SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(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, 1998
[ ] 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, 1998, the Registrant had outstanding 14,092,749
shares of Common Stock and 1,106,324 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,
1998 1998 1997
----------- ---------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,721 $ 39,713 $ 26,178
Accounts receivable, less
allowances of $5,030, $6,162
and $5,753, respectively 58,854 65,415 60,427
Inventories 76,522 70,590 74,530
Prepaid expenses 9,864 8,177 9,275
Deferred tax assets 3,276 3,276 8,310
--------- --------- ---------
Total current assets 150,237 187,171 178,720
Property, plant and equipment, net 31,372 32,103 32,513
Other assets 10,941 9,843 10,533
Deferred charges 1,628 1,789 2,574
Goodwill 56,141 56,536 57,708
--------- --------- ---------
TOTAL ASSETS $ 250,319 $ 287,442 $ 282,048
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 13,951 $ 16,701 $ 14,206
Accrued expenses 16,234 21,268 22,657
Dividends payable 612 685 685
Income taxes currently payable 1,013 4,286 5,241
Current portion of long-term debt
& capital lease obligations 3,941 3,975 3,256
--------- --------- ---------
Total current liabilities 35,751 46,915 46,045
Long-term debt 77,863 79,476 83,128
Capital lease obligations 19 84 297
Deferred tax liabilities 3,363 3,364 3,640
Other liabilities 1,149 1,207 1,814
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 14,192,829, 16,002,817
and 15,997,870 shares,
respectively 14,193 16,003 15,998
Class B common stock, $1.00 par
value, authorized 5,000,000
shares; issued 1,111,924,
1,111,924 and 1,112,071
shares, respectively 1,112 1,112 1,112
Additional paid-in capital 56,001 79,057 79,417
Retained earnings 60,868 60,224 50,597
--------- --------- ---------
Total shareholders' equity 132,174 156,396 147,124
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 250,319 $ 287,442 $ 282,048
========= ========= =========
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,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
NET REVENUES $ 5,994 $ 54,459
COST AND EXPENSES:
Cost of goods sold 30,334 29,775
Selling, general and
administrative 22,156 21,525
Amortization of goodwill and
non-compete agreements 408 500
---------- ----------
Total expenses 52,898 51,800
---------- ----------
OPERATING INCOME 3,096 2,659
Other income 387 510
Interest expense 1,490 1,571
---------- ----------
Income before income taxes 1,993 1,598
Provision for income taxes 737 607
---------- ----------
NET INCOME $ 1,256 $ 991
========== ==========
Weighted average number
of shares outstanding:
Basic 16,726 17,109
========== ==========
Diluted 19,991 20,359
========== ==========
NET INCOME PER SHARE:
Basic $ 0.08 $ 0.06
========== ==========
Diluted $ 0.08 $ 0.06
========== ==========
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,
-----------------------------
1998 1997
------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM CONTINUING OPERATING
ACTIVITIES:
Net income $ 1,256 $ 991
Adjustments to reconcile net income
to net cash provided by (used in)
operations:
Depreciation and amortization 1,695 1,731
Changes in assets and liabilities,
net of acquisitions and disposals:
Accounts receivable, net 6,561 6,922
Inventories ( 5,932) ( 2,980)
Prepaid expenses ( 1,687) 146
Accounts payable and accrued
expenses ( 7,097) ( 7,687)
Income taxes currently payable
and deferred ( 3,273) ( 14,733)
---------- ----------
Net cash used in continuing operations ( 8,477) ( 15,610)
---------- ----------
Discontinued operations:
Changes in discontinued assets ( 687) 310
Cash used in discontinued
operations - ( 103)
---------- ----------
Net cash provided by (used in)
discontinued operations ( 687) 207
---------- ----------
Net cash used in operating activities ( 9,164) ( 15,403)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 341) ( 634)
Changes in other assets and deferred
charges ( 1,165) ( 232)
---------- ----------
Net cash used in investing activities ( 1,506) ( 866)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease
obligations ( 65) ( 80)
Payments on long-term debt ( 1,650) ( 25)
Dividends paid ( 684) ( 684)
Proceeds from issuance of common stock 1 9
Common stock repurchased and retired ( 24,889) ( 4)
Other financing activities ( 35) ( 240)
---------- ----------
Net cash used in financing activities ( 27,322) ( 1,024)
---------- ----------
Net decrease in cash and cash
equivalents ( 37,992) ( 17,293)
Cash and cash equivalents at beginning
of period 39,713 43,471
---------- ----------
Cash and cash equivalents at
end of period $ 1,721 $ 26,178
========== ==========
Supplemental disclosures of non-cash
investing and financing activities:
Dividends accrued and unpaid $ 612 $ 685
</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, 1998.
The balance sheet and related information in these notes as of
March 31, 1998, have been taken from the audited consolidated
financial statements as of that date. Certain reclassifications
have been made to conform presentation of the fiscal 1998
financial statements with fiscal 1999 presentation.
