UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL 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 our charter)

Delaware		47-0793347
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4700 South 19^th Street
Lincoln, NE 68501-0529
(Address of principal executive offices)

(402) 421-7300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes þ No o

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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

Market value of the registrant’s voting stock held by non-affiliates of the registrant — Not applicable as registrant’s stock is not publicly traded.

There were 554,094 shares of common stock outstanding as of July 14, 2011.

DOCUMENTS INCORPORATED BY REFERENCE: None

Total Number of Pages: 118

Exhibit Index: Page 113

 

 

TABLE OF CONTENTS

PART I:
Item 1 Business			3
Item 1A Risk Factors			13
Item 2 Properties			18
Item 3 Legal Proceedings			18
Item 4 (Reserved and Removed)			19
PART II:
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			19
Item 6 Selected Financial Data			20
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 7A Quantitative and Qualitative Disclosures about Market Risk			42
Item 8 Financial Statements and Supplementary Data			44
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			86
Item 9A Controls and Procedures			86
Item 9B Other Information			86
PART III:
Item 10 Directors, Executive Officers and Corporate Governance			87
Item 11 Executive Compensation			89
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			99
Item 13 Certain Relationships and Related Transactions, and Director Independence			100
Item 14 Principal Accountant Fees and Services			100
PART IV:
Item 15 Exhibits and Financial Statement Schedules			101
Signatures			107
Supplemental Information to be Furnished			107
Financial Statement Schedule I — Condensed Financial Information (Parent Company Only)			108
Financial Statement Schedule II — Valuation and Qualifying Accounts			112
Exhibit Index			113
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I.

ITEM 1. BUSINESS.

References in this Annual Report on Form 10-K to the “Company” refer to NBC Acquisition Corp., to “NBC” refer to Nebraska Book Company, Inc., a wholly-owned subsidiary of the Company, and to “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.

The Company was formed for the purpose of acquiring all of the outstanding capital stock of NBC, effective September 1, 1995. The Company does not conduct significant activities apart from its investment in NBC. Operational matters discussed in this report, including the acquisition of college bookstores and other related businesses, refer to operations of NBC.

On March 4, 2004, Weston Presidio (Weston Presidio Capital III, L.P., Weston Presidio Capital IV, L.P., WPC Entrepreneur Fund, L.P., and WPC Entrepreneur Fund II, L.P.) gained a controlling interest in us through (i) the formation of two new corporations, NBC Holdings Corp. and New NBC Acquisition Corp.; (ii) a $28.2 million equity investment by Weston Presidio in NBC Holdings Corp., funds for which were ultimately paid to us in the form of a capital contribution; (iii) Weston Presidio’s purchase of 36,455 shares of our common stock directly from our holders; (iv) the cancellation of 870,285 shares of our common stock upon payment by us of merger consideration of $180.4 million to the shareholders of record for such shares; (v) the exchange of 397,711 shares of our common stock for 512,799 shares of New NBC Acquisition Corp. capital stock in the merger of the two entities with us as the surviving entity; and (vi) the exchange of 512,799 shares of our common stock by Weston Presidio and current and former members of NBC management for a like number of shares of NBC Holdings Corp. capital stock. Payment of the $180.4 million of merger consideration was funded through proceeds from the $28.2 million capital contribution, available cash, and proceeds from $405.0 million in new debt financing, of which $261.0 million was used to retire certain debt instruments outstanding at March 4, 2004 or to place funds in escrow for untendered debt instruments called for redemption on March 4, 2004 and redeemed on April 3, 2004. Throughout this Annual Report, we generally refer to all of the steps comprising this transaction as the “March 4, 2004 Transaction.”

On April 27, 2004, we filed Registration Statements on Form S-4 with the Securities and Exchange Commission (the “SEC”) for purposes of registering debt securities to be issued in exchange for the Senior Subordinated Notes and Senior Discount Notes arising out of the March 4, 2004 Transaction. The SEC declared such Registration Statements effective on May 7, 2004. All notes were tendered in the offers to exchange which were completed on June 8, 2004.

On October 2, 2009, in conjunction with the completion of NBC’s offering of the Senior Secured Notes and payment in full of the Term Loan, NBC entered into the ABL Credit Agreement which provided for the ABL Facility and replaced the Revolving Credit Facility (collectively the “Refinancing”).

On January 8, 2010, NBC filed a Registration Statement on Form S-4 with the SEC for purposes of registering debt securities to be issued in exchange for the Senior Secured Notes arising out of the Refinancing. The SEC declared the Registration Statement effective on February 8, 2010. All notes were tendered in the offer to exchange that expired on March 15, 2010.

Bankruptcy Proceedings

On June 27, 2011 (the “Petition Date”), we and NBC and all of its subsidiaries (the “Debtors”) filed voluntary petitions for reorganization relief under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Court”). The reorganization cases are being jointly administered as Case No. 11-12005 under the caption “in re Nebraska Book Company. Inc., et al.” (hereinafter referred to as the “Chapter 11 Proceedings”). We continue to operate our businesses as “debtors-in-possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court.

The Chapter 11 Proceedings were initiated in response to our inability to fully refinance our existing debt and vendors’ unwillingness to extend credit to us under normal terms due to uncertainties with respect to refinancing.

As part of the Chapter 11 Proceedings and as discussed further below, our goal is to develop and implement a plan of reorganization that meets the standards for confirmation under the Bankruptcy Code. Confirmation of a plan of reorganization or other arrangement could materially alter the classifications and amounts reported in the consolidated financial statements, which do not give effect to any adjustments to the carrying values of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization or other arrangement or the effect of any operational changes that may be implemented. Under Section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stays most actions against a debtor, including most actions to collect pre-petition indebtedness or to exercise control over our property. Subsequent to the Petition Date, we received approval from the Court to pay or otherwise honor certain pre-petition claims of certain critical vendors, certain customer programs, and certain other pre-petition claims. Additionally, we have been paying and intend to continue to pay undisputed post-petition claims in the ordinary course of business. Accordingly, although commencement of the Chapter 11 Proceedings triggered defaults on substantially all of our debt obligations, creditors are stayed from taking any actions as a result of such defaults. Absent an order of the Court, substantially all of our pre-petition liabilities are subject to settlement under a plan of reorganization. As a result of the Chapter 11 Proceedings, the realization of assets and the satisfaction of liabilities are subject to uncertainty. Additional details regarding the status of our Chapter 11 Proceedings are included in Note C to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data.

We are paying, and intend to continue paying, claims arising after the Petition Date in the ordinary course of business. We are currently funding post-petition operations under a $200.0 million Superpriority Debtor-In-Possession Credit Agreement (the “DIP Credit Agreement”), consisting of a $125.0 million debtor-in-possession term loan facility (the “DIP Term Loan Facility’) and a $75.0 million debtor-in-possession revolving facility (the “DIP Revolving Facility”). We have retained, pursuant to Court approval, legal and financial professionals to advise us in connection with the Chapter 11 Proceedings and certain other professionals to provide services and advice in the ordinary course of business. From time to time, we may seek Court approval to retain additional professionals.

We have incurred and expect to continue to incur significant costs associated with the Chapter 11 Proceedings and our reorganization.

Plan of Reorganization

In order for us to emerge successfully from the Chapter 11 Proceedings, we must obtain approval from the Court and our creditors for a plan of reorganization, which will enable us to transition from the Chapter 11 Proceedings into ordinary course operations outside of bankruptcy. In connection with a plan of reorganization, we also may require a new credit facility, or “exit financing.” Our ability to obtain such approval and financing will depend on, among other things, the timing and outcome of various ongoing matters in the Chapter 11 Proceedings. A plan of reorganization determines the rights and satisfaction of claims of various creditors and security holders, and is subject to the ultimate outcome of negotiations and Court decisions ongoing through the date on which the plan of reorganization is confirmed.

On June 27, 2011, we filed with the Court a restructuring support agreement, which contained a proposed plan of reorganization (the “Plan”). The Plan calls for the issuance of new senior secured notes, new senior unsecured notes and the split of new common equity interests in us between the holders of the Pre-Petition Senior Subordinated Notes (78%) and the holders of the Pre-Petition Senior Discount Notes (22%). The ultimate recovery to creditors and/or our shareholders, if any, will not be determined until confirmation of a plan of reorganization.

Going Concern

Our audited consolidated financial statements for the year ended March 31, 2011 have been prepared assuming that we will continue as a going concern. However, our ability to: (i) comply with terms of the DIP Credit Agreement; (ii) comply with various orders entered by the Court in connection with the Chapter 11 Proceedings; (iii) maintain adequate cash on hand; (iv) generate sufficient cash from operations; (v) achieve confirmation of a plan of reorganization under the Bankruptcy Code; (vi) obtain financing to facilitate an exit from bankruptcy;  and (vii) achieve profitability following such confirmation is uncertain and would have a material impact on our financial statements.

General

We sell or rent a variety of new and used textbooks and sell general merchandise, such as apparel, general books, sundries and gift items, through our nationwide chain of bookstores on or adjacent to college campuses. We also engage in these activities on the internet through hundreds of websites operated by us as well as numerous third-party websites. We believe we are also one of the largest wholesale distributors of used college textbooks in North America, offering approximately 107,000 textbook titles and selling over 6.1 million books annually, primarily to bookstores serving campuses located in the United States. We are also a provider of distance education materials to students in non-traditional courses, which include correspondence and corporate education courses. Furthermore, we provide the college bookstore industry with a variety of services including proprietary information and e-commerce systems, in-store promotions, buying programs, and consulting services. With origins dating to 1915 as a single bookstore operation, we have built a consistent reputation for excellence in order fulfillment, shipping performance and customer service.

We entered the wholesale used textbook market following World War II, when the supply of new textbooks could not meet the demand created by the return of ex-GI students. We became a national, rather than a regional, wholesaler of used textbooks as a result of our purchase of The College Book Company of California. During the 1970’s, we continued our focus on the wholesale business. However, realizing the synergies that exist between wholesale operations and college bookstore operations, in the 1980’s, we expanded our efforts in the college bookstore market to primarily operate bookstores on or near larger campuses, typically where the institution-owned college bookstore was contract-managed by a competitor or where we did not have a significant wholesale presence. In the last several fiscal years, we have revised our college bookstore strategy to expand our efforts in the contract-management of on-campus institutional bookstores. Today, we service the college bookstore industry through our Bookstore, Textbook, and Complementary Services Divisions.

Bookstore Division. College bookstores are a primary outlet for sales and rental of new and used textbooks to students. We also sell a variety of other merchandise including apparel, general books, sundries, and gift items. In addition to in-store sales and rentals, we sell and rent textbooks and sell other merchandise on the internet through our own bookstores’ websites as well as numerous third-party websites. As of March 31, 2011, we operated 292 college bookstores on or adjacent to college campuses. Of these 292 bookstores, 154 were leased from the educational institution that they serve (also referred to as contract-managed) and 138 were owned or leased off-campus bookstores. On May 1, 2006, we acquired 101 college bookstore locations, 98 of which were contract-managed, through the acquisition of all of the outstanding stock of College Book Stores of America, Inc. (“CBA”). CBA began providing contract-management services to small to medium-sized colleges and universities nationwide in 1984.

Our college bookstores are located on or near college campuses of all sizes, including some of the nation’s largest campuses, such as: Arizona State University; Ohio State University; University of Florida; Michigan State University; Texas A&M University; University of Central Florida; Pennsylvania State University; University of Michigan; Florida State University; and University of Arizona. In addition to generating profits, our Bookstore Division provides an exclusive source of used textbooks for sale across our wholesale distribution network.

Textbook Division. We believe we are one of the largest wholesale distributors of used college textbooks in North America. Our Textbook Division consists primarily of selling used textbooks to college bookstores and on the internet through third-party websites, buying them back from students or college bookstores at the end of each school semester and then reselling them to college bookstores and on the internet. We purchase used textbooks from and resell them to college bookstores on or near college campuses of all sizes, including many of the nation’s largest campuses, such as: University of Virginia; Oregon State University; University of Texas; University of Illinois; University of Washington; University of Southern California; and Long Beach State University. Historically, because the demand for used textbooks has consistently outpaced the supply, Textbook Division sales have been determined primarily by the amount of used textbooks that we could purchase. Our strong relationships with the management of college bookstores nationwide have provided important access to valuable market information regarding the campus-by-campus supply and demand of textbooks, as well as an ability to procure large quantities of a wide variety of textbooks. We provide an internally-developed Buyer’s Guide to our Textbook Division customers. This guide lists details such as author, new copy retail price, and our repurchase price for approximately 51,000 textbook titles.

Complementary Services Division. With our acquisition of Specialty Books, Inc. (“Specialty Books”) in May 1997, we entered the distance education market, which consists of providing education materials to students in private high schools, non-traditional colleges and other courses (such as correspondence courses, continuing and corporate education courses and courses offered through electronic media such as the internet).

Other services offered to college bookstores include the sale of computer hardware and software, such as our turnkey bookstore management software that incorporates point of sale, inventory control and accounting modules, and related maintenance contracts. We have installed our proprietary total store management system at over 980 college bookstore locations, and we have an installed base of approximately 190 college bookstore locations for our textbook management control systems. In total, including our own bookstores, almost 1,200 college bookstore locations use our bookstore management software products.

On July 1, 2003, we acquired all of the outstanding shares of common stock of TheCampusHub.com, Inc. (“CampusHub”), an entity that was affiliated with us through common ownership. CampusHub is no longer separately incorporated and is instead represented as our internet services division, a part of our Complementary Services Division. Our internet services division provides college bookstores with our WebPRISM product, a proprietary software platform designed to provide bookstores a way to sell in-store inventory and virtual brand name merchandise over the internet. This technology is utilized at approximately 660 bookstores, including our own bookstores.

We also provide centralized buying, consulting and store design services to assist college bookstores with their operations.

Industry Segment Financial Information

Revenue, operating profit or loss, and identifiable assets attributable to each of our reportable segments are disclosed in the notes to the consolidated financial statements presented in Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K. We make our periodic and current reports available, free of charge, through www.nebook.com as soon as reasonably practicable after such material is electronically filed with the SEC. Information contained on our website is not a part of this Annual Report on Form 10-K.

The website for documents relating to the Chapter 11 Proceedings is located at www.kccllc.net/nbc.

Business Strategy

Our objective is to strengthen our position as a leading provider of products and services to the college bookstore market, thereby increasing revenue and cash flow. In order to accomplish our goal, we intend to pursue the following strategies:

Capitalize on college bookstore opportunities. We intend to increase revenues for our Bookstore Division by opening or contract-managing additional bookstores at selected college campuses and by offering enhanced textbook rental programs, digital content options, general merchandise, specialty products and services at our existing bookstores. We intend to pursue revenue growth and expand the buyback of used textbook inventory through the increased use of technology. We intend to enhance our ability to capitalize on internet activity by continuing to sell on third-party marketplaces. We also intend to increase both in-store and internet transactions through the introduction and use of a national brand, Neebo, and a national website, Neebo.com. Neebo.com currently enables us to have one website which combines the inventories of all of our bookstores into a single presentation. Moving forward, our individual bookstore websites will become a part of the overall Neebo.com website, increasing efficiency and effectiveness of our online offerings.

Re-establish growth in the Textbook Division. We expect the Textbook Division to continue to be a primary contributor of revenues and cash flows, primarily as a result of an expected increase in college enrollments, continued utilization of used textbooks, and through the expansion of our own Bookstore Division, which should provide an additional supply of used textbooks. In fiscal year 2011, we launched a program to assist customers in renting textbooks in their bookstores and in turn, these customers agree to supply us with the textbooks. Additionally, our commission structure is designed to reward customers who make a long-term commitment to supplying us with a large portion of their textbooks, and we continue to change and enhance our marketing campaign to increase student awareness of the benefits of buying and selling used textbooks. Finally, we expect to continue to utilize technology to enhance our ability to acquire and sell used textbooks in this division.

Increased market penetration through technology solutions. We intend to continue generating incremental revenue through the sale of our turnkey bookstore management software that incorporates point of sale, inventory control and accounting modules. The installation of our software, along with e-commerce technology offered through our internet services division also increases the channels through which we can access the college and university market.

Expansion of other services programs. We intend to continue to develop and provide other services that enhance the college bookstore business, such as distance education distribution, our centralized buying group, store design consulting and other technology-related programs.

Industry Overview

Based on recent industry trade data from the National Association of College Stores, we believe the college bookstore industry remains strong, with approximately 4,500 college bookstores generating annual sales of approximately $10.3 billion in the 2009-10 academic year to college students and other consumers in the United States. Sales of textbooks and other education materials used for classroom instruction comprise approximately sixty-two percent of that amount. We expect this market will continue to grow as a result of continuing increases in enrollment at U.S. colleges as estimated by the U.S. Department of Education. The United States Department of Education projects that total enrollment in the United States colleges will increase from 18.2 million in 2008 to 19.0 million in 2012.

