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 June 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
incorporation or organization) Identification number)
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 <PAGE>
At August 12, 1996, the Registrant had outstanding
16,011,228 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>
June 30, March 31, June 30,
1996 1996 1995
---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,441 $ 672 $ 663
Accounts receivable, less
allowances of $10,472,
$10,959 and $7,833
respectively 89,748 99,221 79,288
Income tax refunds receivable 4,179 4,440 1,869
Inventories 98,575 97,496 76,564
Prepaid expenses 20,545 18,045 21,675
Deferred tax asset 17,120 17,120 7,714
---------- ----------- -----------
Total Current Assets 231,608 236,994 187,773
PROPERTY, PLANT AND EQUIPMENT 35,844 36,634 16,303
OTHER ASSETS 19,649 19,347 20,491
DEFERRED CHARGES 3,461 3,658 3,857
GOODWILL 76,533 76,963 31,624
---------- ----------- -----------
TOTAL ASSETS $ 367,095 $ 373,596 $ 260,048
========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 21,771 $ 30,158 $ 29,705
Accrued expenses 28,392 28,858 14,988
Dividends payable 685 685 538
Current portion of
long-term debt 2,376 2,376 892
Current portion of capital
lease obligation 274 249 752
Net liability of discontinued
operations 2,663 3,251 -
---------- ----------- -----------
Total Current Liabilities 56,161 65,577 46,875
LONG-TERM DEBT 184,135 179,489 138,277
CAPITAL LEASE OBLIGATION 489 527 464
DEFERRED TAX LIABILITY 3,127 3,127 1,410
OTHER LIABILITIES 2,529 2,506 1,201
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 16,007,266, 16,004,368
and 12,370,579 shares,
respectively 16,007 16,004 12,371
Class B common stock, $1.00 par
value, authorized 5,000,000
shares; issued 1,112,075,
1,112,075 and 1,085,844 shares,
respectively 1,112 1,112 1,086
Additional paid-in capital 79,019 78,825 18,192
Retained earnings 24,810 26,952 39,642
Deferred compensation ( 656) ( 828) --
Foreign currency translation
adjustments 362 305 530
---------- ----------- -----------
Total Shareholders' Equity 120,654 122,370 71,821
---------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 367,095 $ 373,596 $ 260,048
========== =========== ===========
See Accompanying Notes
</TABLE>
<TABLE> THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Three Months Ended
June 30,
1996 1995
--------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues $ 72,458 $ 60,299
Expenses:
Cost of goods sold 38,776 28,578
Selling, general and
administrative 32,203 28,864
Amortization of goodwill and
non-compete agreements 740 450
------------- -------------
Total expenses 71,719 57,892
------------- -------------
Operating income 739 2,407
Other income (expense) 67 ( 49)
Interest expense 3,058 2,495
------------- -------------
Loss from continuing
operations before
income taxes ( 2,252) ( 137)
Provision (benefit) for
income taxes ( 856) ( 51)
------------- -------------
Loss from continuing
operations ( 1,396) ( 86)
Loss from discontinued
operations, net of tax
benefits of $159 - ( 272)
------------- -------------
NET LOSS ($ 1,396) ($ 358)
============= =============
Weighted average number
of shares outstanding 17,139 13,567
============= =============
NET LOSS PER SHARE:
Loss from continuing
operations ($ 0.08) ($ 0.01)
Loss from discontinued
operations - ( 0.02)
------------- -------------
NET LOSS PER SHARE ($ 0.08) ($ 0.03)
============= =============
DIVIDENDS DECLARED PER SHARE $ 0.04 $ 0.04
============= =============
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Three Months Ended June 30,
---------------------------
1996 1995
--------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 1,396) ($ 86)
Adjustments to reconcile net loss to
net cash provided by (used in)
operations:
Depreciation and amortization 2,408 1,513
Effect of exchange rate changes