Note B - New Pronouncements
Reporting on the Costs of Start-Up Activities: In April 1998,
the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" ("SOP 98-5"). SOP 98-5 requires the costs
of start-up activities and organization costs, as defined, to be
expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. The Company will adopt the
pronouncement during the first quarter of fiscal 2000. The
Company does not expect the adoption to have a material impact on
the Company's results of operations, financial condition or cash
flows.
Note C - Inventories
Components of inventories consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, March 31, June 30,
1998 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Finished goods $ 62,231 $ 54,503 $ 56,740
Raw materials and work
in process 14,291 16,087 17,790
---------- ----------- ----------
$ 76,522 $ 70,590 $ 74,530
========== =========== ==========
</TABLE>
Note D - Cash Dividend
On May 21, 1998, the Company's board of directors declared a
cash dividend of $.04 per share of Common and Class B Common
Stock. The dividend is payable August 17, 1998, to shareholders
of record on August 3, 1998.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
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
1998 1997 (Decrease)
------- -------- ----------
<S> <C> <C> <C>
(%) (%) (%)
Net revenues
Publishing 56.7 59.8 ( 2.4)
Gift 43.3 40.2 10.6
------- -------
Total net revenues 100.0 100.0 2.8
------- -------
Expenses
Cost of goods sold 54.2 54.7 1.9
Selling, general and
administrative 39.6 39.5 2.9
Amortization of goodwill
and non-compete
agreements 0.7 0.9 ( 18.4)
------- -------
Total expenses 94.5 95.1 2.1
------- -------
Operating income 5.5 4.9 16.4
======= =======
Net income 2.2 1.8 26.7
======= =======
</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 into 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 1999. The
Company disclaims any intent or obligation to update forward-
looking statements.
Results of Operations
Net revenues for the first three months of fiscal 1999
increased $1.5 million, or 2.8%, over the same period in fiscal
1998. The publishing product net revenues decreased $800,000, or
2.4%, compared to the prior year primarily due to timing of new
product releases with fewer major releases for the June 1998
quarter than those for the June 1997 quarter. In addition,
expiration of certain agreements whereby the Company acted as a
distributor of publishing products contributed to the decrease in
revenues from the prior year. The Company anticipates that the
publishing product will experience increased revenues for the
remainder of fiscal 1999. Net revenues from gift products
increased $2.3 million, or 10.6%, primarily due to increased
sales of a special selection of products to mass merchandisers and
sales to 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 1999 increased by $600,000, or 1.9%, over the same period
in fiscal 1998 and, as a percentage of net revenues, decreased to
54.2% for the first three months of fiscal 1999 from 54.7% in the
comparable period in fiscal 1998. The decrease in cost of goods
sold, as a percentage of net revenues, for the first three months
resulted primarily from increased revenues from higher margin
gift product categories.
Selling, general and administrative expenses for the first
three months of fiscal 1999 increased by $600,000, or 2.9%, from
the same period in fiscal 1998. These expenses, expressed as a
percentage of net revenues, were relatively unchanged at 39.6%
for the first three months of fiscal 1999 versus 39.5% in the
same period in fiscal 1998. 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 1999 fiscal year are expected
to be greater than the revenues for the first quarter because of
seasonal sales increases and new product introductions; therefore,
selling, general and administrative expenses should decrease as
a percentage of revenues.
Interest expense for the first three months of fiscal 1999
decreased by $100,000, or 5.2%, over the same period in fiscal
1998 due to scheduled debt retirement.
Liquidity and Capital Resources
At June 30, 1998, the Company had $1.7 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 June 30, 1998, the Company had working
capital of $114.5 million.
On June 10, 1998, the Company announced its intention to
repurchase up to three million shares of common stock and/or
Class B common stock from time to time in the open market or
through privately negotiated transactions. As of June 30, 1998,
the Company had repurchased approximately 1.8 million shares of
common stock in the open market with an additional 200,000
purchased through July 22, 1998.
Net cash used in operating activities was $9.2 million and
$15.4 million for the first three months of fiscal 1999 and 1998,
respectively. Cash used in operations during the first three
months of fiscal 1999 was principally attributable to decreases
in accounts payable and accrued expenses and an increase in
inventories for the Christmas selling season. Cash used in opera-
tions during the first three months of fiscal 1998 was
principally attributable to the decrease in income taxes
currently payable.
During the first three months of fiscal 1999, capital
expenditures totaled approximately $300,000, which was used
primarily to purchase computer equipment. During the remainder
of fiscal 1999, the Company anticipates capital expenditures of
approximately $2.7 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, 1999. At June
30, 1998, 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, 1998, the Company had outstanding approximately
$23.3 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, 1998, the Company was in compliance with all
covenants of these debt agreements, as amended.
