FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] 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 [ ]
At August 11, 1997 the Registrant had outstanding 15,997,870
shares of Common Stock and 1,112,071 shares of Class B Common
Stock.
Part I
Item 1. Financial Statements
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30, March 31, June 30,
1997 1997 1996
-----------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 26,178 $ 43,471 $ 1,441
Accounts receivable, less
allowances of $5,753, $7,000
and $6,197, respectively 57,704 64,626 64,074
Income tax refunds receivable - - 4,179
Inventories 74,530 71,550 79,925
Prepaid expenses 9,275 9,421 14,067
Deferred tax asset 8,310 8,310 14,970
Net assets of discontinued
operations - - 61,198
----------- ---------- ----------
Total current assets 175,997 197,378 239,854
Property, plant and equipment 32,513 32,843 34,825
Other assets 10,533 10,466 9,889
Deferred charges 2,574 2,785 3,111
Goodwill 57,708 58,099 60,794
----------- ---------- ----------
TOTAL ASSETS $ 279,325 $ 301,571 $ 348,473
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 14,206 $ 18,880 $ 15,671
Accrued expenses 19,934 22,740 19,763
Dividends payable 685 685 685
Income taxes currently payable 5,241 19,974 -
Current portion of long-term debt
& capital lease obligations 3,256 3,247 2,650
----------- ---------- ----------
Total current liabilities 43,322 65,526 38,769
Long-term debt 83,128 83,162 184,135
Capital lease obligations 297 377 489
Deferred tax liability 3,640 3,640 3,127
Other liabilities 1,814 2,054 1,661
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 15,997,870, 16,001,178
and 16,007,266 shares,
respectively 15,998 16,001 16,007
Class B common stock, $1.00 par
value, authorized 5,000,000
shares; issued 1,112,071,
1,112,071 and 1,112,075
shares, respectively 1,112 1,112 1,112
Additional paid-in capital 79,417 79,409 79,019
Retained earnings 50,597 50,290 24,810
Deferred compensation - - ( 656)
----------- ---------- ----------
Total shareholders' equity 147,124 146,812 120,292
----------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 279,325 $ 301,571 $ 348,473
=========== ========== ==========
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,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET REVENUES $ 54,459 $ 55,179
COST AND EXPENSES:
Cost of goods sold 29,586 29,145
Selling, general and administrative 21,714 22,959
Amortization of goodwill and
non-compete agreements 500 496
----------- -----------
Total expenses 51,800 52,600
---------- -----------
OPERATING INCOME 2,659 2,579
Other income (expense) 510 ( 123)
Interest expense 1,571 2,104
---------- -----------
Income from continuing operations
before income taxes 1,598 352
Provision for income taxes 607 134
---------- -----------
Income from continuing operations, net 991 218
Loss from discontinued operations, net - ( 1,613)
---------- -----------
NET INCOME (LOSS) $ 991 ($ 1,395)
========== ===========
Weighted average number
of shares outstanding:
Primary 17,124 17,139
========== ===========
Fully-diluted 20,359 20,374
========== ===========
NET INCOME (LOSS) PER SHARE:
Primary--
Income from continuing operations $ 0.06 $ 0.01
Loss from discontinued operations - ( 0.09)
---------- ------------
$ 0.06 ($ 0.08)
========== ============
Fully-diluted--
Income from continuing operations $ 0.06 $ 0.01
Loss from discontinued operations - ( 0.09)
---------- ------------
$ 0.06 ($ 0.08)
========== ============
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,
---------------------------------
1997 1996
----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM CONTINUING
OPERATING ACTIVITIES:
Net income $ 991 $ 218
Adjustments to reconcile net income
to net cash provided by
(used in) operations:
Depreciation and amortization 1,901 1,764
Deferred compensation - 172
Changes in assets and liabilities,
net of acquisitions and disposals:
Accounts receivable, net 6,922 7,927
Income tax refunds receivable - 261
Inventories ( 2,980) ( 617)
Prepaid expenses 146 ( 2,846)
Accounts payable and accrued
expenses ( 7,687) ( 8,451)
Income taxes currently payable
and deferred ( 14,733) -
---------- ----------
Net cash used in continuing operations ( 15,440) ( 1,572)
---------- ----------
Discontinued operations:
Loss from discontinued operations - ( 1,613)
Changes in discontinued assets 310 ( 104)
Cash provided by (used in)
discontinued operations ( 103) 672
---------- ----------
Net cash provided by (used in)
discontinued operations 207 ( 1,045)
---------- ----------
Net cash used in operating activities ( 15,233) ( 2,617)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 634) ( 219)
Purchase of net assets of acquired
companies - net of cash received - ( 87)
Changes in other assets and deferred
charges ( 402) ( 85)
---------- ----------
Net cash used in investing activities ( 1,036) ( 391)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit - 4,646
Payments under capital lease
obligation ( 80) ( 112)
Payments on long-term debt ( 25) -
Dividends paid ( 684) ( 685)
Changes in other liabilities ( 240) ( 269)
Proceeds from issuance of common stock 9 197
Common stock retired ( 4) -
---------- ----------
Net cash provided by (used in) financing
activities ( 1,024) 3,777
---------- ----------
Net increase (decrease) in cash and cash
equivalents ( 17,293) 769
Cash and cash equivalents at beginning of
period 43,471 672
---------- ----------
Cash and cash equivalents at end of
period $ 26,178 $ 1,441
========== ==========
Supplemental disclosures of non-cash
investing and financing activities:
Dividends accrued and unpaid $ 685 $ 685
Capital lease obligations incurred
to lease new equipment $ - $ 50
</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, 1997.