College bookstore market. College bookstores generally fall into three categories:

	(i)		institutional — bookstores that are primarily owned and operated by institutions of higher learning, generally located on-campus;
	(ii)		contract-managed — bookstores owned by institutions of higher learning and managed by outside, private companies, typically found on-campus; and
	(iii)		independent — privately owned and operated bookstores, generally located off campus.

Wholesale textbook market. We believe that used textbooks will continue to be attractive to both students and college bookstores. Used textbooks provide students with a lower-cost alternative to new textbooks and bookstores typically achieve higher margins through the sale of used rather than new textbooks.

The pricing pattern of textbook publishing accounts for a large part of the growth of the used textbook market. Because of copyright restrictions, each new textbook is produced by only one publisher, which is free to set the new copy retail price and discount terms to bookstores. Based on our experience, publishers generally offer new textbooks at prices that enable college bookstores to achieve a gross margin of 23.0% to 25.0% on new textbooks. Historically, the high retail costs of new textbooks and the higher margins achieved by bookstores on the sale of used textbooks have encouraged the growth of the market for used textbooks.

The used textbook cycle begins with new textbook publishers, who purposely plan obsolescence into the publication of new textbooks. Generally, new editions of textbooks are produced every two to four years. In the first year of a new edition, there are few used copies of a new edition available. In the second and third years, used textbooks become increasingly available. Simultaneously, publishers begin to plan an updated edition. In years four and beyond, at the end of the average life cycle of a particular edition, as publishers cut back on original production, used textbooks generally represent a majority (in unit terms) of the particular edition in use. While the length of the cycle varies by title (and sometimes is indefinite, as certain titles are never updated), the basic supply/demand progression remains fairly consistent.

College bookstores begin to place orders with used textbook wholesalers once professors determine which textbooks will be required for their upcoming courses, usually by the end of May for the fall semester and the end of November for the spring semester. Bookstore operators must first determine their allocation between new and used copies for a particular title but, in most cases, they will order an ample supply of used textbooks because: (i) used textbook demand from students is typically strong and consistent; (ii) many operators only have access to a limited supply from wholesalers and believe that not having used textbook alternatives could create considerable frustration among students and with the college administration; (iii) bookstore operators earn higher margins on used textbooks than on new textbooks; and (iv) both new and used textbooks are sold with return privileges, eliminating any overstock risk (excluding freight charges) to the college bookstore.

New textbook ordering usually begins in June (for the fall semester), at which time the store operator augments its expected used textbook supply by ordering new textbooks. By this time, publishers typically will have just implemented their annual price increases. These regular price increases allow us and our competitors to buy used textbooks based on old list prices (in May) and to almost simultaneously sell them based on new higher prices, thereby creating an immediate margin increase.

While price is an important factor in the store operator’s purchasing decision, available supply, as well as service, usually determine with which used textbook wholesaler a college bookstore will develop a strong relationship. Used textbook wholesalers that are able to significantly service a college bookstore account typically receive preferential treatment from store operators, both in selling and in buying used textbooks. Pure exclusive supply arrangements in our market are rare; however, in the past nine to ten fiscal years, we have been marketing certain supply programs to the industry. These programs reward customers who make a long-term commitment to supplying us with a large portion of their books through enhanced commissions, express returns, and book-buy promotion ideas and marketing materials. At the end of fiscal year 2011, over 460 bookstores were participating in these programs. Since we are usually able to sell or rent a substantial majority of the used textbooks we are able to purchase, our ability to obtain sufficient supply is a critical factor in our success.

Products and Services

Bookstore Division. As of March 31, 2011, we operated 292 college bookstores on or adjacent to college campuses. These bookstores sell and rent a wide variety of used and new textbooks and sell general books and assorted merchandise, including apparel, sundries and gift items. Over the past three fiscal years, external customer revenues (revenues excluding intercompany revenues) of our bookstores from activities other than used and new textbook sales and rentals have been between 16.6% and 19.1% of total revenues. We have been, and intend to continue, selectively expanding our product offerings at our bookstores in order to increase revenues and profitability. We have also installed, and are continually improving, software that provides e-commerce capabilities in all of our own bookstores, thereby allowing our bookstores to further expand product offerings and compete with other online textbook and general merchandise sellers. All of our bookstores sell and rent through Neebo.com. All of our bookstores sell and rent through their own websites which will continue as part of the new branded website, Neebo.com. In addition, many stores also sell textbooks and general merchandise through third-party websites that are popular among college students such as Amazon.com and Half.com.

Textbook Division. Our Textbook Division is engaged in the procurement and redistribution of used textbooks on college campuses primarily across the United States and through third-party websites. The portion of the used textbook business that our division operates in is limited to certain stores, certain textbooks and certain third-party websites. In general, the portion of the college bookstore market that our Textbook Division cannot access includes those contract-managed stores that are not operated by us that sell their used textbooks to affiliated companies, institutional and independent bookstores, to the extent that such used textbooks are repurchased from students and are retained by the bookstore for resale without involving a wholesaler and third-party websites that we do not buy and sell used textbooks through.

We publish the Buyer’s Guide, which lists approximately 51,000 textbooks according to author, title, new copy retail price, and our repurchase price. The Buyer’s Guide is an important part of our inventory control and textbook procurement system. We update and reprint the Buyer’s Guide nine times each year and make it available in both print and various electronic formats, including on our proprietary software applications. A staff of dedicated professionals gathers information from all over the country in order to make the Buyer’s Guide into what we believe to be the most comprehensive and up-to-date pricing and buying aid for college bookstores. We also maintain a database of approximately 169,000 titles in order to better serve our customers.

Complementary Services Division. Through Specialty Books, we have access to the market for distance education products and services. Currently, we provide students at approximately 11 colleges and private high schools with textbooks and materials for use in distance education and other education courses, and we are a provider of textbooks to non-traditional programs and students such as correspondence or corporate education students. We believe the fragmented distance education market represents an opportunity for us to leverage our fulfillment and distribution expertise in a growing sector of the industry. Beyond textbooks, we offer services and specialty course materials to the distance education marketplace. Students are provided a web portal allowing them a secure and easy-to-use method for obtaining their course materials. Over the past three fiscal years, external customer revenues of Specialty Books have been between 42.3% and 54.9% of total Complementary Services Division revenues.

Other services offered to college bookstores include services related to our turnkey bookstore management software that incorporates point of sale, inventory control and accounting modules, the sale of other software and hardware, and the related maintenance contracts. These services generate revenue and assist us in gaining access to new sources of used textbooks. We have installed our proprietary total store management system at over 980 college bookstore locations, and we have an installed base of approximately 190 college bookstore locations for our textbook management control systems. In total, including our own bookstores, almost 1,200 college bookstore locations use our bookstore management software products. In addition, we have developed software

for e-commerce capabilities, which allows college bookstores to launch their own e-commerce site and effectively compete against other online textbook and general merchandise sellers by offering textbooks and both traditional and non-traditional store merchandise online. Presently, there are approximately 660 stores, including our own stores, licensing our e-commerce technology. We also offer a digital delivery solution which allows a college bookstore to offer students the option of purchasing e-books in addition to new and used textbooks. On April 14, 2008, we announced an agreement with CourseSmart, a comprehensive supplier of digital course materials, which establishes us as CourseSmart’s preferred supplier of e-books to the college bookstore community. Further, on June 21, 2011, we announced a partnership with SharedBook, Inc., an organization focused on the assembly and composition of custom digital content, which provides us with new capabilities in the customization and distribution of digital course materials.

Connect 2 One is a buying group which has established substantial purchasing clout by aggregating the purchasing power of approximately 660 participating stores in addition to our own bookstores (“C2O”). Through C2O, we are able to offer a variety of products and services to participating college bookstores. C2O negotiates apparel, supplies, gifts, and general merchandise discounts and develops and executes marketing programs for its membership. Other C2O marketing services include a freight savings program, a credit card processing program, a shopping bag program, and retail display allowances for magazine displays. Additionally, the C2O staff of experienced professionals consults with the management and buyers of member bookstores. Consulting services offered include strategic planning, store review, merchandise assortment planning, buyer training, and help with other operational aspects of the business. While consulting has historically represented a relatively small component of C2O’s business, it is nonetheless strategically important to the ongoing success of this aspect of our business.

We also provide consulting and store design services to assist college bookstores in store presentation and layout.

Business Description

Bookstore Division. An important aspect of our business strategy is a program designed to reach new customers through the opening of bookstores adjacent to college campuses or the contract-management of bookstores on campus. In addition to generating sales or rentals of new and used textbooks and sales of general merchandise, these outlets enhance our Textbook Division by increasing the inventory of used books purchased from the campus.

A desirable campus for a company-operated, off-campus college bookstore is one on which our Textbook Division does not currently buy or sell used textbooks either because a competitor contract-manages the college’s bookstore or the college bookstore does not have a strong relationship with us. We generally will not open a location on a campus where we already have a strong relationship with a college bookstore serving that campus because some college bookstores may view having a competing location as a conflict of interest. A desirable campus for contract-management is one where the current contract-management service is being provided by a competitor of ours and the contract is expiring.

We tailor each of our own bookstores to fit the needs and lifestyles of the campus on which it is located. Individual bookstore managers are given significant planning and managing responsibilities, including, hiring employees, controlling cash and inventory, and purchasing and merchandising product. We have staff specialists, or contracts with external specialists, to assist individual bookstore managers in such areas as store planning, merchandise purchasing and layout, inventory control and media buying.

As of March 31, 2011 we operated 292 college bookstores nationwide, having expanded from 139 bookstores at the beginning of fiscal year 2007. During fiscal year 2011, we completed the acquisition of six bookstore locations, initiated the contract-management of thirteen bookstore locations and established the start-up of two bookstore locations.

The table below highlights certain information regarding our bookstores added and closed in the respective year ending March 31.

										Bookstores
		Bookstores Open				Bookstores				Lost/Closed				Bookstores at
		at Beginning of				Added During				During Fiscal				End of Fiscal
Fiscal Year		Fiscal Year				Fiscal Year				Year				Year
2007			139				120				15				244
2008			244				23				7				260
2009			260				24				7				277
2010			277				20				17				280
2011			280				21				9				292

We plan to continue increasing the number of bookstores in operation. Our focus will be to pursue opportunities to contract-manage additional institutional stores. In determining to pursue opportunities to contract-manage a campus bookstore, we look at: (i) the size of the market; (ii) the competitive status of the market; (iii) the availability of top quality management; and (iv) certain other factors, including personnel costs. As mentioned previously, on May 1, 2006, we acquired 101 college bookstore locations, 98 of which were contract-managed, through the acquisition of all of the outstanding stock of CBA.

Wholesale Procurement and Distribution. Historically, because the demand for used textbooks has consistently exceeded supply, our sales have been primarily determined by the amount of used textbooks that we can purchase. As a result, our success has depended primarily on our inventory procurement, and we continue to focus our efforts on obtaining inventory. In order to ensure our ability to both obtain and redistribute inventory, our Textbook Division strategy has emphasized establishing and maintaining strong customer and supplier relationships with college bookstores through our employee account representatives. These 26 account representatives (as of March 31, 2011) are responsible for procuring used textbooks, marketing our services on campus, purchasing overstock textbooks from bookstores and securing leads for sale of our systems products. We have been able to maintain a competitive edge by providing superior service, made possible primarily through the development and maintenance of ready access to inventory, information and supply. Other components of the Textbook Division strategy and its implementation include: (i) selectively paying a marginal premium relative to competitors to entice students to sell back more textbooks to us; (ii) gaining access to competitive campuses (where the campus bookstore is contract-managed by a competitor) by opening off-campus, company-owned college bookstores; (iii) using technology to gain efficiencies and to improve customer service; (iv) maintaining a knowledgeable and experienced sales force that is customer-service oriented; (v) providing working capital flexibility for bookstores making substantial purchases; (vi) establishing long-term supply arrangements by rewarding customers who make a long-term commitment to supplying us with a large portion of their textbooks; (vii) providing working capital flexibility for bookstores that offer textbook rentals to students and that agree to supply us with textbooks, and (viii) purchasing and selling textbooks over the internet through third-party websites.

The two major used textbook purchasing seasons are at the end of each academic semester, May and December. Although we make textbook purchases during other periods, the inventory purchased in May, before publishers announce their price increases in June and July, allows us to purchase inventory based on the lower retail prices of the previous year. The combination of this purchasing cycle and the fact that we are able to sell our inventory in relation to retail prices for the following year permits us to realize additional gross profit. We advance cash to our representatives during these two periods, and the representatives in turn buy textbooks directly from students.

After we purchase the textbooks, we arrange for shipment to our warehouse in Nebraska via common carrier. At the warehouse, we refurbish damaged textbooks and categorize and shelve all other textbooks in a timely manner, and enter them into our online inventory system.

Customers place orders by phone, mail, fax or other electronic method. Upon receiving an order, we remove the textbooks from available inventory and hold them for future shipping. Customers may generally return textbooks within 60 days after the start of classes (90 days for certain customers participating in the exclusive supply program). External customer returns over the past three fiscal years have averaged approximately 24.6% of sales and generally are attributable to course cancellations or overstocking. The majority of returns are textbooks that we are able to resell for the next semester.

Information Technology. We believe that we can enhance efficiency, profitability, and competitiveness through investments in technology. Because our solutions create a competitive advantage, establish efficiencies, and ensure cost-effectiveness of both our operations and the operations of our bookstore customers and suppliers, we have patents on some of our proprietary software applications and some are currently in patent pending status with the United States Patent and Trademark Office. Additionally, we have registered trademarks for many of our software product names where brand recognition may be an important factor.

The center of our technology infrastructure revolves around PRISM, WinPRISM and WebPRISM, our proprietary college store management, textbook management, point of sale, inventory control systems, and e-commerce software. With more than a combined 25 years of availability in the marketplace, these proven software applications are maintained and continuously enhanced by a dedicated team of development and support professionals. Our technology operations process order entry, control inventory, generate purchase orders and customer invoices, generate various sales reports, and process and retrieve textbook information. In addition, we have developed integrated e-commerce software and service solutions allowing college bookstores to launch their own e-commerce site and effectively compete against other online textbook and general merchandise sellers by offering both print and digital textbooks and both traditional and non-traditional store merchandise online. We also develop, license or obtain certain rights related to other software designed to strengthen our e-commerce capabilities, including the capability for our bookstores to efficiently buy and sell inventory through third-party websites that are popular among college students such as Amazon.com and Half.com. In January of 2011, we launched our national online presence, Neebo.com, which consolidates our bookstore inventories onto one website and allows our bookstores to transact business online more efficiently and effectively.

In addition to using our technology for our own benefit through management and inventory control, we license the use of certain technology to bookstores. The use of our software by bookstore customers and suppliers helps solidify the business relationship, resulting in increased sales and access to additional inventory.

We conduct training courses for all systems users online and at our headquarters in Lincoln, Nebraska. Classes are small and provide hands on training for the various systems. Printed reference manuals and training materials accompany each system. The customer support call center is staffed with approximately 60 experienced personnel. Support is offered via website, e-mail, and toll-free phone numbers. While support hours vary per product and time of year, after-hours pager support is available for mission-critical systems.

Beginning late in fiscal year 2008, we embarked on a project to replace our internally-developed general ledger system with a general ledger/business planning and consolidation solution from SAP. During fiscal year 2009, the new solution was put into place and utilized for internal management reporting and the fiscal year 2010 budgeting process. The new solution was fully integrated in fiscal year 2010 and, among other things, provides us with greater flexibility in recording and analyzing our operating results and streamlining our budgeting process and is utilized for external financial reporting purposes.

Customers

Our college bookstores are located at college campuses of all sizes, including some of the nation’s largest campuses, such as: Arizona State University; Ohio State University; University of Florida; Michigan State University; Texas A&M University; University of Central Florida; Pennsylvania State University; University of Michigan; Florida State University; and University of Arizona.

We sell our Textbook and certain Complementary Services Division products and services to college bookstores throughout North America, primarily throughout the United States. Our Textbook Division purchases from and resells used textbooks to college bookstores at college campuses of all sizes, including many of the nation’s largest campuses, such as: University of Virginia; Oregon State University; University of Texas; University of Illinois; University of Washington; University of Southern California; and Long Beach State University. Our 25 largest Textbook Division customers accounted for approximately 2.7% of our fiscal year 2011 consolidated revenues. No single Textbook Division customer accounted for more than 1.0% of our fiscal year 2011 consolidated revenues.

Our distance education program is, among other things, a primary supplier of textbooks and educational material to students enrolled in online courses offered through approximately 11 colleges and private high schools. For the fiscal years ended March 31, 2011, 2010 and 2009, one institution accounted for approximately 71%, 68% and 69%, respectively, of distance education program external customer revenues.

No single customer accounted for more than 10.0% of our consolidated revenues in fiscal year 2011, 2010 or 2009.

Competition

We compete with a variety of other companies and also individuals, all of whom seek to provide products and/or services to the college marketplace. Our main corporate competitors, who provide products and services to colleges and universities, college bookstores and directly to students, are Follett Higher Education Group (“Follett”) and MBS Textbook Exchange/Barnes & Noble College Booksellers (“MBS”). MBS Textbook Exchange and Barnes & Noble College Booksellers are affiliated companies with certain common ownership.