on cash 6 2
Deferred compensation 172 --
Changes in assets and liabilities,
net of disposals:
Accounts receivable, net 9,473 5,438
Income tax refunds receivable 261 --
Inventories ( 1,079) ( 7,214)
Prepaid expenses ( 2,500) ( 7,972)
Accounts payable and accrued expenses ( 8,853) ( 6,833)
--------- ----------
Net cash used in continuing operations ( 1,508) ( 15,152)
--------- ----------
Discontinued operations:
Loss from discontinued operations -- ( 272)
Cash used for discontinued operations ( 588) ( 215)
--------- ----------
Net cash used in discontinued operations ( 588) ( 487)
--------- ----------
Net cash used in operating activities ( 2,096) ( 15,639)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 219) ( 126)
Purchase of net assets of acquired
companies - net of cash received ( 87) --
Changes in other assets and deferred
charges ( 949) ( 1,620)
--------- ----------
Net Cash Used in Investing Activities ( 1,255) ( 1,746)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 4,646 18,169
Payments under capital lease
obligation ( 112) ( 225)
Dividends paid ( 685) ( 537)
Changes in other liabilities 23 ( 155)
Proceeds from issuance of common stock 197 135
Common stock retired -- ( 125)
--------- ----------
Net cash provided by financing
activities 4,069 17,262
--------- ----------
EFFECT OF TRANSLATION RATE CHANGES
ON CASH 51 19
--------- ----------
Net increase (decrease) in cash and
cash equivalents 769 ( 104)
Cash and cash equivalents at
beginning of period 672 767
--------- ----------
Cash and cash equivalents at
end of period $ 1,441 $ 663
========= ==========
Supplemental disclosures of
non-cash investing and
financing activities:
Dividends accrued and unpaid $ 685 $ 538
Capital lease obligations incurred
to lease new equipment $ 50 $ 830
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> June 30, March 31, June 30,
1996 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Finished goods $ 78,429 $ 77,318 $ 67,852
Raw materials and work
in process 20,146 20,178 8,712
---------- ---------- ----------
$ 98,575 $ 97,496 $ 76,564
========== ========== ==========
</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 is payable on August 19, 1996, to shareholders of
record on August 5, 1996.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
The Company's net revenues have grown significantly 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 quarter 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 the Christian markets. The operating
results of the Royal Media division for the three months ended
June 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> Three Months Ended
June 30,
-------------------- Increase
1996 1995 (Decrease)
-------- -------- ----------
(%) (%) (%)
<S> <C> <C> <C>
Net revenues:
Publishing
Book 24.9 35.3 ( 15.3)
Bible 19.0 24.4 ( 6.2)
-------- -------- ----------
Total Publishing 43.9 59.7 ( 11.6)
Music 23.9 30.8 ( 7.2)
Gift 31.2 8.0 371.2
Other 1.0 1.5 ( 18.2)
-------- -------- ----------
Total Revenues 100.0 100.0 20.2
-------- -------- ----------
Expenses:
Cost of goods sold 53.5 47.4 35.7
Selling, general and
administrative 44.5 47.9 11.6
Amortization of goodwill and
non-compete agreements 1.0 0.7 64.4
-------- -------- ----------
Total Expenses 99.0 96.0 23.9
-------- -------- ----------
Operating income 1.0 4.0 ( 69.6)
Loss from continuing
operations before income
taxes ( 3.1) ( 0.2) -
Loss from discontinued
operations - ( 0.5) -
Net loss ( 1.9) ( 0.6) 289.9
</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 three months of fiscal 1997
increased by $12.2 million or 20.2% over the same period in
fiscal 1996. The increase in net revenues was attributable to
the increase in revenues in the gift products division due to the
acquisition of Gibson, which was consummated on October 31, 1995,
and to a lesser extent the introduction of new gift products.