The balance sheet and related information in these notes as of
March 31, 1997, have been taken from the audited consolidated
financial statements as of that date. Certain reclassifications
have been made to conform presentation of the fiscal 1997
Financial Statements with fiscal 1998 presentation.
Note B - New Pronouncements
Computation of Net Income Per Share: Net income per share is
computed by dividing net income by the weighted average number of
common and Class B common shares outstanding during the year,
which includes the additional dilution related to stock options.
The fully diluted per share computation reflects the effect of
common shares contingently issuable upon conversion of
convertible debt securities in periods in which such exercise
would cause dilution and the effect on net income of converting
the debt securities. Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS 128") has been issued
effective for interim and annual fiscal periods ending after
December 15, 1997. SFAS 128 establishes standards for computing
and presenting earnings per share. The Company is required to
adopt the provisions of SFAS 128 in the third quarter of fiscal
1998. Management does not believe that adoption of SFAS 128 will
have a material effect on the Company's financial statements,
taken as a whole.
Disclosure of Information about Capital Structure: In
February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital
Structure" ("SFAS 129"). SFAS 129 establishes standards for
disclosing information about an entity's capital structure. The
Company will be required to adopt SFAS 129 in the third quarter
of fiscal 1998. Management does not expect the adoption to have
a material impact on the Company's financial position, results of
operation or cash flows.
Note C - Inventories
Components of inventories consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, March 31, June 30,
1997 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Finished goods $ 56,740 $ 53,634 $ 59,779
Raw materials and work
in process 17,790 17,916 20,146
----------- ----------- -----------
$ 74,530 $ 71,550 $ 79,925
=========== =========== ===========
</TABLE>
Note D - Cash Dividend
On May 23, 1997, the Company's directors declared a cash
dividend of $.04 per share of Common and Class B Common Stock.
The dividend is payable August 18, 1997, to shareholders of
record on August 4, 1997.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
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. On
January 6, 1997, the Company sold the assets, subject to
certain liabilities, of the music division ("Music Business").
The operating results of the Music Business for the three months
ended June 30, 1996, are reported as 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 Fiscal
June 30, Year-to-Year
------------------ Increase
1997 1996 (Decrease)
------- ------- ------------
(%) (%) (%)
<S> <C> <C> <C>
Net revenues
Publishing 59.9 59.0 0.1
Gift 40.1 41.0 ( 3.4)
------- -------
Total net revenues 100.0 100.0 ( 1.3)
------- -------
Expenses
Cost of goods sold 54.3 52.8 1.5
Selling, general and
administrative 39.9 41.6 ( 5.4)
Amortization of goodwill and
non-compete agreements 0.9 0.9 0.8
------- -------
Total expenses 95.1 95.3 ( 1.5)
------- -------
Operating income 4.9 4.7 3.1
======= =======
Income from continuing
operations 1.8 0.4 354.8
Loss from discontinued
operations, net of taxes -- ( 2.9) --
------- -------
Net income (loss) 1.8 ( 2.5) --
======= =======
</TABLE>
The Company's net revenues fluctuate seasonally, with net
revenues in the first fiscal quarter historically being lower
than those for the remainder of the year. This seasonality is
the result of increased consumer purchases of the Company's
products during the traditional holiday periods. 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 1998.
Results of Operations
Net revenues for the first three months of fiscal 1998
decreased $0.7 million, or 1.3%, over the same period in fiscal
1997. The publishing product net revenues were flat compared to
the prior year primarily due to product returns. Net revenues
from gift products decreased $0.7 million, or 3.4%, primarily due
to reduced marketing of the deeply discounted stationery category
to mass merchandisers in order to focus the Company's efforts on
the specialty stores. Price increases did not have a material
effect on net revenues.
The Company's cost of goods sold for the first three months of
fiscal 1998 increased by $0.4 million, or 1.5%, over the same
period in fiscal 1997 and, as a percentage of net revenues,
increased to 54.3% for the first three months of fiscal 1998 from
52.8% in the comparable period in fiscal 1997. The increase in
cost of goods sold, as a percentage of net revenues, for the
first three months resulted primarily from a decrease in royalty
advance recoveries associated with publishing product returns.