Our Bookstore Division competes with:

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Follett, MBS and a number of smaller companies for the opportunity to contract-manage institutional college bookstores (Follett and MBS contract-manage more than 800 and 600 stores, respectively);

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other college bookstores located at colleges and universities that we serve;

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a number of entities that rent or sell textbooks, sell e-books, other digital content and other merchandise directly to students through e-commerce bypassing the traditional college bookstore;

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student-to-student transactions that take place on campus and over the internet; and

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course packs and electronic media as a source of textbook information, such as on-line resources, e-books, print-on-demand textbooks and CD-ROMs which may replace or modify the need for students to purchase textbooks through the traditional college bookstore.

Our Textbook Division competes in the used textbook market, which includes the purchase and resale of used textbooks. We compete with:

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college bookstores who normally repurchase textbooks from students to be reused on that campus the following semester or term;

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student-to-student transactions that take place on campus and over the internet;

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other wholesalers who purchase used textbooks from students and then resell them to other college bookstores; and

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a number of individuals and companies that buy textbooks directly from students through e-commerce, or in person, bypassing the traditional college bookstores who are the Textbook Division’s suppliers and customers.

Our Textbook Division competes in the wholesale business with Follett and MBS, and certain smaller regional companies including Budgetext, Texas Book Company, Tichenor College Textbook Company, and South Eastern Book Company. We believe that our market share of the independent and non-contract-managed institutional stores is comparable to that of Follett and MBS individually. Many of Follett’s and some of MBS’s college bookstores are located on smaller campuses. The size of the campus and their presence there have precluded us from entering these markets, which in turn affects both our ability to buy books and our ability to add new accounts.

Our Complementary Services Division competes with:

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MBS in the sale and installation of college bookstore information technology;

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MBS in the distance education textbook distribution market;

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college bookstores that provide their own e-commerce solution in competition with our internet services division;

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the Independent College Bookstore Association (“ICBA”) in the centralized buying service business (participation by college bookstores in C2O’s or ICBA’s centralized buying service is voluntary, and college bookstores may, and some do, belong to both buying associations); and

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a variety of smaller organizations and individuals involved in these businesses and others such as marketing services and consulting services.

Governmental Regulation

We are subject to various federal, state and local health and safety laws and regulations. Generally, these laws establish standards for vehicle and employee safety. These laws include the Occupational Safety and Health Act. Future developments, such as stricter employee health and safety laws and regulations thereunder, could affect our operations. We do not currently anticipate that the cost of our compliance with, or of any foreseeable liabilities under, employee health and safety laws and regulations will have a material adverse affect on our business or financial condition.

Insurance

We maintain general liability, property, worker’s compensation and other insurance in amounts and on terms that we believe are customary for companies similarly situated. In addition, we maintain excess insurance where we reasonably believe it is cost effective.

Employees

As of March 31, 2011 we had a total of approximately 2,700 employees, of which approximately 1,100 were full-time, approximately 700 were part-time and approximately 900 were temporary. We have no unionized employees and believe that our relationship with our employees is satisfactory.

In view of the seasonal nature of our Textbook Division, we use seasonal labor to improve operating efficiency. We employ a small number of “flex-pool” workers who are cross-trained in a variety of warehouse functions. Temporary employees augment the flex-pool to meet periodic labor demands.

Geographic Financial Information

Revenues from external customers and long-lived assets, all of which are attributable to domestic operations, are disclosed in the notes to the consolidated financial statements presented in Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

ITEM 1A. RISK FACTORS.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those set forth in the following cautionary statements and elsewhere in this Annual Report on Form 10-K.

We are subject to a number of risks and uncertainties associated with the Chapter 11 Proceedings. For the duration of the Chapter 11 Proceedings, our operations and our ability to execute our business strategy will be subject to the risks and uncertainties associated with our being in bankruptcy. These risks include:

	•		our ability to obtain approval of the Court with respect to motions filed in the Chapter 11 Proceedings from time to time;
	•		our ability to obtain and maintain normal trade terms with suppliers and service providers and maintain contracts that are critical to our operations;

•

our ability to attract, motivate and retain key employees;

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our ability to attract and retain customers;

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our ability to attract and retain the contract-management of on-campus bookstores;

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our ability to fund and execute our business plan; and

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our ability to obtain creditor and Court approval for, and then to consummate, a plan of reorganization to emerge from bankruptcy.

We will also be subject to risks and uncertainties with respect to the actions and decisions of the creditors and third parties who have interests in the Chapter 11 Proceedings that may be inconsistent with our restructuring and business goals.

These risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with the Chapter 11 Proceedings could adversely affect our sales and relationships with our customers, as well as with our suppliers, employees and the administration of colleges where we operate the on-campus bookstore, which in turn could adversely affect our operations and financial condition. In addition, pursuant to the Bankruptcy Code, we need approval of the Court for transactions outside the ordinary course of business, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with the Chapter 11 Proceedings, we cannot predict or quantify the ultimate impact that events occurring during the reorganization process will have on our business, financial condition and results of operations.

As a result of the Chapter 11 Proceedings, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession, and subject to approval of the Court, or otherwise as permitted in the normal course of business, we may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements in Item 8, Financial Statements and Supplementary Data. Further, a confirmed plan of reorganization could materially change the amounts and classifications of assets and liabilities reported in the consolidated financial statements included in Item 8, Financial Statements and Supplementary Data. The historical consolidated financial statements do not include any adjustments to the reported amounts of assets or liabilities that might be necessary as a result of confirmation of a plan of reorganization.

Our audited consolidated financial statements for the year ended March 31, 2011 have been prepared assuming that we will continue as a going concern. However, our ability to: (i) comply with terms of the DIP Credit Agreement (ii) comply with various orders entered by the Court in connection with the Chapter 11 Proceedings; (iii) maintain adequate cash on hand; (iv) generate sufficient cash from operations; (v) achieve confirmation of a plan of reorganization under the Bankruptcy Code; (vi) obtain financing to facilitate an exit from bankruptcy; and (vii) achieve profitability following such confirmation is uncertain and would have a material impact on our financial statements.

There can be no assurance that we will be able to remain in compliance with the requirements of the DIP Credit Agreement or that the lending commitments under the DIP Credit Agreement will not be terminated by our lenders. In addition to standard financial covenants and events of default, the DIP Credit Agreement provides for events of default specific to the Chapter 11 Proceedings, including, among others, defaults arising from our failure to maintain certain financial covenants including a minimum liquidity and cumulative consolidated EBITDA or our failure to obtain Court approval for a plan of reorganization acceptable to our lenders. The occurrence of an event of default under the DIP Credit Agreement would give our lenders the right to terminate their lending commitments and exercise other remedies available to them under the DIP Credit Agreement.

If the DIP Credit Agreement is terminated or our access to funding is restricted or terminated, it is likely that we would not have sufficient cash available to meet our operating needs or satisfy our obligations as they become due. In this event, we would be required to seek a sale of all or a portion of our assets pursuant to Section 363 of the Bankruptcy Code or to convert the Chapter 11 Proceedings into liquidation under chapter 7 of the Bankruptcy Code.

We face competition in our markets, which could adversely impact our revenue levels, profit margins and ability to acquire an adequate supply of used textbooks. Our industry is highly competitive. A large number of actual and potential competitors exist, some of which are larger than us and have substantially greater resources than us. Revenue levels and profit margins could be adversely impacted if we experience increased competition in the markets in which we currently operate or in markets in which we will operate in the future.

We are experiencing growing competition from alternative sources of textbooks for students and alternative media (such as on-line resources; publishers selling or renting directly to students; print-on-demand textbooks; CD-ROMs; and websites designed to rent or sell textbooks and sell e-books, other digital content and other merchandise directly to students) and from the use of course packs (which are collections of copyrighted materials and professors’ original content which are produced by college bookstores and sold to students), all of which have the potential to reduce or replace the need for textbooks sold through college bookstores. A substantial increase in the availability or the acceptance of these alternatives as a source of textbooks and textbook information could significantly reduce college students’ use of college bookstores and/or the use of traditional textbooks and thus adversely impact our revenue levels and profit margins.

We are also experiencing growing competition from technology-enabled student-to-student transactions that take place over the internet. These transactions, whereby a student enters into a transaction directly with another student for the sale and purchase of a textbook, provide competition by reducing the supply of textbooks available to us for purchase and by reducing the sale of textbooks through college bookstores. While these transactions have occurred for many years, prior to the internet these transactions were limited by geography, a lack of information related to pricing and demand, and other factors. A significant increase in the number of these transactions could adversely impact our revenue levels and profit margins.

Over the years, an increasing number of institution-owned college bookstores have decided to outsource or “contract-manage” the operation of their bookstores. The leading managers of these bookstores include two of our principal competitors in the wholesale textbook distribution business. Contract-managed bookstores primarily purchase their used textbook requirements from and sell their available supply of used textbooks to their affiliated operations. A significant increase in the number of contract-managed bookstores operated by our competitors, particularly at large college campuses, could adversely affect our ability to acquire an adequate supply of used textbooks.

We believe all of these competitive factors have contributed to a decline in textbooks sold in the Textbook Division.

Further deterioration in the economy and credit markets, a decline in consumer spending or other conditions may adversely affect our future results of operations. As widely reported, the global credit markets and financial services industry have been experiencing a period of upheaval characterized by the bankruptcy, failure, collapse or sale of various financial institutions, diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, uncertainty about economic stability and intervention from the United States federal government. There can be no assurance that there will not be further deterioration in credit and financial markets and confidence in economic conditions or that any recovery will be sustained. While the ultimate outcome of these events cannot be predicted, it may decrease student enrollment in colleges and universities due to the lack of financial aid and other sources of funding for education. Spending by students on textbooks and other general merchandise may also decrease due to the economic downturn.

We may not be able to continue to receive funds from NBC, our sole operating subsidiary, to permit satisfaction of our obligations. We are a holding company and as such conduct substantially all of our operations through NBC and its subsidiaries. Consequently, we do not have any income from our own operations and do not expect to generate income from our own operations in the future. As a result, our ability to meet our debt service obligations will substantially depend upon NBC and its subsidiaries’ cash flow and distribution of funds to us as dividends, loans, advances or other payments.

We may be unable to obtain a sufficient supply of used textbooks, which could adversely impact our revenue levels and profit margins. Our ability to purchase a sufficient number of used textbooks largely determines our used textbook sales for future periods. Successfully acquiring books typically requires a visible presence on college campuses at the end of each semester, which requires hiring a significant number of temporary personnel, and having access to sufficient funds under a revolving credit facility or other financing alternatives to purchase the books. Textbook acquisition also depends upon college students’ willingness to sell their used textbooks at the end of each semester. The unavailability of sufficient personnel or credit, or a shift in student preferences, could impair our ability to acquire sufficient used textbooks to meet our sales objectives, thereby adversely impacting our revenue levels and profit margins.

We may not be able to successfully open or contract-manage additional bookstores or integrate those additional stores, which could adversely impact our ability to grow revenues and profit margins. Part of our business strategy is to expand sales for our college bookstore operations by either opening privately-owned bookstores or being awarded additional contracts to manage institutional bookstores. We may not be able to identify additional private bookstore opportunities or we may not be successful in competing for contracts to manage additional institutional bookstores. Due to the seasonal nature of business in our bookstores, the operations of the private bookstores or newly contract-managed bookstores may be affected by the time of the fiscal year when a bookstore is opened or contract-managed by us. The process may require financial resources that would otherwise be available for our

existing operations. Our integration of these future bookstores may not be successful; or, the anticipated strategic benefits of these future bookstores may not be realized or may not be realized within time frames contemplated by our management. Start-up and additional contract-managed bookstores may involve a number of special risks, including, but not limited to, adverse short-term effects on our reported results of operations, diversion of management’s attention, standardization of accounting systems, dependence on retaining, hiring and training key personnel, unanticipated problems or legal liabilities, and actions of our competitors and customers. If we are unable to successfully integrate our future bookstores for these or other reasons, anticipated revenues and profit margins from these new bookstores could be adversely impacted.

We may not be able to successfully renew our contract-managed bookstores on profitable terms, which could adversely impact our profit margins. As we expand our operations in contract-management of institutional bookstores, we will increasingly be competing for the renewal of our contracts for those stores as the current contracts expire. Our contracts are typically for 1 to 5 years, with various renewal and cancellation clauses. We may not be successful in renewing our current contracts or those renewals may not be on terms that provide us the opportunity to improve or maintain the profitability of managing the bookstore. If we are unable to successfully renew our contracts on profitable terms, our profit margins could be adversely impacted.

Publishers may not continue to increase prices of textbooks annually, which could adversely impact our revenue levels and profit margins. We generally buy used textbooks based on publishers’ prevailing prices for new textbooks just prior to the implementation by publishers of their annual price increases (which historically have been 4% to 5%) and resell these textbooks shortly thereafter based upon the new higher prices, thereby creating an immediate margin increase. Our ability to increase our used textbook prices each fiscal year depends on annual price increases on new textbooks implemented by publishers. The failure of publishers to continue annual price increases on new textbooks could adversely impact our revenue levels and profit margins. In recent periods, annual increases in prices have allowed us to partially offset a decline in unit sales, however there is no guarantee that this will continue.

Publisher practices regarding new editions and materials packaged with new textbooks could change, thereby reducing the supply of used textbooks available to us and adversely impacting our revenue levels and profit margins. Publishers have historically produced new editions of textbooks every two to four years. Changes in the business models of publishers to accelerate the new edition cycle or to significantly increase the number of textbooks with other materials packaged or bundled with them (which makes it more difficult to repurchase and resell the entire package of materials) could reduce the supply of used textbooks available to us, thereby adversely impacting our revenue levels and profit margins.

The loss or retirement of key members of management may occur, which could negatively affect our ability to execute our current strategy and/or our ability to effectively react to changing industry dynamics, thereby adversely impacting our revenue levels and profit margins. Our future success depends to a significant extent on the efforts and abilities of our senior management team. The loss of the services of any one of these individuals could negatively affect our ability to execute our current strategy and/or our ability to effectively react to changing industry dynamics, thereby adversely impacting our revenue levels and profit margins.

Our wholesale and bookstore operations are seasonal in nature — a significant reduction in sales during our peak selling periods could adversely impact our ability to repay the DIP Revolving Facility, thereby increasing interest expense and adversely impacting revenue levels by restricting our ability to buy an adequate supply of used textbooks. Our wholesale and bookstore operations experience two distinct selling periods and our wholesale operations experience two distinct buying periods. The peak selling periods for the wholesale operations occur prior to the beginning of each school semester in July/August and November/December. The buying periods for the wholesale operations occur at the end of each school semester in May and December. The primary selling periods for the bookstore operations are in August/September and January. In fiscal year 2011, 46% of our annual revenues occurred in the second fiscal quarter (July-September), while 31% of our annual revenues occurred in the fourth fiscal quarter (January-March). Accordingly, our working capital requirements fluctuate throughout the fiscal year, increasing substantially in May and December as a result of the buying periods. We may fund our working capital requirements primarily through the DIP Revolving Facility while in chapter 11. We intend to repay the DIP Revolving Facility with cash provided from operations. A significant reduction in sales during our peak selling periods could adversely impact our ability to repay the DIP Revolving Facility, increase the average balance outstanding under the DIP Revolving Facility (thereby resulting in increased interest expense), and restrict our ability to buy an adequate supply of used textbooks (thereby adversely impacting our revenue levels).

We are controlled by one principal equity holder, which has the power to take unilateral action and could have an interest in pursuing acquisitions, divestitures and other transactions, even though such transactions might involve risks to other affected parties. Weston Presidio beneficially owns approximately 82.0% of our issued and outstanding common stock (after taking into account for such percentage calculation options outstanding and options available, if any, for future grant under the 2004 Stock Option Plan). As a result, Weston Presidio is able to control all matters, including the election of a majority of our board of directors, the approval of amendments to NBC’s and our certificate of incorporation and the approval of fundamental corporate transactions such as mergers and asset sales. The interests of Weston Presidio may not in all cases be aligned with the interests of other affected parties. In addition, Weston Presidio may have an interest in pursuing acquisitions, divestitures and other transactions, including selling us, that, in its judgment, could affect its equity investment, even though such transactions might involve risks to other affected parties.

Our substantial indebtedness could limit cash flow available for our operations and could adversely affect our ability to service debt or obtain additional financing, if necessary. As of March 31, 2011, we had total outstanding debt of approximately $454.1 million and expect to continue to have material debt outstanding even after emerging from the Chapter 11 Proceeding. Our level of indebtedness could have important consequences. For example, it could:

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make it more difficult to pay our debts as they become due, especially during general negative economic and market industry conditions because if our revenues decrease due to general economic or industry conditions, we may not have sufficient cash flow from operations to make our scheduled debt payments;

•

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and, consequently, places us at a competitive disadvantage to our competitors with less debt;

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require us to dedicate a substantial portion of our cash flow from operations to service our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;

•

limit our ability to make strategic acquisitions, invest in new products or capital assets or take advantage of business opportunities;

•

limit our ability to obtain additional financing, particularly in the current economic environment; and

•

render us more vulnerable to general adverse economic, regulatory and industry conditions.