Net revenues, excluding gift revenues, decreased for the first
three months of fiscal 1997 over the same period of fiscal
1996 by 11.1% and decreased in each of the Company's product
lines, except gift, as follows: Bible products decreased by $0.9
million or 6.2%; music products decreased by $1.3 million or
7.2%; and book products decreased by $3.2 million or 15.3%.
Net revenues from gift products, including Gibson, increased by
$17.8 million or 371.2%. Price increases did not have a material
effect on net revenues. The trend of higher returns and reduced
sales in the publishing and music divisions 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.
The Company's cost of goods sold for the first three months of
fiscal 1997 increased by $10.2 million or 35.7% over the same
period in fiscal 1996 and, as a percentage of net revenues,
increased to 53.5% for the first three months of fiscal 1997 from
47.4% in the comparable period in fiscal 1996. The increase in
cost of goods sold, as a percentage of net revenues, resulted
from higher royalty costs due to a change in the product sales
mix and lower recoveries of royalty and production advances
attributable to lower sales within the publishing and music
divisions, as well as 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 three months of fiscal 1997 over the same
period in fiscal 1996, and this trend is expected to continue for
the remainder of fiscal 1997. Additionally, in the prior year,
the Company achieved a favorable period benefit in gross margins
through price increases in anticipation of increasing paper costs
while still selling from existing inventory.
Selling, general and administrative expenses for the first
three months of fiscal 1997 increased by $3.3 million or 11.6%
over the same period in fiscal 1996. These expenses, expressed
as a percentage of net revenues, decreased to 44.5% for the first
three months of fiscal 1997 from 47.9% in the same period 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 three months of fiscal 1997
increased by $0.6 million or 22.6% over the same period in fiscal
1996 due to increased borrowings for working capital and the
acquisition of Gibson.
The net loss for the first three months of fiscal 1997
increased by $1.0 million or 289.9% over the same period in
fiscal 1996. Returns at higher levels and reduced sales in
its publishing and music divisions and its direct marketing
division were the primary factors which resulted in this
increased loss.
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 June 30, 1996, the Company had working capital of $175.4
million. At June 30, 1996, the Company had $62.5 million
outstanding, and $72.5 million available for borrowing under its
two credit facilities. As previously addressed, seasonality has
a major impact on the Company's revenues which in turn have a
direct bearing on the level of borrowings.
Net cash used in operating activities was $2.1 million and
$15.6 million for the first three months of fiscal 1997 and 1996,
respectively. Cash used in operations during the first three
months of fiscal 1997 was principally attributable to the payment
of accounts payable and accrued expenses of $8.9 million. Cash
used in operations during the first three months of fiscal 1996
was principally attributable to the increase in inventories and
prepaid expenses and the decrease in accounts payable and accrued
expenses.
During the first three months of fiscal 1997, capital
expenditures totaled approximately $0.2 million, which was used
primarily to purchase computer equipment. During the remainder of
fiscal 1997, the Company anticipates capital expenditures of
approximately $3.6 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 30, 1997. 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 $62 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 June
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.
PART II
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 June 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)
August 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 June 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,441
<SECURITIES> 0
<RECEIVABLES> 100,220
<ALLOWANCES> 10,472
<INVENTORY> 98,575
<CURRENT-ASSETS> 231,608
<PP&E> 49,521
<DEPRECIATION> 13,677
<TOTAL-ASSETS> 367,095
<CURRENT-LIABILITIES> 56,161
<BONDS> 184,624
<COMMON> 17,119
0
0
<OTHER-SE> 103,535
<TOTAL-LIABILITY-AND-EQUITY> 367,095
<SALES> 70,818
<TOTAL-REVENUES> 72,458
<CGS> 38,776
<TOTAL-COSTS> 70,979
<OTHER-EXPENSES> 740
<LOSS-PROVISION> 1,142
<INTEREST-EXPENSE> 3,058
<INCOME-PRETAX> (2,252)
<INCOME-TAX> (856)
<INCOME-CONTINUING> (1,396)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,396)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