Selling, general and administrative expenses for the first
three months of fiscal 1998 decreased by $1.2 million, or 5.4%,
from the same period in fiscal 1997. These expenses, expressed
as a percentage of net revenues, decreased to 39.9% for the first
three months of fiscal 1998 from 41.6% in the same period in
fiscal 1997 primarily due to reductions in staff and general
expenditures. The Company's selling, general and administrative
expenses are relatively fixed during the fiscal year and do not
materially increase with revenue increases. Revenues for the
remainder of the 1998 fiscal year are expected to be greater than
the revenues for the first quarter; therefore, selling, general
and administrative expenses should decrease as a percentage of
revenues.
Interest expense for the first three months of fiscal 1998
decreased by $0.5 million, or 25.3%, over the same period in
fiscal 1997 due to decreased borrowings as a result of the use of
a portion of the proceeds from the sale of the Music Business to
repay indebtedness.
Liquidity and Capital Resources
At June 30, 1997, the Company had $26.2 million in cash and
cash equivalents primarily from the sale of its Music Business in
January 1997. 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, 1997, the Company had working
capital of $132.7 million.
Net cash used in operating activities was $15.2 million and
$2.6 million for the first three months of fiscal 1998 and 1997,
respectively. Cash used in operations during the first three
months of fiscal 1998 was principally attributable to the
decrease in income taxes currently payable. Cash used in
operations during the first three months of fiscal 1997 was
principally attributable to the decrease in accounts payable and
accrued expenses.
During the first three months of fiscal 1998, capital
expenditures totaled approximately $0.6 million, which was used
primarily to purchase computer equipment and warehousing and
manufacturing equipment. During the remainder of fiscal 1998,
the Company anticipates capital expenditures of approximately
$4.4 million primarily consisting of additional computer
equipment and warehousing and manufacturing equipment.
The Company's bank credit facilities are unsecured and consist
of a $75 million credit facility and a $10 million credit
facility (collectively, the "Credit Agreements"). The $75
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. At June
30, 1997, the Company had no borrowings outstanding under the
Credit Agreements, and $85 million available for borrowing. Due
to the seasonality of the Company's business, borrowings under the
Credit Agreements typically peak during the third quarter of the
fiscal year.
At June 30, 1997, the Company had outstanding $26 million of
unsecured senior notes ("Senior Notes"). The Senior Notes bear
interest at rates from 6.68% to 9.50% 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-total-capital
ratios which are similarly calculated for each debt agreement.
At June 30, 1997, 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 under the Credit Agreements will be
sufficient to fund anticipated working capital requirements for
existing operations through the remainder of fiscal 1998.
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit 11 - Statement of Re-Computation of Per
Share Earnings
Exhibit 27- Financial Data Schedule
(b) No Form 8-K was filed by the Company during the
quarter ended June 30, 1997.
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)
August 13, 1997 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, 1997, and is qualified
in its entirety by reference to such financial statements and the
notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 26,178
<SECURITIES> 0
<RECEIVABLES> 63,457
<ALLOWANCES> 5,753
<INVENTORY> 74,530
<CURRENT-ASSETS> 175,997
<PP&E> 59,294
<DEPRECIATION> 26,781
<TOTAL-ASSETS> 279,325
<CURRENT-LIABILITIES> 43,322
<BONDS> 83,425
0
0
<COMMON> 17,110
<OTHER-SE> 130,014
<TOTAL-LIABILITY-AND-EQUITY> 279,325
<SALES> 54,043
<TOTAL-REVENUES> 54,459
<CGS> 29,586
<TOTAL-COSTS> 51,300
<OTHER-EXPENSES> 500
<LOSS-PROVISION> 426
<INTEREST-EXPENSE> 1,571
<INCOME-PRETAX> 1,598
<INCOME-TAX> 607
<INCOME-CONTINUING> 991
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 991
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
<TABLE>
EXHIBIT 11
STATEMENT RE-COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share data)
<CAPTION>
Three Months Ended
June 30,
1997 1996
----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average shares outstanding 17,124 17,139
========= =========
Income from continuing operations $ 991 $ 218
Loss from discontinued operations - ( 1,613)
--------- ---------
Net income (loss) $ 991 ($ 1,395)
========= =========
Income per share from continuing
operations $ 0.06 $ 0.01
Loss per share from discontinued
operations - ( 0.09)
--------- ---------
Net income (loss) per share $ 0.06 ($ 0.08)
========= =========
FULLY-DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding 17,124 17,139
Convertible notes 3,235 3,235
--------- ---------
Total shares 20,359 20,374
========= =========
Income from continuing operations<F1> $ 1,505 $ 746
Loss from discontinued operations - ( 1,613)
--------- ---------
Net income (loss) $ 1,505 ($ 867)
========= =========
Income per share from continuing
operations $ 0.06 $ 0.01
Loss per share from discontinued
operations - ( 0.09)
--------- ---------
Net income (loss) per share $ 0.06<F2> ($ 0.08)<F2>
<FN>
<F1> Adjusted for interest on convertible debt
<F2> Anti-dilutive; use primary earnings per share
</TABLE>