A portion of our goodwill recently became impaired and we may be required to write down additional amounts of goodwill or identifiable intangibles and record impairment charges if future circumstances indicate that goodwill or identifiable intangibles are impaired. We monitor relevant circumstances, including industry trends, general economic conditions, and the potential impact that such circumstances might have on the valuation of our goodwill and identifiable intangibles. It is possible that changes in such circumstances, or in the numerous variables associated with the judgments, assumptions and estimates made by us in assessing the appropriate valuation of our goodwill and identifiable intangibles, could in the future require us to further write down a portion of our goodwill or write down a portion of our identifiable intangibles and record related non-cash impairment charges. We evaluate the impairment of the carrying value of our goodwill and identifiable intangibles in accordance with applicable accounting standards, including the Intangibles — Goodwill and Other and Property, Plant and Equipment Topics of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”). In accordance with such standards, we evaluate impairment on goodwill and certain identifiable intangibles annually and evaluate impairment on all intangibles whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. Our evaluation of impairment is based on a combination of our projection of estimated future cash flows and other valuation methodologies. We recorded impairment charges of $89.0 million and $107.0 million to reduce the carrying value of goodwill to its estimated fair value at March 31, 2011 and 2009, respectively. We completed our annual test for impairment during the fourth quarter for the year ended March 31, 2010 and no impairment was indicated. The goodwill impairment charge is described in greater detail in Note G to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data.

Our operations are subject to various laws, rules and regulations relating to protection of the environment and of human health and safety. Our operations are subject to federal, state and local laws relating to the protection of the environment and of human health and safety. As an owner and operator of real property, we can be found jointly and severally liable under such laws for costs associated with investigating, removing and remediating any hazardous or toxic substances that may exist on, in or about our real property. This liability can be imposed without regard to whether the owner or operator had knowledge of, or was actually responsible for causing, the conditions being addressed. Some of our properties may have been impacted by the migration of hazardous substances released at neighboring third-party locations. In addition, it is possible that we may face claims alleging harmful exposure to, or property damage resulting from, the release of hazardous or toxic substances at or from our locations or otherwise related to our business. Environmental conditions relating to any former, current or future locations could adversely impact our business and results of operations.

Increases in the price of raw materials used by our suppliers or the reduced availability of raw materials to our suppliers could increase their cost of goods, which could be passed on to us through higher prices in new textbooks, clothing and general merchandise, which may decrease our profitability. The principal raw materials used by our suppliers are paper, various fabrics and plastics. The prices we pay our suppliers for new textbooks, clothing and general merchandise are dependent in part on the market price for raw materials used to produce them. The price and availability of such raw materials may fluctuate substantially, depending on a variety of factors, including demand, crop yields, weather, supply conditions, transportation costs, energy prices, work stoppages, government regulation, economic climates and other unpredictable factors. Any and all of these factors may be exacerbated by global climate change. Fluctuations in the price and availability of raw materials to our suppliers have not materially affected our profitability in recent years. However, increases in raw material costs, together with other factors, might cause an increase in the cost of goods for our suppliers which may be passed onto us through higher prices.

ITEM 2. PROPERTIES.

At March 31, 2011, our Bookstore Division locations consisted of the following: (i) 6 owned off-campus bookstore locations, (ii) 132 leased off-campus bookstore locations, and (iii) 154 leased on-campus (contract-managed) bookstore locations serving university and post-graduate educational institutions throughout the United States. These institutions serve more than 2 million students. We own our two Textbook Division warehouses (totaling 253,000 square feet) in Lincoln, Nebraska (one of which is also the location of our headquarters). Our distance education program was moved from Athens, Ohio to one of our warehouses in Lincoln, Nebraska in March, 2011.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, we are subject to legal proceedings and other claims arising in the ordinary course of our business. We believe that currently we are not a party to any litigation the outcome of which would have a material effect on the consolidated financial statements. We maintain insurance coverage against claims in an amount which we believe to be adequate.

On the Petition Date, we filed voluntary petitions in the Court seeking reorganization relief under the provisions of the Bankruptcy Code. Our chapter 11 cases have been assigned to the Honorable Peter J. Walsh and are being jointly administered as Case No. 11-12005. We continue to operate our business as debtors-in-possession under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Court. See Note C to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data.

Under Section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stays most actions against a debtor, including most actions to collect pre-petition indebtedness or to exercise control over our property. Absent an order of the Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization.

Under Section 365 of the Bankruptcy Code, we may assume, assume and assign or reject certain executor contracts and unexpired leases, subject to the approval of the Court and certain other conditions. In general, if we reject an executor contract or unexpired lease, it is treated as a pre-petition breach of the lease or contract in question and, subject to certain exceptions, relieves us of performing any future obligations. However, such a rejection entitles the lessor or contract counterparty to a pre-petition general unsecured claim for damages caused by the breach and accordingly, the counterparty may file a claim against us for damages. In addition, our plan of reorganization will determine the rights and satisfaction of claims of various creditors and security holders, but the ultimate settlement of those claims will continue to be subject to the uncertain outcome of litigation, negotiations and Court decisions up to and for a period of time after a plan of reorganization is confirmed. At this time, it is not possible to predict with certainty the effect of the Chapter 11 Proceedings on our business.

ITEM 4. RESERVED AND REMOVED.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.

On June 27, 2011, we filed voluntary petitions in the Court seeking reorganization relief under the provisions of the Bankruptcy Code. Our plan of reorganization will determine the rights and satisfaction of claims of various creditors and security holders, but the ultimate settlement of those claims are subject to various uncertainties. Under any plan of reorganization, our presently outstanding equity securities could have no value and be canceled and we urge that caution be exercised with respect to existing and future investments in any security of ours. Further, on June 27, 2011, we filed with the Court a restructuring support agreement, which contained a proposed plan of reorganization (the “Plan”). The Plan calls for the issuance of new senior secured notes, new senior unsecured notes and the split of new common equity interests in us between the holders of the Pre-Petition Senior Subordinated Notes (78%) and the holders of the Pre-Petition Senior Discount Notes (22%).

As of July 14, 2011, based upon the number of holders on record, there were 5 holders of NBC Acquisition Corp. common stock, those holders being four funds affiliated with Weston Presidio (which held a total of 36,455 shares) and NBC Holdings Corp., a corporation formed by Weston Presidio as part of the March 4, 2004 Transaction. As of July 14, 2011, NBC Holdings Corp.’s issued and outstanding capital stock totaled 513,439 shares and held 517,639 shares of NBC Acquisition Corp. common stock. There are 28 holders on record of NBC Holdings Corp. capital stock, including the four funds affiliated with Weston Presidio and current and former members of our management group. As of July 14, 2011, there were also options granted and outstanding under the 2004 Stock Option Plan, held by 45 current and former members of our management group, to purchase 89,241 shares of NBC Holdings Corp. capital stock. As discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data, the payment of dividends is subject to various restrictions under our debt instruments. As a result, no dividends were declared on our common stock during fiscal year 2011 and 2010. There is no established public trading market for the NBC Acquisition Corp. common stock.

On March 31, 2006, 4,200 shares of NBC Holdings Corp. capital stock were issued for $0.01 per share to certain officers and directors of the Company (the “Officers”) pursuant to a stock repurchase agreement and on that same date NBC Holdings Corp. purchased 4,200 shares of our common stock for an aggregate of $42. The shares issued to NBC Holdings Corp. were subject to the same conditions as those issued to the Officers. These shares were issued pursuant to an exemption from registration claimed under Section 4(2) of the Securities Act of 1933, as amended. These shares became fully vested on September 30, 2010 and the 4,200 shares of NBC Holdings Corp. were repurchased and retired.

We and NBC Holdings Corp. have separate understandings that (a) with respect to each option granted by NBC Holdings Corp., pursuant to its 2004 Stock Option Plan, we have granted, and will continue to grant, an option to purchase an equivalent number of shares of our common stock at the same exercise price to NBC Holdings Corp. and (b) with respect to each share of capital stock issued by NBC Holdings Corp., pursuant to its 2005 Restricted Stock Plan, we have issued, and will continue to issue, an equivalent number of shares of our common stock at the same purchase price per share to NBC Holdings Corp.

Additional information regarding equity compensation plans can be found in Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth our selected historical consolidated financial and other data and should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and the related notes thereto included in Item 8, Financial Statements and Supplementary Data. The selected historical consolidated financial data was derived from our audited consolidated financial statements.

		Fiscal Years Ended
		March 31,				March 31,				March 31,				March 31,				March 31,
		2011				2010				2009				2008				2007
		(dollars in thousands)
Statement of Operations Data:
Revenues		$	598,430			$	605,494			$	610,716			$	581,248			$	544,428
Costs of sales (exclusive of depreciation shown below)			366,160				370,196				371,369				354,140				332,444
Gross profit			232,270				235,298				239,347				227,108				211,984
Operating expenses:
Selling, general and administrative (1)			176,844				161,858				168,315				157,193				143,096
Closure of California warehouse (2)			—				—				—				(36	)			774
Depreciation			8,579				8,517				7,603				7,209				5,916
Amortization			8,626				10,853				11,384				10,443				9,613
Goodwill impairment (3)			89,000				—				106,972				—				—
Income (loss) from operations			(50,779	)			54,070				(54,927	)			52,299				52,585
Other expenses (income):
Interest expense			51,204				49,405				41,603				41,659				40,410
Interest income			(176	)			(180	)			(427	)			(1,332	)			(1,643	)
Loss on early extinguishment of debt (4)			—				3,066				—				—				—
Loss on derivative instrument (5)			—				—				102				198				225
Income (loss) before income taxes			(101,807	)			1,779				(96,205	)			11,774				13,593
Income tax expense (benefit)			(3,497	)			(532	)			4,289				4,558				5,700
Net income (loss)		$	(98,310	)		$	2,311			$	(100,494	)		$	7,216			$	7,893
Earnings (loss) Per Share:
Basic		$	(180.66	)		$	1.33			$	(181.79	)		$	13.02			$	14.25
Diluted			(180.66	)			1.32				(181.79	)			12.61				13.89
Other Data:
Adjusted EBITDA (6)		$	55,426			$	73,440			$	71,032			$	69,951			$	68,114
Net cash flows from operating activities			12,827				30,831				26,356				21,101				27,516
Net cash flows from investing activities			(16,307	)			(8,766	)			(14,898	)			(22,179	)			(32,809	)
Net cash flows from financing activities			(1,046	)			(5,131	)			3,254				(2,578	)			4,893
Capital expenditures			5,664				5,411				7,979				7,261				6,543
Business acquisition expenditures (7)			9,461				2,848				6,321				14,682				25,874
Number of bookstores open at end of the period			292				280				277				260				244
Balance Sheet Data (At End of Period):
Cash and cash equivalents		$	56,447			$	60,973			$	44,038			$	29,326			$	32,983
Working capital (8)			(280,838	)			168,190				151,149				136,729				130,389
Total assets			508,307				616,271				609,088				703,364				697,005
Total debt, including current maturities			454,118				454,624				449,411				452,204				445,098
Redeemable preferred stock (9)			13,601				11,806				10,233				—				—

		Fiscal Years Ended
		March 31,				March 31,				March 31,				March 31,				March 31,
		2011				2010				2009				2008				2007
		(dollars in thousands)
Net income (loss)			(98,310	)			2,311				(100,494	)			7,216				7,893
Interest expense, net			51,028				49,225				41,278				40,525				38,992
Income tax expense (benefit)			(3,497	)			(532	)			4,289				4,558				5,700
Depreciation and amortization			17,205				19,370				18,987				17,652				15,529
EBITDA			(33,574	)			70,374				(35,940	)			69,951				68,114
Goodwill impairment			89,000				—				106,972				—				—
Loss on early extinguishment of debt			—				3,066				—				—				—
Adjusted EBITDA (6)		$	55,426			$	73,440			$	71,032			$	69,951			$	68,114
Share-based compensation			448				1,107				1,288				1,041				997
Interest income			176				180				427				1,332				1,643
Provision for losses on receivables			2,194				1,399				1,367				468				834
Cash paid for interest			(44,905	)			(37,572	)			(39,124	)			(31,755	)			(31,388	)
Cash (paid) refunded for income taxes			1,278				(3,155	)			(9,930	)			(13,031	)			(6,551	)
(Gain) loss on disposal of assets			(132	)			235				125				285				(1	)
Changes in operating assets and liabilities, net of effect of acquisitions (10)			(1,658	)			(4,803	)			1,171				(7,190	)			(6,132	)
Net Cash Flows from Operating Activities		$	12,827			$	30,831			$	26,356			$	21,101			$	27,516

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussions should be read in conjunction with the consolidated financial statements and the related notes thereto included in Item 8, Financial Statements and Supplementary Data, and other information in this Annual Report on Form 10-K.

Executive Summary

Overview

Acquisitions. Our Bookstore Division continues to grow its number of bookstore locations through acquisitions and start-up locations. We acquired six bookstore locations and initiated the contract-management of thirteen bookstore locations in fifteen separate transactions and established the start-up of two bookstore locations during the fiscal year ended March 31, 2011. 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 fiscal year ended March 31, 2011 decreased $7.1 million, or 1.2%, from the fiscal year ended March 31, 2010. This decrease was primarily due to a decrease in revenues in the Textbook and Bookstore Divisions. Revenues in the Textbook Division decreased primarily as a result of a decrease in units sold. Revenues decreased in the Bookstore Division primarily due to a decrease in same-store sales.

Adjusted EBITDA Results. Consolidated Adjusted EBITDA for the fiscal year ended March 31, 2011 decreased $18.0 million, or 24.5%, from the fiscal year ended March 31, 2010. The Adjusted EBITDA decrease is primarily attributable to a decrease in our Bookstore Division Adjusted EBITDA. Adjusted EBITDA in the Bookstore Division was down due primarily to lower revenues and higher selling, general and administrative expenses. Adjusted EBITDA in the Textbook Division was also down due primarily to lower revenues and higher selling, general and administrative expenses. EBITDA and Adjusted EBITDA are considered non-GAAP measures, and therefore you should refer to the more detailed explanation of these 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 goodwill impairment and for loss on early extinguishment of debt. 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 those 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, Credit Facility EBITDA, as defined in the Pre-Petition ABL Credit Agreement, included additional adjustments to EBITDA. Credit Facility EBITDA was defined in the Pre-Petition 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 was utilized when calculating the pro forma fixed charge coverage ratio under the Pre-Petition ABL Credit Agreement. The pro forma consolidated coverage ratio under the indentures to the Pre-Petition Senior Discount Notes, the Pre-Petition Senior Subordinated Notes and the Pre-Petition Senior Secured Notes used EBITDA and the indentures defined EBITDA similar to Credit Facility EBITDA except that charges incurred in connection with the restricted stock plan were not added back to consolidated net income. The DIP Credit Agreement also defines EBITDA similar to the Pre-Petition ABL Credit Agreement except that it excludes professional fees related to the reorganization and proceedings under chapter 11. See Note I to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, 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, goodwill impairment, 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.

Reorganization under Chapter 11 of the U.S. Bankruptcy Code

On the Petition Date, we filed voluntary petitions for reorganization relief under the Bankruptcy Code in the Court. The Chapter 11 Proceedings are being jointly administered as Case No. 11-12005 under the caption “In re Nebraska Book Company Inc., et al.” We continue to operate our business as “debtors-in-possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court.

The Chapter 11 Proceedings were initiated in response to our inability to fully refinance our existing debt and vendors’ unwillingness to extend credit to us under normal terms due to refinancing uncertainties. Under Section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stays most actions against a debtor, including most actions to collect pre-petition indebtedness or to exercise control over our property. Subsequent to the Petition Date, we received approval from the Court to pay or otherwise honor certain pre-petition obligations generally designed to stabilize our operations including employee obligations, tax matters, and from limited available funds, pre-petition claims of certain critical vendors, certain customer programs, and certain other pre-petition claims. Additionally, we have been paying and intend to continue to pay undisputed post-petition claims in the ordinary course of business.

Chapter 11 Financing

We are currently funding post-petition operations under a $200.0 million DIP Credit Agreement, consisting of a $125.0 million DIP Term Loan Facility and a $75.0 million DIP Revolving Facility.

Plan of Reorganization

To successfully emerge from the Chapter 11 Proceedings, in addition to obtaining exit financing, the Court must confirm a plan of reorganization, which determines the rights and satisfaction of claims of various creditors and security holders. The plan of reorganization and related disclosure statement (the “Disclosure Statement”) will outline a proposal for the settlement of claims against us based on an estimate of the overall enterprise value. On June 27, 2011, we filed with the Court a restructuring support agreement, which contained a proposed plan of reorganization (the “Plan”). The Plan calls for the issuance of new senior secured notes, new senior unsecured notes and the split of new common equity interests in us between the holders of the Pre-Petition Senior Subordinated Notes (78%) and the holders of the Pre-Petition Senior Discount Notes (22%). The ultimate recovery to creditors and/or our shareholders, if any, will not be determined until confirmation of a plan of reorganization.

