FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-4095
THOMAS NELSON, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 62-0679364
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
Nelson Place at Elm Hill Pike, Nashville, Tennessee 37214-1000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(615) 889-9000
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
At November 9, 1995, the Registrant had outstanding
15,305,019 shares of Common Stock and 1,109,993 shares of Class B
Common Stock.<PAGE>
<TABLE>
Part I
Item 1. Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
September 30, March 31, September 30,
1995 1995 1994
------------- ---------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 771 $ 779 $ 1,165
Accounts receivable, less
allowances of $10,289, $9,029
and $8,987, respectively 103,142 85,100 76,722
Inventories 80,573 69,351 67,041
Prepaid expenses 25,610 20,683 17,812
Deferred tax asset 7,714 7,714 12,673
------------- ---------- -------------
Total Current Assets 217,810 183,627 175,413
PROPERTY, PLANT AND EQUIPMENT 16,638 16,226 17,166
OTHER ASSETS 16,600 14,688 13,934
GOODWILL 31,402 31,179 31,819
DEFERRED CHARGES 4,840 4,149 4,662
------------- ---------- -------------
TOTAL ASSETS $ 287,290 $ 249,869 $ 242,994
============= ========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 34,193 $ 32,419 $ 24,520
Accrued expenses 16,786 19,558 20,402
Dividends payable 654 537 428
Income taxes currently payable -0- -0- 3,314
Current portion of long-term debt
and capital lease obligation 1,466 1,672 1,638
------------- ---------- -------------
Total Current Liabilities 53,099 54,186 50,302
LONG-TERM DEBT 101,898 120,108 122,773
CAPITAL LEASE OBLIGATION 651 80 478
DEFERRED TAX LIABILITY AND
OTHER LIABILITIES 2,636 2,766 2,254
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value,
authorized 1,000,000 shares;
none issued - - -
Common stock, $1.00 par value,
authorized 20,000,000 shares;
issued 15,256,641, 12,362,377 and
9,893,233 shares, respectively 15,257 12,362 9,893
Class B common stock, $1.00 par value,
authorized 5,000,000 shares; issued
1,085,825, 1,067,094 and 799,933
shares, respectively 1,086 1,067 800
Additional paid-in capital 69,787 18,211 20,990
Retained earnings 42,315 40,538 34,874
Foreign currency translation
adjustments 561 551 630
------------- ---------- -------------
Total Shareholders' Equity 129,006 72,729 67,187
------------- ---------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 287,290 $ 249,869 $ 242,994
============= ========== =============
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
---------------------- ----------------------
1995 1994 1995 1994
---------- ---------- ----------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $ 142,572 $ 119,615 $ 81,466 $ 70,512
COST AND EXPENSES:
Cost of goods sold 72,320 60,621 43,297 35,347
Selling, general and
administrative 60,014 46,143 30,423 23,761
Amortization of goodwill and
non-compete agreements 901 877 451 437
---------- ---------- ----------- ----------
Total 133,235 107,641 74,171 59,545
---------- ---------- ----------- ----------
OPERATING INCOME 9,337 11,974 7,295 10,967
Other income (expense) 238 98 287 52
Interest expense 4,680 4,030 2,119 2,113
---------- ---------- ----------- ----------
Income before income taxes 4,895 8,042 5,463 8,906
Provision for income taxes 1,811 2,963 2,021 3,283
---------- ---------- ----------- ----------
NET INCOME $ 3,084 $ 5,079 $ 3,442 $ 5,623
========== ========== =========== ==========
Weighted average number
of shares outstanding:
Primary 14,658 13,364 15,715 13,364
========== ========== =========== ==========
Fully-diluted 17,941 16,599 18,998 16,599
========== ========== =========== ==========
NET INCOME PER SHARE:
Primary $ 0.21 $ 0.38 $ 0.22 $ 0.42
========== ========== =========== ==========
Fully-Diluted $ 0.21 $ 0.37 $ 0.21 $ 0.37
========== ========== =========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.080 $ 0.064 $ 0.040 $ 0.032
========== ========== =========== ==========
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Six Months Ended September 30,
------------------------------
1995 1994
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 3,084 $ 5,079
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization 3,419 3,085
Loss (gain) on sale of fixed assets ( 141) -0-
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable, net ( 18,042) ( 18,184)
