highly leveraged capital structure as well as reliance on market-based vendor payment terms, continued uncertainty in the credit markets and our future results of operations may negatively impact our ability to extend or refinance our existing debt on reasonable terms, or at all and to continue to utilize existing vendor payment terms. We have experienced, and we believe we will continue to experience, increasing competition for the supply of used textbooks from other companies, including other textbook wholesalers and from student-to-student transactions, increasing competition from alternative media and alternative sources of textbooks for students, including renting of textbooks from both online and local campus marketplace competitors, competition for contract-management opportunities and other challenges. We also believe that although there continues to be attractive opportunities related to acquisitions, we may not be able to identify additional bookstores for acquisition or we may not be successful in competing for contracts to manage additional institutional bookstores. Finally, we are uncertain what impact the current economy might have on our business. We expect that our capital expenditures will be consistent with prior periods.

Quarter Ended December 31, 2010 Compared With Quarter Ended December 31, 2009.

Revenues. Revenues for the quarters ended December 31, 2010 and 2009 and the corresponding change in revenues were as follows:

										Change
		2010				2009				Amount				Percentage
Bookstore Division		$	40,373,778			$	36,574,712			$	3,799,066				10.4	%
Textbook Division			32,018,162				32,633,979				(615,817	)			(1.9	)%
Complementary Services Division			8,588,978				8,471,516				117,462				1.4	%
Intercompany Eliminations			(11,751,528	)			(11,021,623	)			(729,905	)			6.6	%
		$	69,229,390			$	66,658,584			$	2,570,806				3.9	%

For the quarter ended December 31, 2010, Bookstore Division revenues increased $3.8 million, or 10.4%, from the quarter ended December 31, 2009. The increase in Bookstore Division revenues was attributable to additional revenue from new bookstores and an increase in same-store sales, which were partially offset by a decrease in revenues as a result of certain store closings. We have added 39 bookstore locations through acquisition or start-ups since April 1, 2009. The new bookstores provided an additional $2.9 million of revenue for the quarter ended December 31, 2010. Same-store sales for the quarter ended December 31, 2010 increased $1.6 million, or 4.7%, from the quarter ended December 31, 2009, primarily due to increased clothing and insignia wear and electronics revenues. We define same-store sales for the quarter ended December 31, 2010 as sales from any store, even if expanded or relocated, that we have operated since the start of fiscal year 2010. Revenues declined $0.7 million for the quarter ended December 31, 2010 as a result of certain store closings since April 1, 2009.

For the quarter ended December 31, 2010, Textbook Division revenues decreased $0.6 million, or 1.9%, from the quarter ended December 31, 2009 primarily due to a 4.2% decrease in units sold, which was partially offset by a 0.5% increase in average price per book sold. In addition, the decrease in revenues was partially offset by an increase in revenues from textbook rentals to third-parties. Complementary Services Division revenues increased $0.1 million, or 1.4%, from the quarter ended December 31, 2009, primarily due to an increase in revenues from our systems business, which was mostly offset by a decrease in revenues from our distance education business. Intercompany eliminations increased $0.7 million primarily as a result of an increase in intercompany revenues in our systems business.

Gross profit. Gross profit for the quarter ended December 31, 2010 decreased $0.5 million, or 1.8%, to $27.6 million from $28.1 million for the quarter ended December 31, 2009. The decrease in gross profit was attributable to a decrease in the Bookstore Division gross profit, which was partially offset by an increase in the Textbook Division gross profit. The consolidated gross margin percentage decreased to 39.8% for the quarter ended December 31, 2010 from 42.1% for the quarter ended December 31, 2009. The decrease in our consolidated gross margin percentage is primarily attributable to a decrease in the gross margin percentage for the Bookstore Division.

Selling, general and administrative expenses. Selling, general and administrative expenses for the quarter ended December 31, 2010 increased $2.4 million, or 7.1%, to $36.5 million from $34.1 million for the quarter ended December 31, 2009. Selling, general and administrative expenses as a percentage of revenues were 52.7% and 51.1% for the quarters ended December 31, 2010 and 2009, respectively. The increase in selling, general and administrative expenses was primarily attributable to a $1.4 million increase in consulting services related to expense reduction and top line growth initiatives such as inventory and pricing optimization and to a $0.8 million increase in rent expense primarily due to an increase in the number of bookstores. These increases were partially offset by a $0.6 million decrease in personnel costs primarily due to lower incentive compensation costs.