Because a Court confirmed plan of reorganization will determine the rights and satisfaction of claims of various creditors and security holders, the ultimate settlement of such claims are subject to various uncertainties. Accordingly, no assurance can be provided as to what values, if any, will be ascribed in the Chapter 11 Proceedings to these or any other constituencies in regards to what types or amounts of distributions, if any, will be received. If certain requirements of the Bankruptcy Code are met, a plan of reorganization can be confirmed without acceptance by all constituents and without the receipt or retention of any property on account of all interests under the plan. Under any Plan, our presently outstanding equity securities could have no value and be canceled and we urge that caution be exercised with respect to existing and future investments in any security of ours. See the discussion of certain risks and uncertainties related to our Chapter 11 Proceedings and reorganization at Item 1A, Risk Factors.

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. We have experienced, and we believe we will continue to experience, increasing competition from alternative sources of textbooks for students, including renting of textbooks from both online and local campus marketplace competitors and alternative media, increasing competition for the supply of used textbooks from other companies, including other textbook wholesalers and from student-to-student transactions, competition for contract-management opportunities and other challenges. We also believe that although there continues to be attractive opportunities related to contract-management of bookstores, 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 remain modest for a company of our size.

Fiscal Year Ended March 31, 2011 Compared With Fiscal Year Ended March 31, 2010.

Revenues. Revenues for the fiscal years ended March 31, 2011 and 2010 and the corresponding change in revenues were as follows:

		Fiscal Years Ended								Change
		March 31, 2011				March 31, 2010				Amount				Percentage
Bookstore Division		$	468,536,378			$	472,492,275			$	(3,955,897	)			(0.8	)%
Textbook Division			135,498,618				140,592,220				(5,093,602	)			(3.6	)%
Complementary Services Division			35,397,826				35,470,836				(73,010	)			(0.2	)%
Intercompany Eliminations			(41,002,655	)			(43,061,718	)			2,059,063				(4.8	)%
		$	598,430,167			$	605,493,613			$	(7,063,446	)			(1.2	)%

For the fiscal year ended March 31, 2011, Bookstore Division revenues decreased $4.0 million, or 0.8%, from the fiscal year ended March 31, 2010. The decrease in Bookstore Division revenues was attributable to a decrease in same-store sales and to a decrease in revenues as a result of certain store closings, which were partially offset by additional revenues from new bookstores. Same-store sales for the fiscal year ended March 31, 2011 decreased $31.4 million, or 6.9%, from the fiscal year ended March 31, 2010, primarily due to decreased new and used textbook revenues. The same-store sale decrease in new and used textbooks is partly attributable to the rental program implemented in the fourth quarter of fiscal 2010 in our off-campus bookstores and extended to all of our bookstores in fiscal 2011. The rental amount for a textbook is less than the sales amount, which results in lower textbook revenues. If the books rented would have been sold instead, we estimate that same-store sales would have been approximately $15.7 million higher, lowering the same-store sales decrease to 3.4% for the current fiscal year. We define same-store sales for the fiscal year ended March 31, 2011 as sales, including internet sales, from any store, even if expanded or relocated, that has been operated by us since the start of fiscal year 2010. In addition, revenues declined $4.1 million as a result of certain lost contract-managed stores and store closings since April 1, 2009. We have added 41 bookstore locations through acquisitions or start-ups since April 1, 2009. The new bookstores provided an additional $31.6 million of revenue for the fiscal year ended March 31, 2011.

For the fiscal year ended March 31, 2011, Textbook Division revenues decreased $5.1 million, or 3.6%, from the fiscal year ended March 31, 2010, due to an approximate 4.2% decrease in units sold primarily as a result of a decrease in our supply of textbooks and an approximate 0.6% decrease in the average price per book sold primarily as a result of a decrease in higher demand, higher priced textbooks available for sale, which were partially offset by an increase in revenues from textbook rentals to third-parties as a result of an increase in student demand for textbook rentals. Complementary Services Division revenues decreased $0.1 million, or 0.2%, from the year ended March 31, 2010, as decreases in the distance education business were mostly offset by an increase in revenues from our systems and e-commerce businesses. Intercompany eliminations for the fiscal year ended March 31, 2011 decreased $2.1 million from the fiscal year ended March 31, 2010.

Gross profit. Gross profit for the fiscal year ended March 31, 2011 decreased $3.0 million, or 1.3%, to $232.3 million from $235.3 million for the fiscal year ended March 31, 2010. The decrease in gross profit was primarily attributable to the decrease in revenues in the Bookstore Division. The consolidated gross margin percentage decreased slightly to 38.8% for the fiscal year ended March 31, 2011 from 38.9% for the fiscal year ended March 31, 2010 primarily due to a small decrease in gross margin percentage in the Bookstore Division.

Selling, general and administrative expenses. Selling, general and administrative expenses for the fiscal year ended March 31, 2011 increased $14.9 million, or 9.3%, to $176.8 million from $161.9 million for the fiscal year ended March 31, 2010. Selling, general and administrative expenses as a percentage of revenues were 29.6% and 26.7% for the fiscal years ended March 31, 2011 and 2010, respectively. The increase in selling, general and administrative expenses includes a $3.7 million increase in shipping and commission expense primarily due to increased sales on the internet involving third-party websites, a $3.3 million increase in rent expense primarily due to an increase in the number of bookstores, a $2.6 million increase in consulting services related to refinancing efforts, expense reduction and top line growth initiatives such as inventory and pricing optimization, and a $2.1 million increase in personnel expenses primarily related to $1.6 million in personnel costs resulting from a voluntary early retirement plan and severance expenses. Also included in selling, general and administrative expenses were $0.4 million and $1.1 million of share-based compensation expense for the fiscal years ended March 31, 2011 and 2010, respectively.

Earnings before interest, taxes, depreciation, amortization, goodwill impairment, and loss on early extinguishment of debt (Adjusted EBITDA). Adjusted EBITDA for the fiscal years ended March 31, 2011 and 2010 and the corresponding change in Adjusted EBITDA were as follows:

		Fiscal Years Ended								Change
		March 31, 2011				March 31, 2010				Amount				Percentage
Bookstore Division			33,905,906			$	45,685,171			$	(11,779,265	)			(25.8	)%
Textbook Division		$	34,710,745				37,050,519				(2,339,774	)			(6.3	)%
Complementary Services Division			2,764,283				2,301,001				463,282				20.1	%
Corporate Administration			(15,955,066	)			(11,597,268	)			(4,357,798	)			(37.6	)%
		$	55,425,868			$	73,439,423			$	(18,013,555	)			(24.5	)%

Bookstore Division Adjusted EBITDA decreased $11.8 million, or 25.8%, primarily due to lower revenues and to higher selling, general and administrative expenses. The $2.3 million, or 6.3%, decrease in Textbook Division Adjusted EBITDA was primarily due to the previously mentioned decrease in revenues and to higher selling, general and administrative expenses. Complementary Services Division Adjusted EBITDA increased $0.5 million primarily due to improved results in our systems business which was mostly offset by lower results in our distance education business. Corporate Administration’s Adjusted EBITDA loss increased $4.4 million primarily due to a $2.5 million increase in consulting services and $1.6 million of costs associated with a voluntary early retirement program and severance 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 income (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 as presented in the Consolidated Statements of Cash Flows included in Item 8, Financial Statements and Supplementary Data:

		Fiscal Years Ended
		March 31, 2011				March 31, 2010
Net income (loss)			(98,309,733	)			2,311,287
Interest expense, net			51,027,654				49,224,513
Income tax benefit			(3,496,878	)			(532,388	)
Depreciation and amortization			17,204,825				19,370,252
EBITDA			(33,574,132	)			70,373,664
Goodwill impairment			89,000,000				—
Loss on early extinguishment of debt			—				3,065,759
Adjusted EBITDA (1)		$	55,425,868			$	73,439,423
Share-based compensation			447,826				1,106,882
Interest income			175,859				180,709
Provision for losses on receivables			2,193,739				1,399,466
Cash paid for interest			(44,905,405	)			(37,572,221	)
Cash (paid) refunded for income taxes			1,278,671				(3,155,473	)
(Gain) loss on disposal of assets			(131,591	)			235,803
Changes in operating assets and liabilities, net of effect of acquisitions (2)			(1,657,825	)			(4,803,359	)
Net Cash Flows from Operating Activities		$	12,827,142			$	30,831,230
Net Cash Flows from Investing Activities		$	(16,306,546	)		$	(8,765,940	)
Net Cash Flows from Financing Activities		$	(1,045,841	)		$	(5,131,133	)

Amortization expense. Amortization expense for the fiscal year ended March 31, 2011 decreased $2.3 million to $8.6 million from $10.9 million for the fiscal year ended March 31, 2010, primarily due to a decrease in amortization of software development costs primarily as a result of certain capitalized technologies becoming fully amortized and to a decrease in amortization of covenant not to compete agreements arising from bookstore acquisitions primarily as a result of expiration of the agreements.

Goodwill impairment. During the fourth quarter of 2011, we recognized a non-cash charge of $89.0 million related to the impairment of goodwill. The impairment, which was determined during our 2011 annual impairment testing of goodwill conducted at March 31, was primarily due to lower operating results as discussed earlier. No impairment charge was recorded for the year ended March 31, 2010. See the Goodwill and Intangible Assets critical accounting policy later in this Item.

Interest expense, net. Interest expense, net for the fiscal year ended March 31, 2011 increased $1.8 million, or 3.7%, to $51.0 million from $49.2 million for the fiscal year ended March 31, 2010, due primarily to a $1.3 million increase in interest on the Pre-Petition Senior Secured Notes, which replaced the Term Loan, and a $0.8 million increase in amortization of additional prepaid loan costs related to the issuance of the Pre-Petition Senior Secured Notes and entering into the Pre-Petition ABL Credit Agreement in October of 2009.

Loss on early extinguishment of debt. The loss on extinguishment of debt of $3.1 million for the fiscal year ended March 31, 2010 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 fiscal year ended March 31, 2011 increased $3.0 million to $3.5 million from $0.5 million for the fiscal year ended March 31, 2010. Our effective tax rate for the fiscal years ended March 31, 2011 and 2010 was 3.4% and (29.9)%, respectively. Our effective tax rate for the fiscal year 2011 differs from the statutory tax rate primarily as a result of a pre-tax earnings charge for non-deductible goodwill impairment. Excluding the impact of the goodwill impairment charge, which was all attributed to non-deductible goodwill and as such is treated as a permanent difference for income tax purposes, our effective tax rate would have been 33.2% for the fiscal year ended March 31, 2011. Our effective tax rate for fiscal year 2010 differs from the statutory tax rate primarily due to the adjustment of the deferred tax rate and the change in NOL carryforward benefit. The effective tax rate would have been 72.3% without the effect of the adjustment to the deferred tax rate and change in NOL carryforward benefit. The high effective tax rate in fiscal year 2010 was due to relatively low pre-tax income and to certain states taxing on a gross receipts methodology and increased interest expense which is not deductible in some states for state taxes.

Fiscal Year ended March 31, 2010 Compared With Fiscal Year ended March 31, 2009.

Revenues. Revenues for the fiscal years ended March 31, 2010 and 2009 and the corresponding change in revenues were as follows:

		Fiscal Years Ended								Change
		March 31, 2010				March 31, 2009				Amount				Percentage
Bookstore Division		$	472,492,275			$	472,038,009			$	454,266				0.1	%
Textbook Division			140,592,220				147,287,779				(6,695,559	)			(4.5	)%
Complementary Services Division			35,470,836				34,233,883				1,236,953				3.6	%
Intercompany Eliminations			(43,061,718	)			(42,843,490	)			(218,228	)			0.5	%
		$	605,493,613			$	610,716,181			$	(5,222,568	)			(0.9	)%

For the fiscal year ended March 31, 2010, Bookstore Division revenues increased $0.5 million, or 0.1%, from the fiscal year ended March 31, 2009. The increase in Bookstore Division revenues was primarily attributable to the addition of 44 bookstore locations through acquisitions or start-ups since April 1, 2008. The new bookstores provided an additional $21.6 million of revenue for the fiscal year ended March 31, 2010. Same-store sales for the fiscal year ended March 31, 2010 decreased $11.5 million, or 2.6%, from the fiscal year ended March 31, 2009, primarily due to decreased new and used textbook revenue and to a smaller decrease in clothing and insignia wear revenues. The same-store sales decrease in new and used textbooks is partly attributable to the rental program implemented in the fourth quarter of fiscal 2010 in our off-campus bookstores. If the textbooks rented would have been sold instead, we estimate that same-store sales would have been approximately $4.4 million higher, lowering the same-store sales decrease to 1.6% for the current fiscal year. We define same-store sales for the fiscal year ended March 31, 2010 as sales, including internet sales, from any store, even if expanded or relocated, that has been operated by us since the start of fiscal year 2009. Finally, revenues declined $9.6 million as a result of certain lost contract-managed bookstores and store closings since April 1, 2008.

For the fiscal year ended March 31, 2010, Textbook Division revenues decreased $6.7 million, or 4.5%, from the fiscal year ended March 31, 2009 due primarily to an approximate 4.8% decrease in units sold, which was slightly offset by an approximate 0.2% increase in the average price per book sold and an increase in revenues from textbook rentals to third-parties. Complementary Services Division revenues increased $1.2 million, or 3.6%, from the year ended March 31, 2009, as increases in the distance education and e-commerce services businesses were mostly offset by a decrease in revenues from our consulting business. Intercompany eliminations for the fiscal year ended March 31, 2010 decreased $0.2 million from the fiscal year ended March 31, 2009.

Gross profit. Gross profit for the fiscal year ended March 31, 2010 decreased $4.0 million, or 1.7%, to $235.3 million from $239.3 million for the fiscal year ended March 31, 2009. The decrease in gross profit was primarily attributable to the decrease in revenues in the Textbook Division. The consolidated gross margin percentage decreased slightly to 38.9% for the fiscal year ended March 31, 2010 from 39.2% for the fiscal year ended March 31, 2009 primarily due to a decrease in the gross margin percentage in the Textbook Division.

Selling, general and administrative expenses. Selling, general and administrative expenses for the fiscal year ended March 31, 2010 decreased $6.4 million, or 3.8%, to $161.9 million from $168.3 million for the fiscal year ended March 31, 2009. Selling, general and administrative expenses as a percentage of revenues were 26.7% and 27.6% for the fiscal years ended March 31, 2010 and 2009, respectively. The decrease in selling, general and administrative expenses includes a $10.3 million decrease in personnel costs and a $1.6 million decrease in advertising and travel expenses, which were primarily due to cost cutting measures implemented during the last quarter of fiscal 2009. These decreases were partially offset by a $4.2 million increase in commission expense, primarily due to an increase in sales on the internet involving third-party websites and a $1.8 million increase in rent, primarily due to an increase in the number of bookstores in the Bookstore Division.

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

		Fiscal Years Ended								Change
		March 31, 2010				March 31, 2009				Amount				Percentage
Bookstore Division		$	45,685,171			$	44,029,528			$	1,655,643				3.8	%
Textbook Division			37,050,519				39,009,073				(1,958,554	)			(5.0	)%
Complementary Services Division			2,301,001				1,320,700				980,301				74.2	%
Corporate Administration			(11,597,268	)			(13,326,971	)			1,729,703				13.0	%
		$	73,439,423			$	71,032,330			$	2,407,093				3.4	%

Bookstore Division Adjusted EBITDA increased $1.7 million, or 3.8%, primarily due to lower selling, general and administrative expenses. The $2.0 million, or 5.0%, decrease in Textbook Division Adjusted EBITDA was primarily due to the previously mentioned decrease in revenues and gross profit, which were partially offset by a decrease in selling, general and administrative expenses primarily as a result of cost cutting measures implemented during the last quarter of fiscal 2009. Complementary Services Division Adjusted EBITDA increased $1.0 million primarily due to improved results in our e-commerce and distance education businesses which were partially offset by lower results in our consulting business. Corporate Administration’s Adjusted EBITDA loss decreased $1.7 million primarily due to expenses incurred in the prior year that were not incurred again in fiscal 2010, including $1.1 million of costs associated with a voluntary early retirement program and severance.