Inventories ( 11,222) 252
Prepaid expenses ( 4,927) ( 6,363)
Accounts payable and accrued expenses ( 998) 4,781
Income taxes currently payable and
deferred -0- ( 1,157)
------------ -----------
Net Cash Used In Operating Activities ( 28,827) ( 12,507)
------------ -----------
Cash Flows From Investing Activities:
Capital expenditures ( 1,442) ( 1,000)
Proceeds from sale of property, plant and
equipment, excluding effects of disposition 494 ( 2)
Purchase of net assets of acquired companies -
net of cash -0- ( 187)
Changes in other assets and deferred charges ( 4,746) ( 3,603)
------------ -----------
Net Cash Used in Investing Activities ( 5,694) ( 4,792)
------------ -----------
Cash Flows From Financing Activities:
Net borrowings under line of credit ( 18,210) 20,155
Payments under capital lease obligation ( 454) ( 355)
Dividends paid ( 1,191) ( 855)
Changes in other liabilities ( 130) ( 1,508)
Proceeds from issuance of common stock 54,597 10
Common stock retired ( 109) -0-
------------ -----------
Net Cash Provided by Financing Activities 34,503 17,447
------------ -----------
Effect of Translation Rate Changes 10 229
------------ -----------
Net Increase in Cash and Cash Equivalents ( 8) 377
Cash and Cash Equivalents at Beginning of Period 779 788
------------ -----------
Cash and Cash Equivalents at End of Period $ 771 $ 1,165
============ ===========
Supplemental Disclosures of Non-cash Investing
and Financing Activities:
Capital lease obligations incurred to lease
new equipment $ 830 $ -0-
============ ===========
Dividends accrued and unpaid $ 654 $ 428
============ ===========
See Accompanying Notes
</TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements
reflect all adjustments (which are of a normal recurring nature)
that are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to SEC
rules and regulations. The statements should be read in
conjunction with the Summary of Significant Accounting Policies
and notes to the consolidated financial statements included in
the Company's annual report for the year ended March 31, 1995.
The balance sheet and related information in these notes as of
March 31, 1995, have been taken from the audited consolidated
financial statements as of that date. Certain reclassifications
have been made to conform presentation of the fiscal 1995
Financial Statements with reclassifications made in fiscal 1996.
Note B - Inventories
Components of inventories consisted of the following (in
thousands):
<TABLE>
<CAPTION>
September 30, March 31, September 30,
1995 1995 1994
------------- ----------- -------------
<S> <C> <C> <C>
Finished goods $ 70,325 $ 59,116 $ 58,667
Raw materials and work
in process 10,248 10,235 8,374
------------- ----------- -------------
$ 80,573 $ 69,351 $ 67,041
============= =========== =============
</TABLE>
Note C - Cash Dividend
On May 24, 1995, the Company's directors declared a cash
dividend of $.04 per share. The dividend was paid August 14,
1995, to shareholders of record on July 31, 1995.
On August 24, 1995, the Company's directors declared a cash
dividend of $.04 per share. The dividend is payable November 20,
1995, to shareholders of record on November 6, 1995.
Note D - Sale of Stock
On July 24, 1995 the Company sold 2,875,000 shares of Common
Stock at $20.00 per share to a group of underwriters in a
registered public offering. The net proceeds to the Company of
approximately $54.6 million were used to repay amounts
outstanding under the Company's bank credit facilities and for
working capital requirements.
Note E - Subsequent Event
On October 31, 1995, the Company completed its $9.00 per share
all cash tender offer for the outstanding shares of common stock
of The C.R. Gibson Company for approximately $67 million. The
acquisition was financed primarily by a bridge loan for $60
million from senior bank creditors.
The C.R. Gibson Company, headquartered in Norwalk, Connecticut
manufactures and markets a wide range of paper, gift and
stationery products, primarily under the C.R. Gibson , Creative
Papers and Clinton Prints brand names. Products include baby
and wedding memory books, stationery, giftwrap, greeting cards,
and paper tableware.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
The following table sets forth certain selected statements of
income data expressed as a percentage of net revenues and the
percentage change in dollars in such data from the prior fiscal
year.
