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, 1996
[ ] 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 Identification number)
incorporation or organization)
501 Nelson Place, 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 8, 1996, the Registrant had outstanding 16,009,248
shares of Common Stock and 1,112,075 shares of Class B Common Stock.
<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,
1996 1996 1995
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,700 $ 672 $ 685
Accounts receivable, less
allowances of $13,293, $10,959
and $10,281 respectively 109,268 99,221 102,278
Income tax refunds receivable 4,179 4,440 --
Inventories 91,964 97,496 80,573
Prepaid expenses 16,012 18,045 19,889
Deferred tax asset 17,120 17,120 7,714
----------- ----------- -----------
Total Current Assets 240,243 236,994 211,139
PROPERTY, PLANT AND EQUIPMENT 34,993 36,634 16,279
OTHER ASSETS 21,699 19,347 22,806
DEFERRED CHARGES 3,197 3,658 4,840
GOODWILL 75,300 76,963 31,402
----------- ----------- -----------
TOTAL ASSETS $ 375,432 $ 373,596 $ 286,466
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 25,869 $ 30,158 $ 33,966
Accrued expenses 33,883 32,109 16,438
Dividends payable 685 685 654
Current portion of long-term
debt 3,046 2,376 892
Current portion of capital
lease obligation 275 249 574
----------- ----------- -----------
Total Current Liabilities 63,758 65,577 52,524
LONG-TERM DEBT 179,572 179,489 101,898
CAPITAL LEASE OBLIGATION 418 527 402
DEFERRED TAX LIABILITY 3,127 3,127 1,410
OTHER LIABILITIES 3,099 2,506 1,226
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 16,009,248, 16,004,368
and 15,256,641 shares,
respectively 16,009 16,004 15,257
Class B common stock, $1.00 par
value, authorized 5,000,000
shares; issued 1,112,075,
1,112,075 and 1,085,825 shares,
respectively 1,112 1,112 1,086
Additional paid-in capital 78,942 78,825 69,787
Retained earnings 29,293 26,952 42,315
Deferred compensation ( 251) ( 828) --
Foreign currency translation
adjustments 353 305 561
----------- ----------- -----------
Total Shareholders' Equity 125,458 122,370 129,006
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 375,432 $ 373,596 $ 286,466
=========== =========== ===========
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 166,159 $ 140,830 $ 93,701 $ 80,531
Expenses:
Cost of goods sold 86,952 71,716 48,176 43,138
Selling, general and
administrative 65,757 57,782 33,554 28,918
Amortization of goodwill and
non-compete agreements 1,479 901 739 451
---------- ---------- ---------- ----------
Total expenses 154,188 130,399 82,469 72,507
---------- ---------- ---------- ----------
Operating income 11,971 10,431 11,232 8,024
Other income (expense) 208 238 141 287
Interest expense 6,190 4,548 3,132 2,053
---------- ---------- ---------- ----------
Income from continuing
operations before
income taxes 5,989 6,121 8,241 6,258
Provision (benefit) for
income taxes 2,276 2,264 3,132 2,315
---------- ---------- ---------- ----------
Income from continuing
operations 3,713 3,857 5,109 3,943
Loss from discontinued
operations, net -- ( 773) -- ( 501)
---------- ---------- ---------- ----------
NET INCOME $ 3,713 $ 3,084 $ 5,109 $ 3,442
========== ========== ========== ==========
Weighted average number
of shares outstanding:
Primary 17,139 14,658 17,138 15,715
========== ========== ========== ==========
Fully-diluted 20,374 17,941 20,373 18,998
========== ========== ========== ==========
NET INCOME PER SHARE:
Primary -
Income from continuing
operations $ 0.22 $ 0.26 $ 0.30 $ 0.25
Loss from discontinued
operations -- ( 0.05) -- ( 0.03)
---------- ---------- ---------- ----------
$ 0.22 $ 0.21 $ 0.30 $ 0.22
========== ========== ========== ==========
Fully-Diluted -
Income from continuing
operations $ 0.22 $ 0.26 $ 0.28 $ 0.24
Loss from discontinued
operations -- ( 0.05) -- ( 0.03)
---------- ---------- ---------- ----------
$ 0.22 $ 0.21 $ 0.28 $ 0.21
========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.080 $ 0.080 $ 0.040 $ 0.040
========== ========== ========== ==========
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Six Months Ended September 30,
-------------------------------
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,713 $ 3,857
Adjustments to reconcile net loss to
net cash provided by (used in)
operations:
Depreciation and amortization 5,387 3,274
Loss (gain) on sale of fixed assets 7 ( 141)
Effect of exchange rate changes