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 income (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 as presented in the Consolidated Statements of Cash Flows included in Item 8, Financial Statements and Supplementary Data:

		Fiscal Years Ended
		March 31, 2010				March 31, 2009
Net income (loss)			2,311,287				(100,494,023	)
Interest expense, net			49,224,513				41,279,082
Income tax expense (benefit)			(532,388	)			4,288,620
Depreciation and amoritzation			19,370,252				18,986,651
EBITDA			70,373,664				(35,939,670	)
Goodwill impairment			—				106,972,000
Loss on early extinguishment of debt			3,065,759				—
Adjusted EBITDA (1)		$	73,439,423			$	71,032,330
Share-based compensation			1,106,882				1,288,543
Interest income			180,709				426,536
Provision for losses on receivables			1,399,466				1,366,979
Cash paid for interest			(37,572,221	)			(39,123,694	)
Cash paid for income taxes			(3,155,473	)			(9,930,165	)
Loss on disposal of assets			235,803				124,871
Changes in operating assets and liabilities, net of effect of acquisitions (2)			(4,803,359	)			1,170,551
Net Cash Flows from Operating Activities		$	30,831,230			$	26,355,951
Net Cash Flows from Investing Activities		$	(8,765,940	)		$	(14,898,403	)
Net Cash Flows from Financing Activities		$	(5,131,133	)		$	3,254,464

Depreciation expense. Depreciation expense for the fiscal year ended March 31, 2010 increased $0.9 million, or 12.0%, to $8.5 million from $7.6 million for the fiscal year ended March 31, 2009, due primarily to new bookstores added since April 1, 2008 and bookstore remodeling projects.

Amortization expense. Amortization expense for the fiscal year ended March 31, 2010 decreased $0.5 million, or 4.7%, to $10.9 million from $11.4 million for the fiscal year ended March 31, 2009, primarily due to a $0.5 million decrease in amortization of covenant not to compete agreements arising from bookstore acquisitions.

Goodwill impairment. During the fourth quarter of 2009, we recognized a non-cash charge of $107.0 million related to the impairment of goodwill. The impairment, which was determined during our 2009 annual impairment testing of goodwill conducted at March 31, was due to the economic downturn and changes in some variables associated with the judgments, assumptions and estimates made by us in assessing the valuation of our goodwill, including lower market multiples. No impairment charge was recorded for the year ended March 31, 2010.

Interest expense, net. Interest expense, net for the fiscal year ended March 31, 2010 increased $7.9 million, or 19.2%, to $49.2 million from $41.3 million for the fiscal year ended March 31, 2009, due primarily to a $5.7 million increase in interest on the Term Loan and Pre-Petition Senior Secured Notes mainly due to higher interest rates and a $2.6 million increase in amortization of additional prepaid loan costs related to the issuance of the Pre-Petition Senior Secured Notes and entering into the Pre-Petition ABL Credit Agreement. These increases were partially offset by a $0.6 million decline in interest on the Revolving Credit Facility due to lower outstanding indebtedness.

Loss on early extinguishment of debt. The loss on early extinguishment of debt of $3.1 million for the fiscal year ended March 31, 2010 relates to the write-off of debt issue costs as a result of the termination of the Term Loan and Revolving Credit Facility.

Income taxes. Income tax benefit for the fiscal year ended March 31, 2010 increased $4.8 million to $0.5 million from an expense of $4.3 million for the fiscal year ended March 31, 2009. Our effective tax rate for the fiscal years ended March 31, 2010 and 2009 was (29.9)% and (4.5) %, respectively. Our effective tax rate for fiscal year 2010 differs from the statutory tax rate primarily due to the adjustment to the deferred tax rate and change in NOL carryforward benefit. The effective tax rate would have been 72.3% without the effect of the adjustment to the deferred tax rate and change in NOL carryforward benefit. The high effective tax rate in fiscal year 2010 was due to relatively low pre-tax income and to certain states taxing on a gross receipts methodology and increased interest expense which is not deductible in some states for state taxes. Our effective tax rate for fiscal 2009 differs from the statutory tax rate primarily as a result of a pre-tax earnings charge for non-deductible goodwill impairment. Excluding the impact of the goodwill impairment charge, which was all attributable to non-deductible goodwill and as such is treated as a permanent difference for income tax purposes, our effective tax rate would have been 39.8% for the fiscal year ended March 31, 2009.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to returns, bad debts, inventory valuation and obsolescence, goodwill and intangible assets, rebate programs, income taxes, and contingencies and litigation. We base our estimates and judgments on historical experience and on various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of the consolidated financial statements:

Revenue Recognition. We recognize revenue from Textbook Division sales at the time of shipment. We have established a program which, under certain conditions, enables our customers to return textbooks. We record reductions to revenue and costs of sales for the estimated impact of textbooks with return privileges which have yet to be returned to the Textbook Division. External customer returns over the past three fiscal years have ranged from approximately 22.9% to 26.4% of sales. Additional reductions to revenue and costs of sales may be required if the actual rate of returns exceeds the estimated rate of returns. Consistent with prior years, the estimated rate of returns is determined utilizing actual historical return experience. The accrual rate for customer returns at March 31, 2011 was approximately 26.2% of Textbook Division gross external sales with estimated product returns at March 31, 2011 of $4.9 million.

Bad Debts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Consistent with prior years, in determining the adequacy of the allowance, we analyze the aging of the receivable, the customer’s financial position, historical collection experience, and other economic and industry factors. Net charge-offs over the past three fiscal years have been between $1.1 million and $2.2 million, or 0.2% to 0.5%, of revenues. We have maintained an allowance for doubtful accounts of approximately $1.3 million, or 0.3%, of revenues over the past three fiscal years. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventory Valuation and Obsolescence. Inventories, including rental inventory, are stated at the lower of cost or market. The cost of used textbook inventories is determined using the weighted-average method. Our Bookstore Division uses the retail inventory method to determine cost for new textbooks and non-textbook inventories. The cost of other inventories is determined on a first-in, first-out cost method. Consistent with prior years, we account for inventory obsolescence based upon assumptions about future demand and market conditions. At March 31, 2011, used textbook inventory was subject to an obsolescence reserve of $2.4 million. The obsolescence reserve at March 31, 2010 and 2009 was $2.3 million and $2.4 million, respectively. If actual future demand or market conditions are less favorable than those projected by us, inventory write-downs may be required. In determining inventory adjustments, we consider amounts of inventory on hand, projected demand, new editions, and industry factors.

Goodwill and Intangible Assets. The March 4, 2004 Transaction and our acquisitions of college bookstores result in the application of the acquisition method of accounting as of the acquisition date. In certain circumstances, our management performs valuations where appropriate to determine the fair value of assets acquired and liabilities assumed. The goodwill in such transactions is determined by calculating the difference between the consideration transferred and the fair value of net assets acquired. We evaluate the impairment of the carrying value of our goodwill and identifiable intangibles in accordance with applicable accounting standards, including the Intangibles — Goodwill and Other and the Property, Plant and Equipment Topics of the FASB ASC. In accordance with such standards, we evaluate impairment on goodwill and certain identifiable intangibles annually at March 31 and evaluate impairment on all intangibles whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. We are required to make certain assumptions and estimates regarding the fair value of intangible assets when assessing such assets for impairment. We evaluate goodwill at the reporting unit level and have identified our reportable segments, the Textbook Division, Bookstore Division and Complementary Services Division, as our reporting units. Our reporting units are determined based on the way management organizes the segments for making operating decisions and assessing performance. Management has organized our reporting segments based upon differences in products and services provided. The Bookstore Division and Textbook Division reporting units have been assigned goodwill and are thus required to be tested for impairment.

In the first step of our goodwill impairment test conducted at March 31, 2011, fair value was determined using a combination of the market approach, based primarily on a multiple, and the income approach, based on a discounted cash flow model. In applying weights to the methods used at March 31, 2011, we believe that the discounted cash flow model captures our estimates regarding the results of our future prospects, however, we also considered the market’s expectations based on observable market information. The multiple approach requires that we estimate a certain valuation multiple of revenue and EBITDA for each reporting unit derived from comparable companies to estimate the fair value of the reporting unit. The discounted cash flow model discounts projected cash flows for each reporting unit to present value and includes critical assumptions such as long-term growth rates, projected revenues and earnings and cash flow forecasts for the reporting units, as well as an appropriate discount rate. Discount rates were determined separately for each reporting unit by estimating the weighted average cost of capital using the capital asset pricing model. The multiples applied to our trailing twelve month and next twelve month revenue were 0.3x and 0.4x and to EBITDA were 7.2x and 6.9x, respectively, for the Bookstore Division. The multiples applied to our trailing twelve month and next twelve month revenue were 1.1x and 1.0x and to EBITDA were 5.3x and 5.2x, respectively, for the Textbook Division. The discounted cash flow model assumed a discount rate of 12.5% and 11.6% for the Bookstore and Textbook Divisions, respectively, based on the weighted-average cost of capital derived from public companies considered to be reasonably comparable to ours. The discounted cash flow model also assumed a terminal growth rate of 3.5% and 1.0% for Bookstore and Textbook Divisions, respectively.

Estimated fair value for our goodwill impairment test conducted for fiscal years ended March 31, 2010 and 2009 was determined using the market approach based primarily on comparable company EBITDA multiples. The fair value was also calculated using the income approach, based on a discounted cash flow model, and was compared to and supported the fair value based upon the EBITDA multiple approach. We believe the methods used in the past and the method used at March 31, 2011 have relative merits but using a weighting of the market and income approaches provides a better estimate of fair value.

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.

We determined in the first step of our goodwill impairment test conducted at March 31, 2011 that the carrying values of the Bookstore and Textbook Divisions exceed 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 for each reporting unit by allocating the fair value of the reporting unit to all of its assets and liabilities other than goodwill and debt (including both recognized and unrecognized intangible assets) and comparing the residual amount to the carrying value of goodwill. Appraisals were used to estimate fair value of our property and equipment, the excess earnings income approach was used to estimate fair value for Customer Relationships in the Textbook Division and the relief from royalty market approach was used to estimate fair value for Tradename in the Textbook Division. Carrying value was assumed to approximate fair value for all other assets and liabilities due to their short-term nature. As a result, we recorded an impairment charge of $89.0 million. The carrying value of goodwill in excess of the implied fair value was approximately $62.0 million and $27.0 million for the Bookstore and Textbook Divisions, respectively. Remaining goodwill at March 31, 2011 assigned to the Bookstore Division was $121.8 million and to the Textbook Division was $7.6 million.

The use of different assumptions, estimates, or judgments in either step of the goodwill impairment testing process could materially increase or decrease the fair value of the reporting unit and/or its net assets and, accordingly, could materially increase or decrease any related impairment charge. If we had used a growth rate and discount rate that were increased or decreased by 50 basis points and EBITDA and revenue multiples that were increased or decreased by 10.0%, we would have recorded an impairment charge as low as $38.0 million or as high as $82.0 million in the Bookstore Division and as low as $12.0 million or as high as $40.0 million in the Textbook Divisions.

In fiscal 2010, we identified no goodwill impairment. At March 31, 2010, the fair value of the Textbook Division exceeded the carrying value of $210.7 million by 4.8% and the Bookstore Division fair value exceeded the carrying value of $244.5 million by 4.7%.

In fiscal 2009, we recorded goodwill impairment of $107.0 million, of which $40.0 million and $67.0 million were charged to the Bookstore and Textbook Divisions, respectively.

The impairment test for intangible assets not subject to amortization involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. The impairment evaluation for indefinite lived intangible assets, which for us is our tradename, is conducted at March 31 each year or, more frequently, if events or changes in circumstances indicate that an asset might be impaired. Significant judgments and assumptions inherent in this analysis include assumptions about appropriate long-term growth rates, royalty rates, discount rate, and cash flow forecasts. The royalty rate and pre-tax discount rate used in this analysis were 3.8% and 13.6%, respectively. Such assumptions are subject to change as a result of changing economic and competitive conditions. If we had used a royalty rate and discount rate that were increased or decreased by 0.5% we still would have reached the same conclusion of no impairment. The estimated fair value of our tradename at March 31, 2011 exceeded the carrying value by approximately 34.0%. We conducted our annual assessment of indefinite lived intangibles in the fourth quarter and no impairment was indicated.

We are also required to make certain assumptions and estimates when assigning an initial value to covenants not to compete arising from bookstore acquisitions. Changes in the fact patterns underlying such assumptions and estimates could ultimately result in the recognition of impairment losses on intangible assets.

We monitor relevant circumstances, including industry trends, general economic conditions, and the potential impact that such circumstances might have on the valuation of our goodwill and identifiable intangibles. It is possible that changes in such circumstances, or in the numerous variables associated with the judgments, assumptions and estimates made by us in assessing the appropriate valuation of our goodwill and identifiable intangibles, including a further deterioration in our financial performance or the economy or debt markets or a significant delay in the expected recovery, could in the future require us to further write down a portion of our goodwill or write down a portion of our identifiable intangibles and record related non-cash impairment charges.

Accrued Incentives. Our Textbook Division offers certain incentive programs to its customers that allow the participating customers the opportunity to earn rebates for used textbooks sold to the Textbook Division. The rebates can be redeemed in a number of ways, including to pay for freight charges on textbooks sold to the customer or to pay for certain products or services we offer through our Complementary Services Division. The customer can also use the rebates to pay for the cost of textbooks sold by the Textbook Division to the customer; however, a portion of the rebates earned by the customer are forfeited if the customer chooses to use rebates in this manner. If the customer fails to comply with the terms of the program, rebates earned during the year are forfeited. Significant judgment is required in estimating the expected level of forfeitures on rebates earned. Although we believe that our estimates of anticipated forfeitures, which have consistently been based upon historical experience, are reasonable, actual results could

differ from these estimates resulting in an ultimate redemption of rebates which differs from that which is reflected in accrued incentives in the consolidated financial statements. At March 31, 2011, actual forfeitures for the last three fiscal years ranged between 6.4% and 17.9% of total rebates earned within the same year. After adjusting for estimated forfeitures, rebates earned are accrued at a rate of approximately 13.5% of the dollar value of eligible textbooks purchased by the Textbook Division. Accrued incentives at March 31, 2011 were $5.8 million, including estimated forfeitures, however, if we accrued for rebates earned and unused as of March 31, 2011, assuming no forfeitures, our accrued incentives would have been $6.5 million.

Income Taxes. We account for income taxes by recording taxes payable or refundable for the current fiscal year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the consolidated financial statements or the consolidated income tax returns. Significant judgment is required in determining the provision for income taxes and related accruals, deferred tax assets, and deferred tax liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the consolidated income tax returns are subject to audit by various tax authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates resulting in a final tax outcome that may be different from that which is reflected in the consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Financing Activities

Implications of Chapter 11 Proceedings

Under section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stays most actions against a debtor, including most actions to collect pre-petition indebtedness or to exercise control over our property. Absent an order of the Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization. Substantially all of our pre-petition debt is in default, including $200.0 million principal amount due under the Pre-Petition Senior Secured Notes, $175.0 million principal amount under the Pre-Petition Senior Subordinated Notes and $77.0 million principal amount under the Pre-Petition Senior Discount Notes.

Information related to our debt and related agreements is set forth in Note I to the consolidated financial statements at Item 8, Financial Statements and Supplementary Data.

Pre-Petition Debt

On October 2, 2009, in conjunction with the completion of NBC’s offering of the Pre-Petition Senior Secured Notes and payment in full of the Term Loan, NBC entered into the Pre-Petition ABL Credit Agreement which provided for the Pre-Petition ABL Facility and replaced the Revolving Credit Facility, effectively terminating the Senior Credit Facility. The Pre-Petition ABL Facility was secured by a first priority interest in substantially all of our and our subsidiaries’ property and assets, which also secured the Pre-Petition Senior Secured Notes on a second priority basis. The Pre-Petition ABL Facility was scheduled to mature on the earlier of October 2, 2012 and the date that was 91 days prior to the earliest maturity of the Pre-Petition Senior Secured Notes (due December 1, 2011), the Pre-Petition Senior Subordinated Notes (due March 15, 2012), the Pre-Petition Senior Discount Notes (due March 15, 2013), or any refinancing thereof, effectively September 1, 2011. Borrowings under the Pre-Petition ABL Facility were 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 the base interest rate plus an applicable margin ranging from 3.25% to 3.75%. In addition, the applicable margin increased 1.5% during the time periods from April 15 to July 14 and from December 1 to January 29 of each year. There also was a commitment fee ranging from 0.75% to 1.0% for the daily average unused amount. Costs of $10.2 million associated with the issuance of the Pre-Petition Senior Secured Notes and entering into the Pre-Petition ABL Credit Agreement were capitalized as debt issue costs to be amortized to interest expense over the remaining life of the debt instruments. Debt issue costs of $3.1 million were written off as a result of the termination of the Term Loan and Revolving Credit Facility.

