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, 1999
[ ] 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, 1999, the Registrant had outstanding 13,129,104
shares of Common Stock and 1,096,724 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,
1999 1999 1998
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 940 $ 609 $ 1,721
Accounts receivable, less
allowances of $5,908,
$6,982 and $5,030,
respectively 73,658 77,298 58,854
Inventories 71,070 65,805 76,522
Prepaid expenses 13,370 12,656 9,864
Deferred tax assets 6,715 6,715 3,276
----------- ----------- -----------
Total current assets 165,753 163,083 150,237
Property, plant and
equipment, net 25,645 25,557 31,372
Other assets 9,359 10,260 10,941
Deferred charges 1,193 1,421 1,628
Goodwill 58,515 55,009 56,141
----------- ----------- -----------
TOTAL ASSETS $260,465 $ 255,330 $ 250,319
=========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,513 $ 16,355 $ 13,951
Accrued expenses 14,548 19,720 16,234
Dividends payable 569 576 612
Income taxes currently
payable 276 2,793 1,013
Current portion of long-
term debt & capital
lease obligations 4,787 4,845 3,941
----------- ----------- -----------
Total current liabilities 36,693 44,289 35,751
Long-term debt 93,024 79,542 77,863
Capital lease obligations - - 19
Deferred tax liabilities 4,432 4,432 3,363
Other liabilities 1,505 1,418 1,149
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 13,123,260,
13,286,860 and 14,192,829
shares, respectively 13,123 13,287 14,193
Class B common stock, $1.00
par value, authorized
5,000,000 shares; issued
1,101,524, 1,103,524 and
1,111,924 shares,
respectively 1,102 1,104 1,112
Additional paid-in capital 43,054 44,537 56,001
Retained earnings 67,532 66,721 60,868
----------- ----------- -----------
Total shareholders' equity 124,811 125,649 132,174
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $260,465 $ 255,330 $ 250,319
=========== =========== ===========
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,
1999 1998
----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET REVENUES $ 59,116 $ 55,994
COST AND EXPENSES:
Cost of goods sold 33,283 30,334
Selling, general and administrative 21,779 22,156
Amortization of goodwill and
non-compete agreements 383 408
----------- ------------
Total expenses 55,445 52,898
----------- ------------
OPERATING INCOME 3,671 3,096
Other income 22 387
Interest expense 1,520 1,490
----------- ------------
Income before income taxes 2,173 1,993
Provision for income taxes 793 737
----------- ------------
NET INCOME $ 1,380 $ 1,256
=========== ============
Weighted average number
of shares outstanding:
Basic 14,279 16,726
=========== ============
Diluted 14,285 19,991
=========== ============
NET INCOME PER SHARE:
Basic $ 0.10 $ 0.08
=========== ============
Diluted $ 0.10 $ 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,
---------------------------
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,380 $ 1,256
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 1,975 1,952
Changes in assets and liabilities,
net of acquisitions and disposals:
Accounts receivable, net 4,672 6,561
Inventories ( 2,912) ( 5,932)
Prepaid expenses ( 496) ( 1,687)
Accounts payable and accrued
expenses ( 6,520) ( 7,097)
Income taxes currently payable
and deferred ( 2,517) ( 3,273)
------------ ------------
Net cash used in continuing operations ( 4,418) ( 8,220)
------------ ------------
Discontinued operations:
Changes in discontinued assets 2 ( 687)
Cash provided by discontinued
operations 50 -
------------ ------------
Net cash provided by (used in)
discontinued operations 52 ( 687)
------------ ------------
Net cash used in operating activities ( 4,366) ( 8,907)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 337) ( 341)
Proceeds from sale of fixed assets 157 -
Purchase of net assets of acquired
companies - net of cash received ( 6,151) -
Changes in other assets and deferred
charges 317 ( 1,422)
------------ ------------
Net cash used in investing activities ( 6,014) ( 1,763)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 13,581 -
Payments on capital lease obligations ( 5) ( 65)
Payments on long-term debt ( 727) ( 1,650)
Dividends paid ( 576) ( 684)
Proceeds from issuance of common stock - 1
Common stock repurchased and retired ( 1,649) ( 24,889)
Other financing activities 87 ( 35)
------------ ------------
Net cash provided by (used in)
financing activities 10,711 ( 27,322)
------------ ------------
Net increase (decrease) in cash and
cash equivalents 331 ( 37,992)
Cash and cash equivalents at beginning
of period 609 39,713
------------ ------------
Cash and cash equivalents at end
of period $ 940 $ 1,721
============ ============
Supplemental disclosures of non-cash
investing and financing activities:
Dividends accrued and unpaid $ 569 $ 612
</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, 1999.
The balance sheet and related information in these notes
as of March 31, 1999, have been taken from the audited consolidated
financial statements as of that date. Certain reclassifications
have been made to conform presentation of the fiscal 1999
financial statements with fiscal 2000 presentation.
