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 September 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 November 12, 1997 the Registrant had outstanding 16
,002,670 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>
September 30, March 31, September 30,
1997 1997 1996
---------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 23,103 $ 43,471 $ 1,700
Accounts receivable, less
allowances of $6,814, $7,000
and $7,461, respectively 73,440 64,626 74,290
Income tax refunds receivable - - 4,179
Inventories 70,388 71,550 75,406
Prepaid expenses 8,554 9,421 9,904
Deferred tax asset 8,310 8,310 14,970
Net assets of discontinued
operations - - 67,457
-------- -------- --------
Total current assets 183,795 197,378 247,906
Property, plant and equipment 32,550 32,843 33,990
Other assets 10,769 10,466 12,525
Deferred charges 2,587 2,785 2,871
Goodwill 57,321 58,099 59,668
-------- -------- --------
TOTAL ASSETS $287,022 $301,571 $356,960
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,366 $ 18,880 $ 18,985
Accrued expenses 22,598 22,740 21,355
Dividends payable 684 685 685
Income taxes currently payable 6,943 19,974 2,197
Current portion of long-term debt
& capital lease obligations 3,369 3,247 3,321
-------- -------- --------
Total current liabilities 49,960 65,526 46,543
Long-term debt 80,769 83,162 179,572
Capital lease obligations 109 377 418
Deferred tax liability 3,640 3,640 3,127
Other liabilities 1,860 2,054 2,195
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 16,002,670, 16,001,178
and 16,009,248 shares,
respectively 16,003 16,001 16,009
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 79,055 79,409 78,942
Retained earnings 54,514 50,290 29,293
Deferred compensation - - (251)
-------- -------- --------
Total shareholders' equity 150,684 146,812 125,105
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $287,022 $301,571 $356,960
======== ======== ========
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,
1997 1996 1997 1996
--------- ---------- ---------- ----------
(Unaudited)(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $123,077 $120,385 $ 68,618 $ 65,206
COST AND EXPENSES:
Cost of goods sold 67,404 63,378 37,818 34,233
Selling, general and
administrative 43,377 45,485 21,666 22,526
Amortization of goodwill
and non-compete
agreements 996 989 493 493
-------- -------- -------- --------
Total expenses 111,777 109,852 59,977 57,252
-------- -------- -------- --------
OPERATING INCOME 11,300 10,533 8,641 7,954
Other income 808 18 298 141
Interest expense 3,085 4,440 1,514 2,336
-------- -------- -------- --------
Income from continuing
operations before income
taxes 9,023 6,111 7,425 5,759
Provision for income taxes 3,429 2,322 2,822 2,188
-------- -------- -------- --------
Income from continuing
operations, net 5,594 3,789 4,603 3,571
Income (loss) from discon-
tinued operations, net - (75) - 1,538
-------- -------- -------- --------
NET INCOME $ 5,594 $ 3,714 $ 4,603 $ 5,109
======== ======== ======== ========
Weighted average number
of shares outstanding:
Primary 17,151 17,139 17,182 17,138
======== ======== ======== ========
Fully-diluted 20,386 20,374 20,417 20,373
======== ======== ======== ========
NET INCOME PER SHARE:
Primary--
Income from continuing
operations $ 0.33 $ 0.22 $ 0.27 $ 0.21
Income from discontinued
operations - - - 0.09
-------- -------- -------- --------
$ 0.33 $ 0.22 $ 0.27 $ 0.30
======== ======== ======== ========
Fully-diluted--
Income from continuing
operations $ 0.32 $ 0.22 $ 0.25 $ 0.20
Income from discontinued
operations - - - 0.08
-------- -------- -------- --------
$ 0.32 $ 0.22 $ 0.25 $ 0.28
======== ======== ======== ========
DIVIDENDS DECLARED PER SHARE $ 0.08 $ 0.08 $ 0.04 $ 0.04
======== ======== ======== ========
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Six Months Ended September 30,
1997 1996
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM CONTINUING OPERATING
ACTIVITIES:
Income from continuing operations $ 5,594 $ 3,789
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Depreciation and amortization 3,825 4,348
Loss on sale of fixed assets - 7
Deferred compensation - 577
Changes in assets and liabilities,
net of acquisitions and disposals:
Accounts receivable, net ( 8,814) ( 2,289)
Income tax refunds receivable - 261
Inventories 1,162 3,902
Prepaid expenses 867 1,317
Accounts payable and accrued expenses ( 1,896) ( 4,349)
Income taxes currently payable and
deferred ( 13,031) 2,197
--------- ---------
Net cash provided by (used in)
continuing operations ( 12,293) 9,760
--------- ---------
Discontinued operations:
Income (loss) from discontinued
operations - ( 75)
Changes in discontinued assets 524 ( 1,359)
Cash used in discontinued operations ( 1,284) ( 3,338)
--------- ---------
Net cash used in discontinued operations ( 760) ( 4,772)
--------- ---------