Effective February 3, 2009, the Senior Credit Facility, which has been terminated as described earlier, was amended to, among other things, (i) extend the maturity date of the Revolving Credit Facility to May 31, 2010, (ii) decrease the maximum borrowing capacity under the Revolving Credit Facility from $85.0 million to $65.0 million, (iii) amend certain definitions and financial covenants under the Senior Credit Facility, including limiting future acquisitions to contract-managed stores, and (iv) increase the interest rate on the Term Loan and Revolving Credit Facility. The applicable margin on the Revolving Credit Facility and Term Loan increased to 6.0% on Eurodollar borrowings and 5.0% on base rate borrowings. The Eurodollar interest rate was not to be less than 3.25% plus the applicable margin. The interest rate on base rate borrowings was the greater of a) prime rate, b) federal funds rate plus 0.5%, or c) the one-month Eurodollar loan rate plus 1.0%, not to be less than 4.25%, plus the applicable margin. The commitment fee rate increased to 0.75%. The modifications to the Senior Credit Facility resulted in the payment of $4.0 million in costs associated with such modifications, which were capitalized as debt issue costs to be amortized to interest expense over the remaining life of the debt instruments.

In conjunction with the Senior Credit Facility amendment on February 3, 2009, we entered into a Stock Subscription Agreement with NBC Holdings Corp. (“Holdings”), pursuant to which Holdings purchased 10,000 shares of a newly created series of our preferred stock, par value $0.01 per share, for $1,000 per share, for an aggregate purchase price of $10.0 million. Subject to applicable restrictions under our debt agreements, the holders of the preferred stock are entitled to receive mandatory cumulative dividends from the date of issuance at a rate of 15% of the liquidation preference, which is equal to $1,000 per share, as adjusted. The Series A Preferred Stock has a redemption feature that allows for redemption at the option of the holders of a majority of the shares, on occurrence of a Change of Control, at a redemption price per share equal to the liquidation preference plus accrued and unpaid dividends subject to the restrictions and limitations under our debt agreements.

Following our chapter 11 filing on June 27, 2011, our primary liquidity requirements are for debt service under the DIP Credit Agreement, for working capital, for income tax payments, and capital expenditures. We have historically funded these requirements primarily through internally generated cash flows and funds borrowed under our revolving credit facility. At March 31, 2011, our total indebtedness was $454.1 million, consisting of a $75.0 million Pre-Petition ABL Facility which was unused at March 31, 2011, $200.0 million of Pre-Petition Senior Secured Notes with unamortized discount of $0.4 million, $175.0 million of Pre-Petition Senior Subordinated Notes, $77.0 million of Pre-Petition Senior Discount Notes, and $2.5 million of other indebtedness, including capital lease obligations.

Principal and interest payments under the Pre-Petition ABL Facility, the Pre-Petition Senior Secured Notes, the Pre-Petition Senior Subordinated Notes, and the Pre-Petition Senior Discount Notes represented significant liquidity requirements for us. An excess cash flow payment of $6.0 million for fiscal year ended March 31, 2009 under the Senior Credit Facility was paid in September 2009.

Loans under the Senior Credit Facility were subject to interest at floating rates based upon the borrowing option selected. On July 15, 2005, NBC entered into an interest rate swap agreement to essentially convert a portion of the variable rate Term Loan into debt with a fixed rate of 6.844% (4.344% plus an applicable margin as defined by the Senior Credit Facility). This agreement was effective as of September 30, 2005 and expired September 30, 2008.

The Pre-Petition Senior Secured Notes required semi-annual interest payments at a fixed rate of 10.0% and were set to mature on December 1, 2011. Interest payments on the Pre-Petition Senior Secured Notes will be paid monthly while under chapter 11. The Pre-Petition Senior Subordinated Notes required semi-annual interest payments at a fixed rate of 8.625% and were set to mature on March 15, 2012. The Pre-Petition Senior Discount Notes required semi-annual cash interest payments commencing September 15, 2008 at a fixed rate of 11.0% and were set to mature on March 15, 2013. Interest payments on the Pre-Petition Senior Subordinated Notes and Senior Discount Notes ceased as of the Petition Date.

The DIP Credit Agreement requires monthly interest payments at a floating rate based upon the borrowing option selected.

Investing Cash Flows

Our capital expenditures were $5.7 million, $5.4 million and $8.0 million for the fiscal years ended March 31, 2011, 2010 and 2009, respectively. Capital expenditures consist primarily of leasehold improvements and furnishings for new bookstores, bookstore renovations, computer upgrades and miscellaneous warehouse improvements. The Pre-Petition ABL Credit Agreement did not have a limitation on capital expenditures other than as part of the fixed charge coverage ratio. We expect capital expenditures to be between $6.5 million and $7.5 million for fiscal year 2012.

Business acquisition and contract-management renewal expenditures were $9.5 million, $2.8 million and $6.3 million for the fiscal years ended March 31, 2011, 2010 and 2009, respectively. During the fiscal year ended March 31, 2011, nineteen bookstore locations were acquired in fifteen separate transactions (thirteen of which were contract-managed locations). During the fiscal year ended March 31, 2010, fourteen bookstore locations were acquired in eleven separate transactions (all of which were contract-managed locations). During the fiscal year ended March 31, 2009, we acquired twenty-two bookstore locations in nineteen separate transactions (nineteen of which were contract-managed locations). Our ability to make acquisition expenditures was subject to certain restrictions under the Pre-Petition ABL Credit Agreement.

During the fiscal years ended March 31, 2011, 2010 and 2009, we capitalized $1.6 million, $0.6 million and $0.6 million, respectively, in software development costs associated with new software products and enhancements to existing software products.

In addition to the previously mentioned business acquisition and contract-management renewal expenditures, the contract-managed acquisition costs during prior years included $0.6 million of unpaid consideration. The purchase price of one of the bookstores during the fiscal year ended March 31, 2008 included $0.7 million of contingent consideration, which is paid to the previous owner on a monthly basis and is calculated as a percentage of revenues generated by the acquired bookstore each month. Such payments have totaled $0.4 million from purchase date through the fiscal year ended March 31, 2011.

Operating Cash Flows

Our principal sources of cash to fund our future operating liquidity needs will be cash from operating activities and borrowings under the DIP Revolving Facility and DIP Term Loan Facility. Usage of the DIP Revolving Facility to meet our liquidity needs will fluctuate throughout the fiscal year due to our distinct buying and selling periods, increasing substantially at the end of each college semester (May and December). For the fiscal year ended March 31, 2011, weighted-average borrowings under our pre-petition revolving credit facilities approximated $1.5 million, with actual borrowings ranging from a low of no borrowings to a high of $20.7 million. Net cash flows from operating activities for the fiscal year ended March 31, 2011 were $12.8 million, down $18.0 million from $30.8 million for the fiscal year ended March 31, 2010. The decrease in net cash flows from operating activities is due primarily to lower operating results, an increase in cash paid for interest primarily as a result of timing of cash interest payments on pre-petition debt, and payments in connection with shares issued under the 2005 Restricted Stock Plan, which vested on September 30, 2010. These decreases in cash flow from operations were partially offset by lower cash payments for income taxes and a lower investment in inventories due to the timing of publisher returns. Net cash flows from operating activities for the fiscal year ended March 31, 2010 were $30.8 million, up $4.4 million from $26.4 million for the fiscal year ended March 31, 2009. The increase in net cash flows from operations was due primarily to a decrease in accounts receivable as a result of a decrease in Bookstore Division receivables from publishers for returns and a decrease in income taxes paid during the fiscal year ended March 31, 2010. The increase in net cash flows was partially offset by an increase in payments for inventories partially due to increased rental book inventories in the Bookstore Division at March 31, 2010.

As of March 31, 2011, we had $56.4 million in cash available to help fund working capital requirements. At certain times of the year, we also invest in cash equivalents. Any investments in cash equivalents were subject to restrictions under the Pre-Petition ABL Credit Agreement. The Pre-Petition ABL Credit Agreement allowed investments in (1) certain short-term securities issued by, or unconditionally guaranteed by, the federal government, (2) certain short-term deposits in banks that have combined capital and surplus of not less than $500 million, (3) certain short-term commercial paper of issuers rated at least A-1 by Standard & Poor’s or P-1 by Moody’s, (4) certain money market funds which invest exclusively in assets otherwise allowable under the Pre-Petition ABL Credit Agreement and (5) certain other similar short-term investments. Although we invest in compliance with the restrictions under our credit agreement and generally seek to minimize the risk associated with investments by investing in investment grade, highly liquid securities, we cannot give assurances that the cash equivalents that are in or will be selected to be in our investment portfolio will not lose a portion of their value or become impaired in the future.

Covenant Restrictions

We have a substantial level of indebtedness. Our debt agreements impose significant financial restrictions, which could prevent us from incurring additional indebtedness and taking certain other actions and could result in all amounts outstanding being declared due and payable if we are not in compliance with such restrictions. Access to borrowings under the Pre-Petition ABL Facility was subject to the calculation of a borrowing base, which was a function of eligible accounts receivable and inventory, up to the maximum borrowing limit (less outstanding letters of credit). The Pre-Petition ABL Credit Agreement restricted 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 could pay dividends to us (i) in an amount not to exceed the amount of interest required to be paid on the Pre-Petition Senior Discount Notes and (ii) to pay corporate overhead expenses not to exceed $250,000 per fiscal year and any taxes we owed. In addition, under the Pre-Petition ABL Facility, if availability, as defined in the Pre-Petition ABL Credit Agreement, was less than the greater of 20% of the total revolving credit commitments and $15.0 million, we were 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 funds under the Pre-Petition ABL Facility. At March 31, 2011, we had up to $75.0 million of total revolving credit commitments under the Pre-Petition ABL Facility (less outstanding letters of credit and subject to a borrowing base). The calculated borrowing base as of March 31, 2011 was $32.8 million, of which $0.7 million was outstanding under a letter of credit and $32.1 million was unused. At March 31, 2011, our pro forma fixed charge coverage ratio was 1.1x.

The indenture governing the Pre-Petition Senior Discount Notes restricted 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 were met, including (i) no default under the indenture had occurred, (ii) we and certain of our subsidiaries maintained a consolidated coverage ratio of 2.0 to 1.0 on a pro forma basis and (iii) the amount of the dividend or payment could 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 did not meet the preceding conditions, we could still pay dividends or make certain other payments up to $15.0 million in the aggregate. At March 31, 2011, our pro forma consolidated coverage ratio was 1.1 to 1.0 and the amount distributable under the Pre-Petition Senior Discount Notes was $15.0 million.

The indentures governing the Pre-Petition Senior Subordinated Notes and the Pre-Petition Senior Secured Notes contained 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 Pre-Petition Senior Subordinated Notes and the Pre-Petition Senior Secured Notes, if there was no availability under the Restricted Payment Calculation, but NBC maintained the 2.0 to 1.0 consolidated coverage ratio on a pro forma basis, NBC could make dividends to us to meet the interest payments on the Pre-Petition Senior Discount Notes. If NBC did not maintain the 2.0 to 1.0 ratio on a pro forma basis, it could still make payments, including dividends to us, up to $15.0 million in the aggregate. At March 31, 2011, NBC’s pro forma consolidated coverage ratio calculated under the indenture to the Pre-Petition Senior Subordinated Notes was 1.3 to 1.0 and the ratio calculated under the indenture to the Pre-Petition Senior Secured Notes was 1.5 to 1.0. The pro forma consolidated coverage ratio calculated under the indenture to the Pre-Petition Senior Subordinated Notes differed from the ratio calculated under the indenture to the Pre-Petition Senior Secured Notes because the indenture to the Pre-Petition Senior Subordinated Notes excluded debt issue cost amortization only for debt instruments outstanding at the March 4, 2004 Transaction date from the calculation, whereas the indenture to the Pre-Petition Senior Secured Notes excluded the higher debt issue cost amortization for the Pre-Petition Senior Secured Notes and the Pre-Petition ABL Facility, which were issued in October of 2009, from the same calculation. At March 31, 2011, the amount distributable by NBC under the most restrictive indenture was $2.3 million after applying $12.8 million in dividends NBC paid to us for the March 15, 2010, September 15, 2010 and March 15, 2011 interest on the Pre-Petition Senior Discount Notes.

As of March 31, 2011, we were in compliance with all of our debt covenants, however, due to the chapter 11 bankruptcy filing on June 27, 2011, substantially all of our pre-petition debt is in default, including $200.0 million principal amount due under the Pre-Petition Senior Secured Notes; $175.0 million principal amount under the Pre-Petition Senior Subordinated Notes and $77.0 million principal amount under the Pre-Petition Senior Discount Notes.

Our debt covenants used Credit Facility EBITDA in the ratio calculations mentioned above. For a discussion of EBITDA, Adjusted EBITDA and Credit Facility EBITDA, see “Adjusted EBITDA Results” earlier in this Item and for a presentation reconciling EBITDA and Adjusted EBITDA to net cash flows from operating activities, which we believe to be the closest GAAP liquidity measure, see “Fiscal Year Ended March 31, 2011 Compared With Fiscal Year Ended March 31, 2010” and “Fiscal Year Ended March 31, 2010 Compared With Fiscal Year Ended March 31, 2009” earlier in this Item.

The DIP Credit Agreement contains, among other things, conditions precedent, covenants, representations and warranties and events of default customary for facilities of this type. Such covenants include the requirement to provide certain financial reports and other information, use the proceeds of certain sales or other dispositions of collateral to prepay outstanding loans, maintenance of certain financial covenants (including a minimum liquidity and cumulative consolidated EBITDA test), certain restrictions on the incurrence of indebtedness, guarantees, liens, acquisitions and other investments, mergers, consolidations, liquidations and dissolutions, dividends and other repayments in respect of capital stock, capital expenditures, transactions with affiliates, hedging and other derivatives arrangements, negative pledge clauses, payment of expenses and disbursements other than those reflected in an agreed upon budget, and subsidiary distributions, subject to certain exception.

Sources of and Needs for Capital

We are currently funding post-petition operations under the DIP Credit Agreement, which consists of a $125.0 million DIP Term Loan Facility and a $75.0 million DIP Revolving Facility. Borrowings under the DIP Credit Agreement may be used to finance working capital purposes, including without limitation, for the payment of fees and expenses incurred in connection with entering into the DIP Credit Agreement, the Cases and the repayment of loans outstanding under the Pre-Petition ABL Credit Agreement.

Liquidity after Chapter 11 Bankruptcy Filing

We have incurred and expect to continue to incur significant costs associated with the Chapter 11 Proceedings and our reorganization. Following our bankruptcy filing on June 27, 2011, our most significant sources of liquidity are funds generated by borrowings under the DIP Credit Agreement and cash generated by operating activities. Our working capital requirements fluctuate throughout the fiscal year, increasing substantially in May and December as a result of the buying periods. In addition to standard financial covenants and events of default, the DIP Credit Agreement provides for events of default specific to the Chapter 11 Proceedings, including, among others, defaults arising from our failure to maintain certain financial covenants including a minimum liquidity and cumulative consolidated EBITDA or our failure to obtain Court approval for a plan of reorganization acceptable to our lenders. The occurrence of an event of default under the DIP Credit Agreement would give our lenders the right to terminate their lending commitments and exercise other remedies available to them under the DIP Credit Agreement.

Liquidity prior to Chapter 11 Bankruptcy Filing

As of March 31, 2011, we had up to $75.0 million of total revolving credit commitments under the Pre-Petition ABL Facility (less outstanding letters of credit and subject to a borrowing base). The calculated borrowing base as of March 31, 2011 was $32.8 million, of which $0.7 million was outstanding under a letter of credit and $32.1 million was unused. Amounts drawn under the Pre-Petition ABL Facility could have been used for working capital and general corporate purposes (including up to $10.0 million for letters of credit), subject to certain limitations.

On October 2, 2009, in conjunction with the completion of NBC’s offering of the Pre-Petition Senior Secured Notes and payment in full of the Term Loan, we entered into the Pre-Petition ABL Credit Agreement which provides for the Pre-Petition ABL Facility and replaced the Revolving Credit Facility (collectively the “Refinancing”). Although our overall indebtedness did not materially increase upon consummation of the Refinancing, our liquidity requirements have increased, primarily due to increased interest payment obligations. After giving effect to the Refinancing, NBC’s three principal tranches of debt (the Pre-Petition Senior Secured Notes, the Pre-Petition ABL Facility and the Pre-Petition Senior Subordinated Notes) each were set to mature within a period of six months of each other. The Pre-Petition ABL Facility was set to mature on the earlier of October 2, 2012 and the date that was 91 days prior to the earliest maturity of the $200.0 million Pre-Petition Senior Secured Notes (which were set to mature on December 1, 2011), the $175.0 million Pre-Petition Senior Subordinated Notes (which were set to mature on March 15, 2012), the $77.0 million Pre-Petition Senior Discount Notes (which were set to mature on March 15, 2013), or any refinancing thereof, effectively September 1, 2011. As previously disclosed, the commencement of the Chapter 11 Proceedings triggered defaults on substantially all of our debt obligations however creditors are stayed from taking any action as a result of such defaults.

Our ability to satisfy our debt obligations and to pay principal and interest on our debt, fund working capital and make anticipated capital expenditures will depend on our future performance and maintaining normal terms with our vendors, which is subject to general economic conditions and other factors, some of which are beyond our control. We believe that funds generated from operations, existing cash, vendor payment terms, and borrowings under the DIP Term Loan Facility and DIP Revolving Facility will be sufficient to finance our current operations, cash interest requirements, income tax payments, planned capital expenditures, and internal growth; however, as noted previously, we cannot give assurance that we will generate sufficient cash flow from operations or that future borrowings will be available under the DIP Term Loan Facility and DIP Revolving Facility in an amount sufficient to enable us to fund our liquidity needs.