on cash 5 2
Deferred compensation 577 --
Changes in assets and liabilities,
net of disposals:
Accounts receivable, net ( 10,047) ( 17,553)
Income tax refunds receivable 261 --
Inventories 5,532 ( 11,222)
Prepaid expenses 2,033 ( 4,593)
Accounts payable and accrued expenses ( 2,528) ( 779)
Income taxes currently payable and
deferred 2,197 --
------------ -----------
Net cash provided by (used in)
continuing operations 7,137 ( 27,155)
------------ -----------
Discontinued operations:
Loss from discontinued operations -- ( 773)
Items not affecting cash, net ( 2,445) --
Cash provided (used) for discontinued
operations 453 ( 865)
------------ -----------
Net cash used in discontinued operations ( 1,992) ( 1,638)
------------ -----------
Net cash provided by (used in) operating
activities 5,145 ( 28,793)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 527) ( 1,101)
Proceeds from sale of property, plant
& equipment 123 494
Purchase of net assets of acquired
companies - net of cash received ( 120) --
Changes in other assets and deferred
charges ( 3,605) ( 4,747)
------------ -----------
Net Cash Used in Investing Activities ( 4,129) ( 5,354)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under line of
credit 753 ( 18,314)
Payments under capital lease
obligation ( 129) ( 454)
Dividends paid ( 1,370) ( 1,191)
Changes in other liabilities 593 ( 472)
Proceeds from issuance of common stock 203 54,597
Common stock retired ( 81) ( 109)
------------ -----------
Net cash provided by (used in) financing
activities ( 31) 34,057
------------ -----------
EFFECT OF TRANSLATION RATE CHANGES
ON CASH 43 8
------------ -----------
Net increase (decrease) in cash and
cash equivalents 1,028 ( 82)
Cash and cash equivalents at
beginning of period 672 767
------------ -----------
Cash and cash equivalents at
end of period $ 1,700 $ 685
============ ===========
Supplemental disclosures of non-cash
investing and financing activities:
Dividends accrued and unpaid $ 685 $ 654
Capital lease obligations incurred to
lease new equipment $ 46 $ 685
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, 1996.
The balance sheet and related information in these notes as of
March 31, 1996, have been taken from the audited consolidated
financial statements as of that date. Certain reclassifications
have been made to conform presentation of the fiscal 1996 Financial
Statements with fiscal 1997 presentation.
Note B - Inventories
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION
September 30, March 31, September 30,
1996 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Finished goods $ 73,111 $ 77,318 $ 70,325
Raw materials and work
in process 18,853 20,178 10,248
----------- ---------- -----------
$ 91,964 $ 97,496 $ 80,573
=========== ========== ===========
</TABLE>
Note C - Cash Dividend
On May 23, 1996, the Company's directors declared a cash dividend
of $.04 per share of Common and Class B Common Stock. The dividend
was paid on August 19, 1996, to shareholders of record on August 5,
1996.
On August 22, 1996, the Company's directors declared a cash
dividend of $.04 per share of Common and Class B Common Stock. The
dividend is payable on November 18, 1996, to shareholders of record
on November 4, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
The Company's net revenues have grown in recent years as a result
of increased sales of the existing product lines and through the
development and acquisition of new product lines. In October 1995,
the Company acquired The C.R. Gibson Company ("Gibson") for
approximately $67 million in cash which expanded its gift product
lines and distribution network. As a result, the Company's gift
division has grown significantly for the first six months of fiscal
1997 as compared to the same period in the prior year.
As a result of operating trends and the softness of the retail
markets for the Company's products which began to adversely affect
fiscal 1996 operating results in the second quarter of fiscal 1996,
the Company decided during the fourth quarter of fiscal 1996 to
discontinue the operations of its Royal Media division, a division
which published magazines and operated radio networks directed
toward Christian markets. The disposal of the Royal Media division
has been consummated. The operating results of the Royal Media
division for the three months and six months ended September 30,
1995, are reported as a loss from discontinued operations.