Note B - New Pronouncements
Reporting on the Costs of Start-Up Activities: Effective
April 1, 1999, the Company adopted 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. The
adoption of this pronouncement has not had 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,
1999 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
Finished goods $ 64,705 $ 56,610 $ 62,231
Raw materials and
work in process 6,365 9,195 14,291
----------- ---------- ----------
$ 71,070 $ 65,805 $ 76,522
=========== ========== ==========
</TABLE>
Note D - Cash Dividend
On May 20, 1999, 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 16, 1999, to shareholders
of record on August 2, 1999.
Note E - Operating Segments
The Company adopted SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information," at March 31, 1999,
which changes the way the Company reports information about its
operating segments. The Company is organized and managed based
upon its products.
The Company has two reportable business segments, identified
as publishing and gift. The publishing segment primarily creates
and markets Bibles, inspirational books and videos. The gift
segment primarily designs and markets stationery items including
albums, journals, etc.
Summarized financial information concerning the Company's
reportable segments is shown in the following table. The "Other"
column includes corporate related items not allocated to
reportable segments (in thousands).
<TABLE>
<CAPTION>
Three
Months Ended Publishing Gift Other Total
- ---------------- ---------- -------- ------- ---------
<S> <C> <C> <C> <C>
June 30, 1999:
- -------------
Revenues $ 39,386 $ 19,730 $ 0 $ 59,116
Operating income 3,402 269 0 3,671
Identifiable
assets 124,067 71,167 65,231 260,465
June 30, 1998:
- -------------
Revenues $ 31,758 $ 24,236 $ 0 $ 55,994
Operating income 730 2,366 0 3,096
Identifiable
assets 120,544 69,984 59,791 250,319
</TABLE>
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
1999 1998 (Decrease)
-------------------------------
(%) (%) (%)
<S> <C> <C> <C>
Net revenues:
Publishing 66.6 56.7 24.0
Gift 33.4 43.3 (18.6)
-------------------
Total net revenues 100.0 100.0 5.6
-------------------
Expenses:
Cost of goods sold 56.3 54.2 9.7
Selling, general and
administrative 36.8 39.6 (1.7)
Amortization of goodwill
and non-compete
agreements 0.7 0.7 (6.1)
-------------------
Total expenses 93.8 94.5 4.8
-------------------
Operating income 6.2 5.5 18.6
===================
Net income 2.3 2.2 9.9
===================
</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 2000. The
Company disclaims any intent or obligation to update forward-
looking statements.
Results of Operations
Net revenues for the first three months of fiscal 2000
increased $3.1 million, or 5.6%, over the same period in fiscal
1999. The publishing product net revenues increased $7.6
million, or 24.0%, compared to the prior year primarily due to
timing of new product releases, with a book from one of the
Company's major authors being released in the first quarter of
fiscal 2000 and no comparable release in the prior period. Net
revenues from gift products decreased $4.5 million, or 18.6%,
primarily due to timing of special product programs with mass
merchandisers and the temporary effect of the restructuring of
the gift sales force. In fiscal 1999, first quarter revenues
reflected a major program with one of our larger mass merchants
and there was no comparable program in this year's first quarter.
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 2000 increased by $2.9 million, or 9.7%, over the same
period in fiscal 1999 and, as a percentage of net revenues,
increased to 56.3% for the first three months of fiscal 2000 from
54.2% in the comparable period in fiscal 1999. The increase in
cost of goods sold, as a percentage of net revenues, for the
first three months resulted primarily from greater sales this
fiscal quarter than last year for excess publishing inventory
sold at or below cost. In addition, the cost of gift products
sold this fiscal quarter was adversely impacted by some remaining
fixed manufacturing costs since the Company's transition to
outsourcing manufacturing. These fixed manufacturing costs are
also expected to impact the second quarter of fiscal 2000 and are
expected to diminish in the last six months of the year.
Selling, general and administrative expenses for the first
three months of fiscal 2000 decreased by $400,000, or 1.7%, from
the same period in fiscal 1999 and as a percentage of net
revenues, decreased to 36.8% for the first three months of fiscal
2000 versus 39.6% in the same period in fiscal 1999. The
Company's selling, general and administrative expenses are
relatively fixed during the fiscal year and do not materially
increase with revenue increases. The strong performance of
publishing revenues had a positive impact on the selling, general
and administrative expenses as a percentage of revenues.
Interest expense for the first three months of fiscal 2000
increased by $30,000, or 2.0%, over the same period in fiscal
1999.
Liquidity and Capital Resources
At June 30, 1999, the Company had $900,000 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, 1999, the Company had working
capital of $129.1 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, 1999,
the Company had repurchased approximately 2.9 million shares of
common stock at an aggregate cost to the Company of $39.1
million.
Net cash used in operating activities was $4.4 million and
$8.9 million for the first three months of fiscal 2000 and 1999,
respectively. Cash used in operations during the first three
months of fiscal 2000 was principally attributable to decreases
in accounts payable and accrued expenses primarily relating to
payments of accrued royalties. Cash used in operations during the
first three months of fiscal 1999 was principally attributable to
an increase in inventories for the Christmas selling season.
During the first three months of fiscal 2000, capital
expenditures totaled approximately $300,000, which was used
primarily to purchase computer equipment. During the remainder
of fiscal 2000, the Company anticipates capital expenditures of
approximately $2.0 million primarily consisting of computer and
warehousing equipment.