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year-to-Year
September 30, Increase
1995 1994 (Decrease)
----------- ---------- -----------
(%) (%) (%)
<S> <C> <C> <C>
Net revenues:
Publishing
Book 33.7 34.1 17.6
Bible 21.8 22.1 17.4
----------- ----------
Total Publishing 55.5 56.2 17.5
Music 34.3 34.7 17.9
Gift 8.2 8.0 23.0
Other 2.0 1.1 121.2
----------- ----------
Total Revenues 100.0 100.0 19.2
----------- ----------
Expenses:
Cost of goods sold 50.7 50.7 19.3
Selling, general and
administrative 42.1 38.6 30.1
Amortization of goodwill
and non-compete
agreements 0.6 0.7 2.7
----------- ----------
Total Expenses 93.4 90.0 23.8
----------- ----------
Operating income 6.6 10.0 -22.0
Income before income taxes 3.4 6.7 -39.1
Net Income 2.2 4.2 -39.3
</TABLE>
The Company's net revenues fluctuate seasonally, with net
revenues in the second and third fiscal quarters historically
being greater than those in the first and fourth fiscal quarters.
This seasonality is the result of increased consumer
purchases of the Company's products during the traditional
year-end holidays. Due to this seasonality, the Company has
historically incurred a loss during the first quarter of each
fiscal year. In addition, the Company's quarterly operating
results may fluctuate significantly due to the seasonality of
new product introductions, the timing of selling and marketing
expenses and changes in sales and product mixes.
Results of Operations
- ---------------------
Net revenues for the first six months of fiscal 1996
increased by $23.0 million or 19.2% over fiscal 1995
primarily due to volume increases arising from the introduction
of new products in each of the Company's product lines. Net
revenues increased for the first six months of fiscal 1996
over fiscal 1995 as follows: music products increased by $7.4
million or 17.9%; book products increased by $7.2 million or
17.6%; Bible products increased by $4.6 million or 17.4%; and
gift products increased by $2.2 million or 23.0%. Net
revenues for the second quarter of fiscal 1996 increased by
$11.0 million or 15.5% over the same period in fiscal 1995
primarily due to volume increases arising from the introduction
of new products in each of the Company's product lines. Net
revenues increased for the second quarter of fiscal 1996
over fiscal 1995 as follows: music products increased by $4.1
million or 15.8%; book products increased by $3.0 million or
12.7%; Bible products increased by $1.4 million or 9.8%; and
gift products increased by $1.6 million or 28.5%. Price
increases did not have a material effect on net revenues for
either period.
The Company's cost of goods sold for the first six months of
fiscal 1996 increased by $11.7 million or 19.3% over the
same period in fiscal 1995 and, as a percentage of net
revenues, remained unchanged at 50.7%. Cost of goods sold for
the second fiscal quarter increased by $8.0 million or 22.5% over
the same period in fiscal 1995 and, as a percentage of net
revenues, increased from 50.1% to 53.1%. The increase of
cost of goods sold, as a percentage of net revenues, was
primarily the result of a shift in the mix of sales revenues
within the Company's Music Division from proprietary music
products to non-proprietary (distributed) music products.
Distributed music products have lower gross margins for the
Company because the producer of the product bears all
development and marketing costs. This distributed product
revenue increase resulted from the timing and popularity of
distributed product releases.
Selling, general and administrative expenses for the first
six months of fiscal 1996 increased by $13.9 million or 30.1%
and for the quarter by $6.7 million or 28.0%. These
expenses, expressed as a percentage of net revenues,
increased to 42.1% for the first six months of fiscal 1996
from 38.6% for the same period in fiscal 1995, and increased to
37.3% for the second quarter from 33.7% for the same period in
fiscal 1995. These increases resulted from higher than
anticipated sales and marketing program costs within the
Music Division incurred to increase sales of proprietary
product and the delay in marketing of product of one of the
Company's artists. In addition, the expansion of certain
direct marketing programs beyond the Company's capacity for
fulfillment combined with a more competitive direct
marketing sales environment resulted in increased advertising,
bad debt and freight costs as a percentage of revenues. Costs
incurred in connection with the development of alternative media
products and channels in the Royal Media Division also
adversely impacted selling, general and administrative expenses
as a percentage of net revenues. The Company has implemented
several initiatives to improve operating margins, including
reducing salaries and benefits, suspending the developmental
components of the Royal Media Division and limiting the
Company's testing of new product offerings and sale of existing
product offerings through direct marketing.
Interest expense increased 16.1% and 0.3% for the first six
months and second quarter, respectively, over the same period in
fiscal 1995 due to increased average borrowings for the first
three months of the fiscal year and increased average interest
rates.