The following table sets forth for the periods indicated certain
selected statements of operations data of the Company 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
September 30,
---------------------- Increase
1996 1995 (Decrease)
--------- ---------- ----------
(%) (%) (%)
<S> <C> <C> <C>
Net revenues:
Publishing
Book 25.0 34.1 ( 13.6)
Bible 18.0 22.1 ( 3.5)
--------- ---------
Total Publishing 43.0 56.2 ( 9.6)
Music 27.6 34.7 ( 6.4)
Gift 28.8 8.3 307.8
Other 0.6 0.8 ( 12.0)
--------- ---------
Total Revenues 100.0 100.0 18.0
--------- ---------
Expenses:
Cost of goods sold 52.3 50.9 21.2
Selling, general and
administrative 39.6 41.0 13.8
Amortization of goodwill
and non-compete agreements 0.9 0.7 64.2
--------- ---------
Total Expenses 92.8 92.6 18.2
--------- ---------
Operating income 7.2 7.4 14.8
Income from continuing
operations before income
taxes 3.6 4.3 ( 2.2)
Loss from discontinued
operations -- ( 0.5) ( 100.0)
Net income 2.2 2.2 20.4
</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.
The following discussion includes certain forward-looking
statements. Actual results could differ materially from those
reflected by the forward-looking statements and a number of factors
may affect future results, liquidity and capital resources. These
factors include softness in the general retail environment, the
timing of products being introduced to the market, the level of
returns experienced by operating divisions, the level of margins
achievable in the marketplace and the ability to minimize operating
expenses. Although the Company believes it has the business
strategy and resources needed for improved operations, future
revenue and margin trends cannot be reliably predicted and may cause
the Company to adjust its business strategy during the remainder of
fiscal 1997.
Results of Operations
Net revenues for the first six months of fiscal 1997 increased by
$25.3 million or 18.0% over the same period in fiscal 1996. Net
revenues decreased in each of the Company's product lines, except
gift, as follows: Bible products decreased by $1.1 million or 3.5%;
music products decreased by $3.1 million or 6.4%; and book products
decreased by $6.5 million or 13.6%. Net revenues from gift
products, including Gibson, increased by $36.1 million or 307.8%.
Net revenues for the second quarter of fiscal 1997 increased by
$13.2 million or 16.4% over the same period in fiscal 1996. Net
revenues from gift products, including Gibson, increased by $18.3<PAGE>
million or 264.0% and from Bible products increased by $0.3 million
or 2.0%. The remaining product lines of books and music decreased
by $2.7 million or 10.5% and $1.8 million or 6.0%, respectively.
Price increases did not have a material effect on net revenues. The
increases in net revenues for the first six months and second
quarter were primarily attributable to the increases in revenues in
the gift products division due to the acquisition of Gibson, which
was consummated on October 31, 1995. The trend of higher returns
and reduced sales in the publishing division and the direct
marketing division, first experienced during the fourth quarter of
fiscal 1996, continued and were the primary reasons for the decline
in publishing and music revenues, respectively.
The Company's cost of goods sold for the first six months of
fiscal 1997 increased by $15.2 million or 21.2% over the same period
in fiscal 1996 and, as a percentage of net revenues, increased to
52.3% for the first six months of fiscal 1997 from 50.9% in the
comparable period in fiscal 1996. Cost of goods sold for the second
quarter increased $5.0 million or 11.7% over the same period in
fiscal 1996 and, as a percentage of net revenues, decreased from
53.6% to 51.4%. The increase in cost of goods sold, as a percentage
of net revenues, for the first six months resulted from a change in
the mix of product types and distribution channels. Sales through
the gift market channels more than tripled from the prior year as a
result of the Gibson acquisition, while sales through the direct
market channels decreased as a percentage of total sales. Sales
made through the direct marketing to consumers channel approximate
retail prices, while sales through the gift market channel are at
wholesale prices. Therefore, as gift market channel sales increased
and direct marketing sales decreased as a percentage of the total
Company's revenues, cost of sales as a percentage of revenues
increased for the first six months of fiscal 1997 over the same
period in fiscal 1996. The cost of goods sold for the second
quarter of fiscal 1997 decreased as a percentage of net revenues
from fiscal 1996 primarily because of high paper costs in the
publishing and gift divisions and a higher than normal mix of
distributed product sales in the music division during the second
quarter of fiscal 1996.
Selling, general and administrative expenses for the first six
months of fiscal 1997 increased by $8.0 million or 13.8% and for the
second quarter by $4.6 million or 16.0% over the same periods in
fiscal 1996. These expenses, expressed as a percentage of net
revenues, decreased to 39.6% for the first six months of fiscal 1997
from 41.0% and to 35.8% for the second fiscal quarter from 35.9% in
the same periods in fiscal 1996 primarily due to the decreases in
selling and marketing costs, related to reductions in direct
marketing sales promotions, as well as reductions in staff and
general expenditures.