The Company's bank credit facilities are unsecured and consist
of a $100 million credit facility and a $10 million credit
facility (collectively, the "Credit Agreements"). The $100
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, 2005. The $10 million credit facility bears
interest at LIBOR plus a percentage, subject to adjustment based
on certain financial ratios and matures on July 31, 2001. At June
30, 1999, the Company had $74 million of borrowings outstanding
under the Credit Agreements, and $36 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.
The increase in long-term debt at June 30, 1999, over the
prior year is primarily attributable to the purchase of Ceres
Candles for approximately $6 million, the increase in accounts
receivable and the repurchase of stock.
At June 30, 1999, the Company had outstanding approximately
$20.6 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, 1999, the Company was in compliance with all
covenants of these debt agreements, as amended.
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 2000.
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the Company's
investment strategies, types of financial instruments held or the
risks associated with such instruments which would materially
alter the market risk disclosures made in the Company's Annual
Report on Form 10-K for the year ended March 31, 1999.
Year 2000 Conversion
The Company has established a task force to coordinate the
assessment and implementation of changes to computer systems and
applications necessary to become year 2000 compliant. These
actions are necessary to ensure that the systems and applications
will recognize and process the year 2000 and beyond with no
material adverse effect on customers or disruption to business
operations. The task force has also evaluated non-systems issues,
e.g. security, elevators, timekeeping, etc., relative to the year
2000.
In addition, the task force has been actively communicating
with third parties, with whom the Company has material
relationships, concerning the status of their year 2000
readiness. These third parties include the Company's financial
institutions, as well as selected customers, vendors, landlords
and suppliers of telecommunication services and other utilities.
As part of the process of attempting to mitigate third party
risks, the task force is collecting and analyzing information
from these third parties. To date, no third party has advised
the Company that it anticipates specific problems regarding non-
performance risk for the year 2000.
As of March 31, 1999, the Company had completed all known
programming revisions required in its computer systems and has
completed initial testing of its systems for receipt of
electronic orders, customer invoicing and other processes for
transactions dated in year 2000. The Company anticipates that
further compliance tests will include electronic and other
communications with appropriate customers. The Company has also
engaged consultants to test that specific systems are year 2000
compliant. In addition, the Company has also completed
remediation necessary for its non-systems issues.
The effect of year 2000 non-compliance on the business of the
Company is difficult to predict. The Company believes that
possible risks if compliance is not accomplished could 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 considers that
its primary risk relates to third parties with whom the Company
has material relationships, and over which the Company has no
control. At this time, the Company does not believe its year
2000 risks will have a material adverse effect on the Company's
results of operations, liquidity or financial condition.
The Company expensed approximately $10,000 in costs during the
first three months of fiscal 2000, primarily for staff
coordination related to being year 2000 compliant, and expects to
incur additional costs of $200,000 for the remainder of fiscal
2000. These fiscal 2000 costs will include costs for a testing
site and consulting fees, and will be expensed as they are
incurred.
As of March 31, 1999, the task force had completed a
contingency plan to address financial and operational problems
that might arise on and around January 1, 2000. This contingency
plan identifies alternate vendors and back-up processes that do
not rely on computers, whenever possible. The following areas
have been addressed in the contingency plan: purchasing, product
development, distribution, collections, royalties, marketing,
sales, facilities and telecommunications. The task force will
reevaluate this plan on a quarterly basis particularly to address
risks that may be identified in communications with third
parties.
PART II
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, 1999.
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, 1999 BY 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, 1999,
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-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 940
<SECURITIES> 0
<RECEIVABLES> 79,566
<ALLOWANCES> 5,908
<INVENTORY> 71,070
<CURRENT-ASSETS> 165,753
<PP&E> 49,841
<DEPRECIATION> 24,196
<TOTAL-ASSETS> 260,465
<CURRENT-LIABILITIES> 36,693
<BONDS> 93,024
14,225
0
<COMMON> 0
<OTHER-SE> 110,586
<TOTAL-LIABILITY-AND-EQUITY> 260,465
<SALES> 58,641
<TOTAL-REVENUES> 59,116
<CGS> 33,283
<TOTAL-COSTS> 55,062
<OTHER-EXPENSES> 383
<LOSS-PROVISION> 565
<INTEREST-EXPENSE> 1,520
<INCOME-PRETAX> 2,173
<INCOME-TAX> 793
<INCOME-CONTINUING> 1,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,380
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</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,
1999 1998
------------- ------------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Weighted average shares outstanding 14,279 16,726
========== ==========
Net income $ 1,380 $ 1,256
========== ==========
Net income per share $ 0.10 $ 0.08
========== ==========
DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding 14,279 16,726
Dilutive effect of common stock options 6 83
Convertible notes -- 3,182
---------- ----------
Total shares 14,285 19,991
========== ==========
Net income<F1> $ 1,380 $ 1,783
========== ==========
Net income per share<F2> $ 0.10 $ 0.08
========== ==========
<FN>
<F1> Adjusted for interest on convertible debt for June 1998
<F2> Anti-dilutive; use basic earnings per share
</TABLE>