Liquidity and Capital Resources
- -------------------------------
The primary sources of liquidity to meet the Company's
future obligations and working capital needs are cash
generated from operations and borrowings available under bank
credit facilities. At September 30, 1995, the Company had $41
million outstanding, and $64 million available for borrowing
under its credit facilities. Seasonality has a major impact
on the Company's revenues which in turn have a direct bearing on
the level of borrowings. On July 18, 1995, the Company
consummated the sale of 2,875,000 shares of its Common Stock
with net proceeds to the Company of approximately $54.6 million.
The net proceeds were used to repay a portion of the borrowings
under the credit facilities.
During the six months ended September 30, 1995,
capital expenditures totaled approximately $2.2 million. The
Company has no plans that will require significant capital
expenditures for the remainder of fiscal 1996 in excess of
the $3 million planned expenditures for the year.
On October 31, 1995, the Company, through a wholly
owned subsidiary, Nelson Acquisition Corp., completed its
$9.00 per share cash tender offer (the "Offer") for all of the
outstanding shares of common stock of The C.R. Gibson Company.
The aggregate consideration paid of approximately $67 million
was financed pursuant to the Company's bank credit facilities
and a bridge loan with the Company's senior lenders in the
aggregate principal amount of $60 million. Borrowings under the
bridge loan mature on December 31, 1995.
As a result of the Gibson stock purchase and expanding
working capital needs, during November 1995, the Company
intends to amend its bank credit facilities to provide for
aggregate facilities of $185 million. The Company intends to
repay the $60 million bridge loan with proceeds from the amended
bank credit facilities.
PART II
Item 4. Submission of Matters to a Vote of Security
Holders at the Company's Annual Meeting of
Shareholders, which was held on August 24, 1995,
the following proposal was approved:
(a) The election of three directors in Class One to
serve for a term of three years and one director
in Class Two to serve for a term of two years
expiring at the Annual Meeting of Shareholders
to be held in 1998 and 1997, respectively, or
until their successors are duly elected and
qualified. The persons nominated for election to
the Board of Directors received the number of
total votes (Common and Class B) shown opposite
their respective names:
<TABLE>
<CAPTION>
For Against Withheld
------------ ------------ -----------
<S> <C> <C> <C>
Sam Moore 16,893,717 23,530 106,366
Andrew Young 16,893,717 25,135 44,948
Cal Turner, Jr. 16,893,717 23,530 23,803
S. Joseph Moore 16,893,717 23,530 108,175
</TABLE>
(b) An amendment to the Company's Amended and
Restated 1992 Employee Stock Incentive Plan to
(i) increase the number of shares issuable
thereunder, (ii) to limit the amount of stock-based
awards that may be granted to any single officer
or key employee during any consecutive three year
period, (iii) to provide for the issuance of
annual stock option grants to the Company's
outside directors and (iv) to extend the term
during which awards may be made under the Stock
Incentive Plan. The amendment received the
following number of total votes (Common and Class
B).
<TABLE>
<CAPTION>
For Against Withheld
------------ ------------ -----------
<S> <C> <C> <C>
Amendment 10,939,859 1,165,088 3,213,083
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit 27 - Financial Data Schedule
(b) No Form 8-K was filed by the Company during the
quarter ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Thomas Nelson, Inc.
(Registrant)
November 14, 1995 BY /s/ Joe L. Powers
- ------------------- ------------------------
Joe L. Powers
Executive Vice President
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 771
<SECURITIES> 0
<RECEIVABLES> 113,431
<ALLOWANCES> 10,289
<INVENTORY> 80,573
<CURRENT-ASSETS> 217,810
<PP&E> 27,879
<DEPRECIATION> 11,241
<TOTAL-ASSETS> 287,290
<CURRENT-LIABILITIES> 53,099
<BONDS> 102,549
<COMMON> 16,343
0
0
<OTHER-SE> 112,663
<TOTAL-LIABILITY-AND-EQUITY> 287,290
<SALES> 140,710
<TOTAL-REVENUES> 142,572
<CGS> 72,320
<TOTAL-COSTS> 132,334
<OTHER-EXPENSES> 901
<LOSS-PROVISION> 2,194
<INTEREST-EXPENSE> 4,680
<INCOME-PRETAX> 4,895
<INCOME-TAX> 1,811
<INCOME-CONTINUING> 3,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,084
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