The Company also has outstanding $54.1 million of 5.75%
convertible subordinated notes ("Convertible Subordinated Notes")
due November 30, 1999. During the first quarter of fiscal 1999,
the Company purchased $900,000 of the Convertible
Subordinated Notes at par. The Convertible Subordinated Notes
presently are convertible into common stock at $17.00 per share
and are redeemable at the Company's option currently at 101.64%
of the principal amount, declining to 100.82% on November 30,
1998, and to 100% on November 30, 1999. This conversion would
result in 3,182,353 additional shares outstanding.
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 1999.
Year 2000 Conversion
The Company has established a task force to coordinate the
implementation of changes to computer systems and applications
necessary to become year 2000 compliant with no material adverse
effect on customers or disruption to business operations. These
actions are necessary to ensure that the systems and applications
will recognize and process the year 2000 and beyond. The Company
believes that possible risks if compliance is not
accomplished will include delays in receiving and/or
shipping of products and in invoicing to and/or receiving payments
from customers in the days immediately after January 1, 2000. The
Company anticipates that, beginning in the third quarter of
fiscal 1999, testing will commence for receipt of electronic
orders, customer invoicing and other Company systems. The Company
also is communicating with suppliers, customers, financial
institutions and others with which it does business to determine
the status of their being year 2000 compliant. The Company
anticipates that its compliance tests will include electronic and
other communications with a cross-section of its customers.
The Company has also evaluated non-system issues, i.e. security,
elevators, timekeeping, etc. relative to the year 2000. The
Company expensed approximately $100,000 in costs during the
first quarter of fiscal 1999 primarily for programmer costs
related to becoming year 2000 compliant and expects to incur
additional costs of $800,000 and $400,000 for the remainder of
fiscal 1999 and for fiscal year 2000, respectively. These
costs are expected to include programmer costs for modification
of software programs, costs for a testing site, software purchases
and consulting fees and will be expensed as they are incurred.
PART II
Item 5. Other Information
Pursuant to Regulation 14a-8 of the Securities and Exchange
Commission, proposals by shareholders which are intended for inclusion
in the Company's proxy statement and proxy and to be presented at
the Company's next Annual Meeting of Shareholders must be received
by the Company by March 12, 1999, in order to be considered for
inclusion in the Company's proxy materials. Such proposals should
be addressed to the Company's Secretary and may be included in next
year's proxy materials if they comply with certain rules and regu-
lations of the Securities and Exchange Commission governing shareholder
proposals. For all other proposals by shareholders to be timely, a
Shareholders' Notice must be delivered to or mailed and received
at the principal executive offices of the Company not less than
sixty days nor more than ninety days prior to the meeting; provided,
however, that in the event that less than seventy days notice or
prior public disclosure of the date of the meeting is given or made
to shareholders, notice by the shareholder, to be timely, must be so
received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit 11- Statement 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, 1998.
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 14, 1998 BY /s/ Joe L. Powers
- ------------------------ -----------------------------
Joe L. Powers
Executive Vice President
(Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
Number
- ------
11 -- Statement re Computation of Per Share Earnings
27 -- Financial Data Schedule (for SEC purposes only)
<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, 1998, 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-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,721
<SECURITIES> 0
<RECEIVABLES> 63,884
<ALLOWANCES> 5,030
<INVENTORY> 76,522
<CURRENT-ASSETS> 150,237
<PP&E> 59,220
<DEPRECIATION> 27,848
<TOTAL-ASSETS> 250,319
<CURRENT-LIABILITIES> 35,751
<BONDS> 77,882
0
0
<COMMON> 15,305
<OTHER-SE> 116,869
<TOTAL-LIABILITY-AND-EQUITY> 250,319
<SALES> 55,647
<TOTAL-REVENUES> 55,994
<CGS> 30,334
<TOTAL-COSTS> 52,490
<OTHER-EXPENSES> 408
<LOSS-PROVISION> 466
<INTEREST-EXPENSE> 1,490
<INCOME-PRETAX> 1,993
<INCOME-TAX> 737
<INCOME-CONTINUING> 1,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,256
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
<TABLE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Dollars and Shares in thousands, except per share data)
<CAPTION>
Three Months Ended
June 30,
1998 1997
------------- ------------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Weighted average shares outstanding 16,726 17,109
========== ==========
Net income $ 1,256 $ 991
========== ==========
Net income per share $ 0.08 $ 0.06
========== ==========
DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding 16,726 17,109
Dilutive effect of common stock options 83 15
Convertible notes 3,182 3,235
---------- ----------
Total shares 19,991 20,359
========== ==========
Net income<F1> $ 1,783 $ 1,505
========== ==========
Net income per share<F2> $ 0.08 $ 0.06
========== ==========
<FN>
<F1> Adjusted for interest on convertible debt
<F2> Anti-dilutive; use basic earnings per share
</TABLE>