Earnings before interest, taxes, depreciation, amortization, and loss on early extinguishment of debt (Adjusted EBITDA). Adjusted EBITDA for the quarters ended December 31, 2010 and 2009 and the corresponding change in Adjusted EBITDA were as follows:

										Change
		2010				2009				Amount				Percentage
Bookstore Division		$	(8,368,721	)		$	(6,432,938	)		$	(1,935,783	)			(30.1	)%
Textbook Division			5,818,598				5,960,451				(141,853	)			(2.4	)%
Complementary Services Division			625,382				556,068				69,314				12.5	%
Corporate Administration			(7,018,082	)			(6,101,610	)			(916,472	)			(15.0	)%
		$	(8,942,823	)		$	(6,018,029	)		$	(2,924,794	)			(48.6	)%

Bookstore Division Adjusted EBITDA loss increased $1.9 million from the quarter ended December 31, 2009 primarily due to lower gross profit and to higher selling, general and administrative expenses. The $0.2 million, or 2.4%, decrease in Textbook Division Adjusted EBITDA from the quarter ended December 31, 2009, was primarily due to an increase in selling, general and administrative expenses. Corporate Administration’s Adjusted EBITDA loss increased $0.9 million from the quarter ended December 31, 2009, primarily due to an increase in consulting services expense.

For an explanation of why EBITDA and Adjusted EBITDA are useful measures in evaluating our operating results and how they provide additional information for determining our ability to meet debt service requirements, see “Adjusted EBITDA Results” earlier in this Item. The following presentation reconciles net loss, which we believe to be the closest GAAP performance measure, to EBITDA and Adjusted EBITDA and reconciles EBITDA and Adjusted EBITDA to net cash flows from operating activities, which we believe to be the closest GAAP liquidity measure, and also sets forth net cash flows from investing and financing activities:

		Quarter Ended December 31,
		2010				2009
Net loss		$	(16,292,686	)		$	(15,554,517	)
Interest expense, net			12,797,759				12,788,193
Income tax benefit			(9,792,000	)			(11,127,000	)
Depreciation and amortization			4,344,104				4,809,536
EBITDA		$	(8,942,823	)		$	(9,083,788	)
Loss on early extinguishment of debt			—				3,065,759
Adjusted EBITDA		$	(8,942,823	)		$	(6,018,029	)
Share-based compensation			8,973				309,421
Interest income			55,694				60,744
Provision for losses on receivables			616,457				280,618
Cash paid for interest			(10,296,317	)			(3,760,284	)
Cash paid for income taxes			(240,371	)			(4,205,015	)
Loss on disposal of assets			101,369				22,640
Changes in operating assets and liabilities, net of effect of acquisitions (1)			(72,552,134	)			(100,156,701	)
Net Cash Flows from Operating Activities		$	(91,249,152	)		$	(113,466,606	)
Net Cash Flows from Investing Activities		$	(2,554,530	)		$	(1,603,108	)
Net Cash Flows from Financing Activities		$	15,250,616			$	25,800,237

Amortization expense. Amortization expense for the quarter ended December 31, 2010 decreased $0.5 million to $2.2 million from $2.7 million for the quarter ended December 31, 2009, primarily due to a decrease in amortization of software development costs and to a decrease in amortization of non-compete agreements associated with bookstore acquisitions.

Loss on early extinguishment of debt. The loss on early extinguishment of debt of $3.1 million for the quarter ended December 31, 2009 relates to the write-off of debt issue costs as a result of the termination of the Term Loan and Revolving Credit Facility in October of 2009.

Income taxes. Income tax benefit for the quarter ended December 31, 2010 decreased $1.3 million to $9.8 million from $11.1 million for the quarter ended December 31, 2009. Our effective tax rate for the quarters ended December 31, 2010 and 2009 was 37.5% and 41.7%, respectively. The change in the effective tax rate is primarily due to certain states taxing on a gross receipts methodology. Our effective tax rate differs from the statutory tax rate primarily as a result of state income taxes.

Nine Months Ended December 31, 2010 Compared With Nine Months Ended December 31, 2009.