Net cash provided by (used in) operating
activities ( 13,053) 4,988
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 1,649) ( 527)
Proceeds from sale of business and
discontinued assets - ( 120)
Purchase of net assets of acquired
companies - net of cash received - 123
Changes in other assets and deferred
charges ( 1,210) ( 3,077)
--------- ---------
Net cash used in investing activities ( 2,859) ( 3,601)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit - 753
Payments under capital lease obligation ( 268) ( 129)
Payments on long-term debt ( 2,271) -
Dividends paid ( 1,371) ( 1,370)
Proceeds from issuance of common stock 12 203
Common stock retired ( 4) ( 81)
Other financing activities ( 554) 265
--------- ---------
Net cash used in financing activities ( 4,456) ( 359)
--------- ---------
Net increase (decrease) in cash and
cash equivalents ( 20,368) 1,028
Cash and cash equivalents at
beginning of period 43,471 672
--------- ---------
Cash and cash equivalents at end of period $ 23,103 $ 1,700
========= =========
Supplemental disclosures of non-cash
investing and financing activities:
Dividends accrued and unpaid $ 685 $ 685
Capital lease obligations incurred to
lease new equipment $ - $ 46
</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>
September 30, March 31, September 30,
1997 1997 1996
------------ ----------- -------------
<S> <C> <C> <C>
Finished goods $ 55,485 $ 53,634 $ 56,554
Raw materials and
work in process 14,903 17,916 18,852
---------- ----------- -----------
$ 70,388 $ 71,550 $ 75,406
========== =========== ===========
</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 was paid on August 18, 1997, to shareholders of
record on August 4, 1997.
On August 21, 1997, 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 17, 1997, to shareholders of
record on November 3, 1997.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
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 and six
month periods ended September 30, 1996, are reported as income
(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 Fiscal Year-to-Year
September 30, Increase
------------------
1997 1996 (Decrease)
-------- -------- ------------
(%) (%) (%)
<S> <C> <C> <C>
Net revenues
Publishing 61.2 60.2 4.0
Gift 38.8 39.8 (0.5)
------- -------
Total net revenues 100.0 100.0 2.2
------- -------
Expenses
Cost of goods sold 54.8 52.7 6.4
Selling, general and
administrative 35.2 37.8 (4.6)
Amortization of goodwill
and non-compete
agreements 0.8 0.8 0.7
------- -------
Total expenses 90.8 91.3 1.8
------- -------
Operating income 9.2 8.7 7.3
======= =======
Income from continuing
operations 4.5 3.1 47.6
Income (loss) from discon-
tinued operations,
net of taxes - (0.1) -
------- -------
Net income 4.5 3.1 50.6
======= =======
</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. 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 six months of fiscal 1998 increased
by $2.7 million or 2.2%, over the same period in fiscal 1997.
The publishing product net revenues increased $2.9 million, or
4.0%, primarily due to reductions in product returns. Net
revenues from gift products decreased $0.2 million, or 0.5%,
compared to the prior year primarily due to reduced marketing of
the deeply discounted stationery category to mass merchandisers
in order to focus the Company's efforts on specialty stores. Net
revenues for the second quarter of fiscal 1998 increased $3.4
million, or 5.2%, over the same period in fiscal 1997. The
publishing product net revenues increased $2.9 million, or 7.2%,
compared to the prior year primarily due to reductions in product
returns as a result of improved product sell-through and the
effect of customers adopting just-in-time inventory purchasing
practices. Net revenues from gift products increased $0.5
million, or 2.1%, primarily due to new product introductions.
Price increases did not have a material effect on net revenues.
The Company's cost of goods sold for the first six months of
fiscal 1998 increased by $4.0 million, or 6.4%, over the same
period in fiscal 1997 and, as a percentage of net revenues,
increased to 54.8% from 52.7% in the comparable period of fiscal
1997. Cost of goods sold for the second quarter of fiscal 1998
increased by $3.6 million, or 10.5%, over the same period in
fiscal 1997 and, as a percentage of net revenues, increased to
55.1% from 52.5% in the comparable period in fiscal 1997. The
increase in cost of goods sold, as a percentage of net revenues,
for the first six months and second quarter resulted primarily
from changes in product mix and the prior year's licensing
revenue, respectively. Within the publishing products division
for the first six months of fiscal 1998, the Company experienced
a greater percentage of revenues from Bible-type products which
have higher costs of goods sold than other publishing products.