NBC Holdings Corp., a Delaware corporation and our parent, and us have separate understandings that (a) with respect to each option granted by NBC Holdings Corp., pursuant to its 2004 Stock Option Plan, we have granted, and will continue to grant, an option to purchase an equivalent number of shares of its common stock at the same exercise price to NBC Holdings Corp. and (b) with respect to each share of capital stock issued by NBC Holdings Corp., pursuant to its 2005 Restricted Stock Plan, we have issued, and will continue to issue, an equivalent number of shares of its common stock at the same purchase price per share to NBC Holdings Corp.

Off-Balance Sheet Arrangements

As of March 31, 2011, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash flow, capital expenditures or capital resources.

Contractual Obligations

The following tables present aggregated information as of March 31, 2011 regarding our contractual obligations and commercial commitments:

						Payments Due by Period
Contractual						Less Than				2-3				4-5				After 5
Obligations		Total				1 Year				Years				Years				Years
Long-term debt (1)		$	451,820,685			$	451,697,680			$	123,005			$	—			$	—
Interest on long-term debt			43,593,046				43,580,555				12,491				—				—
Capital lease obligations			2,297,183				505,562				740,433				581,993				469,195
Interest on capital lease obligations			555,067				158,353				238,465				130,060				28,189
Operating leases			85,556,000				21,922,000				31,035,000				18,280,000				14,319,000
Purchase obligations			2,300,000				2,300,000				—				—				—
Total		$	586,121,981			$	520,164,150			$	32,149,394			$	18,992,053			$	14,816,384

		Total				Amount of Commitment Expiration Per Period
Other Commercial		Amounts				Less Than				2-3				4-5				Over 5
Commitments		Committed				1 Year				Years				Years				Years
Unused line of credit (2)		$	75,000,000			$	75,000,000			$	—			$	—			$	—

We have recorded other long-term liabilities of $1.6 million, which consist primarily of certain lease related liabilities of $0.7 million to appropriately recognize rent expense over the rental term, deferred payments related to acquisitions of $0.5 million, deferred compensation of $0.3 million and accrued liabilities of $0.1 million related to a voluntary early retirement plan, which are excluded from the preceding table primarily because we cannot reasonably estimate the timing of the long-term payments.

Transactions with Related and Certain Other Parties

In accordance with NBC’s debt covenants, NBC declared and paid $8.5 million in dividends to us during the fiscal years ended March 31, 2011, 2010 and 2009 to provide funding for interest due and payable on our $77.0 million 11% Pre-Petition Senior Discount Notes.

In conjunction with the Senior Credit Facility amendment on February 3, 2009, we entered into a Stock Subscription Agreement with Holdings, pursuant to which Holdings purchased 10,000 shares of a newly created series of our preferred stock, par value $0.01 per share, for $1,000 per share, for an aggregate purchase price of $10.0 million. As a result of the Stock Subscription Agreement, we made a $10.0 million capital contribution to NBC.

Impact of Inflation

Our results of operations and financial condition are presented based upon historical costs. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe that the effects of inflation, if any, on our results of operations and financial condition have not been material. However, there can be no assurance that during a period of significant inflation, our results of operations will not be adversely affected.

Accounting Standards 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 does not expect that the update will 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 for 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 does not expect that the update will have a material impact on the consolidated financial statements.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995

Certain statements contained or incorporated in this Annual Report on Form 10-K made by us which are not statements of historical fact constitute “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements give current expectations or forecasts of future events. Words such as “anticipate”, “expect”, “intend”, “plan”, “believe”, “seek”, “estimate” and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and estimates, which are subject to risks and uncertainties including those discussed in Item 1A, Risk Factors, and elsewhere in this report. Accordingly, undue reliance should not be placed on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. We do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made and qualifies all of its forward-looking statements by these cautionary statements.

You should understand that various factors, in addition to those discussed elsewhere in this document, could affect our future results and could cause results to differ materially from those expressed in such forward-looking statements, including:

•

our ability to satisfy our future capital and liquidity requirements; our ability to access the credit and capital markets at the times and in the amounts needed and on terms acceptable to us; our ability to comply with covenants applicable to us; and the continuation of acceptable supplier payment terms;

•

the potential adverse impact of the Chapter 11 Proceedings on our business, financial condition or results of operations, including our ability to maintain contracts and other customer and vendor relationships that are critical to our business and the actions and decisions of our creditors and other third parties with interests in the Chapter 11 Proceedings;

•

our ability to maintain adequate liquidity to fund our operations during the Chapter 11 Proceedings and to fund a plan of reorganization and thereafter, including obtaining sufficient “exit” financing; maintaining normal terms with our vendors and service providers during the Chapter 11 Proceedings and complying with the covenants and other terms of our financing agreements;

•

our ability to obtain court approval with respect to motions in the Chapter 11 Proceedings prosecuted from time to time and to develop, prosecute, confirm and consummate one or more plans of reorganization with respect to the Chapter 11 Proceedings and to consummate all of the transactions contemplated by one or more such plans of reorganization or upon which consummation of such plans may be conditioned;

•

increased competition from other companies that target our markets;

•

increased competition from alternative sources of textbooks for students and alternative media, including digital or other educational content sold or rented directly to students and increased competition for the purchase and sale of used textbooks from student-to-student transactions;

•

further deterioration in the economy and credit markets, a decline in consumer spending, and/or changes in general economic conditions in the markets in which we compete or may compete;

•

our inability to successfully start-up or contract-manage additional bookstores or to integrate those additional bookstores and/or to cost-effectively maintain our current contract-managed bookstores;

•

our inability to purchase a sufficient supply of used textbooks;

•

changes in pricing of new and/or used textbooks or in publisher practices regarding new editions and materials packaged with new textbooks;

•

the loss or retirement of key members of management;

•

the impact of seasonality of the wholesale and bookstore operations;

•

goodwill impairment or impairment of identifiable intangibles resulting in a non-cash write down of goodwill or identifiable intangibles; and

•

other risks detailed in our SEC filings, all of which are difficult or impossible to predict accurately and many of which are beyond our control.

The risks and uncertainties and the terms of any reorganization plan ultimately confirmed can affect the value of our various pre-petition liabilities, common stock and/or other securities. No assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies. A plan of reorganization could result in holders of our liabilities and/or securities receiving no value for their interests. Because of such possibilities, the value of these liabilities and/or securities is highly speculative. Accordingly, we urge that caution be exercised with respect to existing and future investments in any of these liabilities and/or securities.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our primary market risk exposure is, and is expected to continue to be, fluctuation in interest rates. Our exposure to market risk for changes in interest rates related to our short-term investments and borrowings under the Pre-Petition ABL Facility. Exposure to interest rate fluctuations for our long-term debt was managed by maintaining fixed interest rate debt (primarily the Pre-Petition Senior Subordinated Notes, the Pre-Petition Senior Secured Notes and the Pre-Petition Senior Discount Notes). Because we pay fixed interest on our notes, market fluctuations do not impact our debt interest payments. However, the fair value of our notes fluctuates as a result of changes in market interest rates, changes in our credit worthiness and changes in the overall credit market.

The following table presents quantitative information about our market risk sensitive instruments, which include the Pre-Petition Senior Discount Notes, the Pre-Petition Senior Subordinated Notes, the Pre-Petition Senior Secured Notes, capital lease obligations, and other long-term debt:

		Fixed Rate Debt
						Weighted-
						Average
		Principal				Interest
		Cash Flows (1)				Rate
Fiscal Year Ended March 31:
2012		$	452,203,241				9.63	%
2013			461,247				8.63	%
2014			402,192				8.46	%
2015			273,739				8.29	%
2016			308,254				8.29	%
Thereafter			469,195				8.29	%
Total		$	454,117,868				9.62	%
Fair Value as of March 31, 2011 (2)		$	377,465,000				—

Certain quantitative market risk disclosures have changed since March 31, 2010 as a result of market fluctuations, movement in interest rates and principal payments. The following table presents summarized market risk information:

		March 31,				March 31,
		2011				2010
Carrying Values:
Fixed rate debt		$	454,117,868			$	454,624,262
Fair Values:
Fixed rate debt (1)		$	377,465,000			$	438,537,000
Overall Weighted-Average Interest Rates:
Fixed rate debt			9.62	%			9.73	%

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Consolidated Financial Statements of NBC Acquisition Corp.

Report of Independent Registered Public Accounting Firm			45
Consolidated Balance Sheets as of March 31, 2011 and March 31, 2010			46
Consolidated Statements of Operations for the Years Ended March 31, 2011, 2010 and 2009			47
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended March 31, 2011, 2010 and 2009			48
Consolidated Statements of Cash Flows for the Years Ended March 31, 2011, 2010 and 2009			49
Notes to Consolidated Financial Statements			50

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
NBC Acquisition Corp.
Lincoln, NE

We have audited the accompanying consolidated balance sheets of NBC Acquisition Corp. and subsidiary (Debtor-in-Possession as of June 27, 2011) (the “Company”) as of March 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended March 31, 2011. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of NBC Acquisition Corp. and subsidiary (Debtor-in-Possession as of June 27, 2011) as of March 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Notes A and C to the consolidated financial statements, on June 27, 2011, the Company filed for reorganization under the Bankruptcy Code. The accompanying financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such consolidated financial statements do not purport to show (1) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (2) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (3) as to stockholder accounts, the effect of any changes that may be made in the capitalization of the Company; or (4) as to operations, the effect of any changes that may be made in its business.

The accompanying consolidated financial statements for the year ended March 31, 2011 have been prepared assuming that the Company will continue as a going concern. As discussed in Notes A and C to the consolidated financial statements, the Company’s ability to comply with the terms and conditions of the Superpriority Debtor-In-Possession Credit Agreement, obtain confirmation of a plan of reorganization under the Bankruptcy Code, and to obtain financing to facilitate an exit from Bankruptcy raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Notes A and C to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ DELOITTE & TOUCHE LLP

Omaha, Nebraska
July 14, 2011

NBC ACQUISITION CORP.
(DEBTOR IN POSSESSION AS OF JUNE 27, 2011)

CONSOLIDATED BALANCE SHEETS

		March 31,				March 31,
		2011				2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	56,447,380			$	60,972,625
Receivables, net			54,966,305				57,987,794
Inventories			90,114,197				97,497,689
Recoverable income taxes			7,398,901				2,435,287
Deferred income taxes			5,172,819				6,247,559
Prepaid expenses and other assets			7,200,472				4,070,281
Total current assets			221,300,074				229,211,235
PROPERTY AND EQUIPMENT, net of depreciation & amortization			39,391,650				42,155,424
GOODWILL			129,436,730				215,571,126
CUSTOMER RELATIONSHIPS, net of amortization			74,161,300				79,902,820
TRADENAME			31,320,000				31,320,000
OTHER IDENTIFIABLE INTANGIBLES, net of amortization			5,973,049				5,295,324
DEBT ISSUE COSTS, net of amortization			4,211,013				9,964,874
OTHER ASSETS			2,513,165				2,850,632
		$	508,306,981			$	616,271,435
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable		$	20,005,468			$	26,387,040
Accrued employee compensation and benefits			8,609,377				9,401,468
Accrued interest			7,666,970				7,666,997
Accrued incentives			5,850,936				6,313,933
Accrued expenses			6,396,689				9,051,651
Deferred revenue			1,405,802				1,299,960
Current maturities of long-term debt			451,697,680				54,403
Current maturities of capital lease obligations			505,562				846,053
Total current liabilities			502,138,484				61,021,505
LONG-TERM DEBT, net of current maturities			123,005				451,343,069
CAPITAL LEASE OBLIGATIONS, net of current maturities			1,791,621				2,380,737
OTHER LONG-TERM LIABILITIES			1,567,913				2,278,963
DEFERRED INCOME TAXES			42,072,157				40,401,490
COMMITMENTS (Note I)
REDEEMABLE PREFERRED STOCK
Series A redeemable preferred stock, $.01 par value, 20,000 shares authorized, 10,000 shares issued and outstanding, at redemption value			13,601,368				11,805,888
STOCKHOLDERS’ EQUITY (DEFICIT):
Common stock, voting, authorized 5,000,000 shares of $.01 par value; issued and outstanding 554,094 shares			5,541				5,541
Additional paid-in capital			111,281,289				111,203,506
Note receivable from stockholder			(92,675	)			(92,755	)
Accumulated deficit			(164,181,722	)			(64,076,509	)
Total stockholders’ equity (deficit)			(52,987,567	)			47,039,783
		$	508,306,981			$	616,271,435

See notes to consolidated financial statements.

NBC ACQUISITION CORP.
(DEBTOR IN POSSESSION AS OF JUNE 27, 2011)

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended				Year Ended				Year Ended
		March 31,				March 31,				March 31,
		2011				2010				2009
REVENUES, net of returns		$	598,430,167			$	605,493,613			$	610,716,181
COSTS OF SALES (exclusive of depreciation shown below)			366,159,699				370,195,916				371,369,240
Gross profit			232,270,468				235,297,697				239,346,941
OPERATING EXPENSES:
Selling, general and administrative			176,844,600				161,858,274				168,314,611
Depreciation			8,579,092				8,517,004				7,602,631
Amortization			8,625,733				10,853,248				11,384,020
Goodwill impairment			89,000,000				—				106,972,000
			283,049,425				181,228,526				294,273,262
INCOME (LOSS) FROM OPERATIONS			(50,778,957	)			54,069,171				(54,926,321	)
OTHER EXPENSES (INCOME):
Interest expense			51,203,513				49,405,222				41,603,618
Interest income			(175,859	)			(180,709	)			(426,536	)
Loss on early extinguishment of debt			—				3,065,759				—
Loss on derivative financial instrument			—				—				102,000
			51,027,654				52,290,272				41,279,082
INCOME (LOSS) BEFORE INCOME TAXES			(101,806,611	)			1,778,899				(96,205,403	)
INCOME TAX EXPENSE (BENEFIT)			(3,496,878	)			(532,388	)			4,288,620
NET INCOME (LOSS)		$	(98,309,733	)		$	2,311,287			$	(100,494,023	)
EARNINGS (LOSS) PER SHARE:
Basic		$	(180.66	)		$	1.33			$	(181.79	)
Diluted		$	(180.66	)		$	1.32			$	(181.79	)

See notes to consolidated financial statements.

NBC ACQUISITION CORP.
(DEBTOR IN POSSESSION AS OF JUNE 27, 2011)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

										Note				Retained				Accumulated
						Additional				Receivable				Earnings				Other
		Common				Paid-in				From				(Accumulated				Comprehensive								Comprehensive
		Stock				Capital				Stockholder				Deficit)				Income (Loss)				Total				Income (Loss)
BALANCE, April 1, 2008		$	5,541			$	111,098,666			$	(97,517	)		$	35,912,115			$	(748,000	)		$	146,170,805
Payment on stockholder note			—				—				9,752				—				—				9,752
Interest accrued on stockholder note			—				—				(4,950	)			—				—				(4,950	)		$	—
Net loss			—				—				—				(100,494,023	)			—				(100,494,023	)			(100,494,023	)
Share-based compensation attributable to stock options			—				43,416				—				—				—				43,416				—
Cumulative preferred dividend			—				—				—				(233,334	)			—				(233,334	)			—
Other comprehensive loss, net of taxes:
Unrealized gain on interest rate swap agreement, net of taxes of $473,000			—				—				—				—				748,000				748,000				748,000
BALANCE, March 31, 2009			5,541				111,142,082				(92,715	)			(64,815,242	)			—				46,239,666			$	(99,746,023	)
Payment on stockholder note			—				—				4,869				—				—				4,869			$	—
Interest accrued on stockholder note			—				—				(4,909	)			—				—				(4,909	)			—
Net income			—				—				—				2,311,287				—				2,311,287				2,311,287
Share-based compensation attributable to stock options			—				61,424				—				—				—				61,424				—
Cumulative preferred dividend			—				—				—				(1,572,554	)			—				(1,572,554	)			—
BALANCE, March 31, 2010			5,541				111,203,506				(92,755	)			(64,076,509	)			—				47,039,783			$	2,311,287
Payment on stockholder note			—				—				4,869				—				—				4,869			$	—
Interest accrued on stockholder note			—				—				(4,789	)			—				—				(4,789	)			—
Net loss			—				—				—				(98,309,733	)			—				(98,309,733	)			(98,309,733	)
Share-based compensation attributable to stock options			—				77,783				—				—				—				77,783				—
Cumulative preferred dividend			—				—				—				(1,795,480	)			—				(1,795,480	)			—
BALANCE, March 31, 2011		$	5,541			$	111,281,289			$	(92,675	)		$	(164,181,722	)		$	—			$	(52,987,567	)		$	(98,309,733	)