Revenues. Revenues for the nine months ended December 31, 2010 and 2009 and the corresponding change in revenues were as follows:

										Change
		2010				2009				Amount				Percentage
Bookstore Division		$	308,604,806			$	306,789,449			$	1,815,357				0.6	%
Textbook Division			113,421,984				117,152,302				(3,730,318	)			(3.2	)%
Complementary Services Division			27,563,148				25,892,739				1,670,409				6.5	%
Intercompany Eliminations			(35,169,237	)			(37,695,931	)			2,526,694				(6.7	)%
		$	414,420,701			$	412,138,559			$	2,282,142				0.6	%

For the nine months ended December 31, 2010, Bookstore Division revenues increased $1.8 million, or 0.6%, from the nine months ended December 31, 2009. The increase in Bookstore Division revenues was attributable to additional revenues from new bookstores, which were mostly offset by a decrease in same-store sales and a decrease in revenues as a result of certain store closings. We have added 39 bookstore locations through acquisitions or start-ups since April 1, 2009. The new bookstores provided an additional $20.9 million of revenue for the nine months ended December 31, 2010. Same-store sales for the nine months ended December 31, 2010 decreased $16.0 million, or 5.4%, from the nine months ended December 31, 2009, primarily due to decreased textbook revenues, which were partially offset by an increase in clothing and insignia wear and electronics revenues. The same-store sales decrease in textbooks is partly attributable to the rental program which we began implementing in our bookstores in the fourth quarter of fiscal year 2010. If the textbooks rented would have been sold instead, we estimate that same-store sales would have been approximately $8.8 million higher, lowering the same-store sales decrease to 2.4% for the nine months ended December 31, 2010. We define same-store sales for the nine months ended December 31, 2010 as sales from any store, even if expanded or relocated, that we have operated since the start of fiscal year 2010. In addition, revenues declined $3.1 million as a result of certain store closings since April 1, 2009.

For the nine months ended December 31, 2010, Textbook Division revenues decreased $3.7 million, or 3.2%, from the nine months ended December 31, 2009, due primarily to a 2.7% decrease in units sold and a 0.3% decrease in average price per book sold, which were partially offset by an increase in revenues from textbook rentals to third-parties. Complementary Services Division revenues increased $1.7 million, or 6.5%, from the nine months ended December 31, 2009, as an increase in revenue in our systems business was partially offset by a decrease in revenue from our distance education business. Intercompany eliminations for the nine months ended December 31, 2010 decreased $2.5 million, or 6.7%, from the nine months ended December 31, 2009 primarily due to a decrease in intercompany revenues in the Textbook Division.

Gross profit. Gross profit for the nine months ended December 31, 2010 increased $0.7 million, or 0.5%, to $160.5 million from $159.8 million for the nine months ended December 31, 2009. The increase in gross profit was primarily attributable to the increase in gross profit in the Bookstore Division. The consolidated gross margin percentage decreased slightly to 38.7% for the nine months ended December 31, 2010 from 38.8% for the nine months ended December 31, 2009. The decrease in our consolidated gross margin percentage was attributable to a decrease in the gross margin percentage for the Complementary Services Division, which was offset by increases in the Textbook Division and Bookstore Division gross margin percentages. The increase in the Bookstore Division gross margin percentage was primarily due to the rental program. Although the rental of a textbook through the Bookstore Division rental program has lower revenue compared to the sale of a textbook, the gross profit on the rental of a textbook has been comparable to gross profit on the sale of a textbook; therefore, the gross margin percentage on the rental of a textbook is generally higher.

Selling, general and administrative expenses. Selling, general and administrative expenses for the nine months ended December 31, 2010 increased $7.2 million, or 6.2%, to $124.5 million from $117.3 million for the nine months ended December 31, 2009. Selling, general and administrative expenses as a percentage of revenues were 30.0% and 28.5% for the nine months ended December 31, 2010 and 2009, respectively. The increase in selling, general and administrative expenses was primarily attributable to a $2.9 million increase in rent expense primarily due to an increase in the number of bookstores, a $2.3 million increase in commission and shipping expense primarily due to increased sales on the internet involving third-party websites, a $1.5 million increase in consulting services related to expense reduction and top line growth initiatives such as inventory and pricing optimization and a $1.5 million increase in advertising and travel and entertainment expenses. These increases were partially offset by a $2.0 million decrease in personnel costs primarily due to lower incentive compensation costs.

Earnings before interest, taxes, depreciation, amortization, and loss on early extinguishment of debt (Adjusted EBITDA). Adjusted EBITDA for the nine months ended December 31, 2010 and 2009 and the corresponding change in Adjusted EBITDA were as follows:

										Change
		2010				2009				Amount				Percentage
Bookstore Division		$	18,153,253			$	22,175,114			$	(4,021,861	)			(18.1	)%
Textbook Division			30,180,524				31,831,524				(1,651,000	)			(5.2	)%
Complementary Services Division			2,394,576				1,669,013				725,563				43.5	%
Corporate Administration			(14,719,699	)			(13,187,402	)			(1,532,297	)			(11.6	)%
		$	36,008,654			$	42,488,249			$	(6,479,595	)			(15.3	)%