In the second quarter of fiscal 1997 the Company had higher
licensing revenues which have minimal associated cost of goods
sold. The Company periodically receives licensing revenues from
companies that request permission to reprint our publishing
products and market them through a channel that might not
currently be served.
Selling, general and administrative expenses for the first six
months of fiscal 1998 decreased $2.1 million, or 4.6%, and for
the second quarter decreased by $0.9 million, or 3.8%, from the
same periods in fiscal 1997. These expenses, expressed as a
percentage of net revenues, decreased to 35.2% for the first six
months of fiscal 1998 from 37.8% and to 31.6% for the second
quarter from 34.5% 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 two quarters; therefore, selling, general and
administrative expenses should decrease slightly as a percentage
of revenues.
Interest expense for the first six months of fiscal 1998
decreased by $1.4 million, or 30.5%, and decreased for the second
quarter by $0.8 million, or 35.2%, 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 and decreased working capital assets.
Liquidity and Capital Resources
At September 30, 1997, the Company had $23.1 million in cash
and cash equivalents. 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, 1997, the Company had
working capital of $133.8 million.
Net cash provided by (used in) operating activities was
($13.1) million and $5.0 million for the first six months of
fiscal 1998 and 1997, respectively. Cash used in operations
during the first six months of fiscal 1998 was principally
attributable to the payment of income taxes and an increase in
accounts receivable. Cash provided by operations during the
first six months of fiscal 1997 was principally attributable to
the decrease in inventories and income from continuing
operations.
During the first six months of fiscal 1998, capital
expenditures totaled approximately $1.6 million, which was used
primarily to purchase computer, warehousing and manufacturing
equipment. During the remainder of fiscal 1998, the Company
anticipates capital expenditures of approximately $3.0 million
primarily consisting of additional computer, 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, 1999. At
September 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 September 30, 1997, the Company had outstanding $24 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 September 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 September 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)
November 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 September 30, 1997,
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-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 23,103
<SECURITIES> 0
<RECEIVABLES> 80,254
<ALLOWANCES> 6,814
<INVENTORY> 70,388
<CURRENT-ASSETS> 183,795
<PP&E> 60,308
<DEPRECIATION> 27,758
<TOTAL-ASSETS> 287,022
<CURRENT-LIABILITIES> 49,960
<BONDS> 80,878
0
0
<COMMON> 17,115
<OTHER-SE> 133,569
<TOTAL-LIABILITY-AND-EQUITY> 287,022
<SALES> 121,153
<TOTAL-REVENUES> 123,077
<CGS> 67,404
<TOTAL-COSTS> 110,781
<OTHER-EXPENSES> 996
<LOSS-PROVISION> 1,017
<INTEREST-EXPENSE> 3,085
<INCOME-PRETAX> 9,023
<INCOME-TAX> 3,429
<INCOME-CONTINUING> 5,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,594
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
<TABLE>
EXHIBIT 11
STATEMENT RE-COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share data)
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- --------- ---------
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average shares
outstanding 17,151 17,139 17,182 17,138
======== ======== ======= =======
Income from continuing
operations $ 5,594 $ 3,789 $ 4,603 $ 3,571
Income (loss) from
discontinued operations - (75) - 1,538
-------- -------- ------- -------
Net income $ 5,594 $ 3,714 $ 4,603 $ 5,109
======== ======== ======= =======
Income per share from
continuing operations $ 0.33 $ 0.22 $ 0.27 $ 0.21
Income (loss) per share from
discontinued operations - - - 0.09
-------- -------- ------- -------
Net income per share $ 0.33 $ 0.22 $ 0.27 $ 0.30
======== ======== ======= =======
FULLY-DILUTED EARNINGS PER SHARE:
Weighted average shares
outstanding 17,151 17,139 17,182 17,138
Convertible notes 3,235 3,235 3,235 3,235
-------- -------- ------- -------
Total shares 20,386 20,374 20,417 20,373
======== ======== ======= =======
Income from continuing
operations<F1> $ 6,616 $ 4,807 $ 5,111 $ 4,080
Income (loss) from
discontinued operations - (75) - 1,538
-------- -------- ------- -------
Net income $ 6,616 $ 4,732 $ 5,111 $ 5,618
======== ======== ======= =======
Income per share from
continuing operations $ 0.32 $ 0.22 $ 0.25 $ 0.20
Income (loss) per share from
discontinued operations - - - 0.08
-------- -------- ------- -------
Net income per share $ 0.32 $ 0.22<F2>$ 0.25 $ 0.28
======== ======== ======= =======
<FN>
<F1> Adjusted for interest on convertible debt
<F2> Anti-dilutive; use primary earnings per share
</TABLE>