Interest expense for the first six months and second quarter of
fiscal 1997 increased by $1.6 million or 36.1% and $1.1 million or
52.6%, respectively, over the same periods in fiscal 1996 due to
increased borrowings for working capital and the acquisition of
Gibson.
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, 1996, the Company had working capital of $176.5
million. At September 30, 1996, the Company had $60.5 million
outstanding, and $74.5 million available for borrowing under its two
credit facilities.
Net cash provided by (used in) operating activities was $5.1
million and ($28.8) million for the first six months of fiscal 1997
and 1996, respectively. Cash provided by operations during the
first six months of fiscal 1997 was principally attributable to the
decrease in inventories and income from operations. Cash used in
operations during the first six months of fiscal 1996 was
principally attributable to the increase in inventories and accounts
receivable.
During the first six months of fiscal 1997, capital expenditures
totaled approximately $0.5 million, which was used primarily to
purchase computer equipment and warehousing and manufacturing
equipment. During the remainder of fiscal 1997, the Company
anticipates capital expenditures of approximately $3.3 million
primarily consisting of computer equipment, warehousing and
manufacturing equipment and building improvements.
The Company's bank credit facilities are unsecured and consist of
a $125 million credit facility and a $10 million credit facility
(collectively, the "Credit Agreements"). The $125 million credit
facility bears interest at either the prime rate or, at the
Company's option, LIBOR plus a percentage, subject to adjustment
based on certain financial ratios and matures on December 13, 2002.
The $10 million credit facility bears interest at the prime rate and
matures on July 31, 1998. Due to the seasonality of the Company's
business, borrowings under the Credit Agreements typically peak
during the third quarter of the fiscal year.
The Company has outstanding $61 million of senior notes ("Senior
Notes") which are unsecured. The Senior Notes bear interest at
rates from 6.93% to 9.5% due through fiscal 2008.
Under the terms of the Credit Agreements and the Senior Notes,
the Company has agreed to limit the payment of dividends and to
maintain certain interest coverage and debt-to-capital ratios which
are similarly calculated for each debt agreement. At September 30,
1996, the Company was in compliance with all covenants of these debt
agreements, as amended.
The Company also has outstanding $55 million of 5.75% convertible
subordinated notes ("Convertible Subordinated Notes") due November
30, 1999. The Convertible Subordinated Notes presently are
convertible into common stock at $17.00 per share and are redeemable
at the Company's option after November 30, 1995, at 103.29% of the
principal amount, declining annually thereafter to 100% on November
30, 1999.
Management believes cash generated by operations and borrowings
available through its Credit Agreements will be sufficient to fund
anticipated working capital requirements for existing operations
through the remainder of fiscal 1997.<PAGE>
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 22, 1996, the following proposal was approved:
(a) The election of three directors in Class Three to
serve for a term of three years expiring at the
Annual Meeting of Shareholders to be held in 1999 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>
Brownlee O. Currey, Jr. 21,864,317 101,070 17,152
W. Lipscomb Davis, Jr. 21,864,317 101,070 17,037
Joe M. Rodgers 21,864,317 101,070 15,987
</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, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 13, 1996 BY /s/ Joe L. Powers
----------------- --------------------------------
Joe L. Powers
Executive Vice President
(Principal Financial and
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, 1996, 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-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,700
<SECURITIES> 0
<RECEIVABLES> 122,561
<ALLOWANCES> 13,293
<INVENTORY> 91,964
<CURRENT-ASSETS> 240,243
<PP&E> 49,837
<DEPRECIATION> 14,844
<TOTAL-ASSETS> 375,432
<CURRENT-LIABILITIES> 63,758
<BONDS> 179,990
0
0
<COMMON> 17,121
<OTHER-SE> 108,337
<TOTAL-LIABILITY-AND-EQUITY> 375,432
<SALES> 160,005
<TOTAL-REVENUES> 166,159
<CGS> 86,952
<TOTAL-COSTS> 152,709
<OTHER-EXPENSES> 1,479
<LOSS-PROVISION> 1,994
<INTEREST-EXPENSE> 6,190
<INCOME-PRETAX> 5,989
<INCOME-TAX> 2,276
<INCOME-CONTINUING> 3,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,713
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
