SECURITIES AND EXCHANGE C OMMISSION
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 September 30, 2000
[ ] 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 Identification number)
incorporation or organization)
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 9, 2000, the Registrant had outstanding 13,255,792
shares of Common Stock and 1,085,801 shares of Class B Common Stock.
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
September 30, March 31, September 30,
2000 2000 1999
------------- ---------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 666 $ 814 $ 2,860
Accounts receivable, less
allowances of $7,233, $7,171
and $6,914, respectively 86,526 79,052 82,414
Inventories 86,068 74,809 66,272
Prepaid expenses 16,425 13,652 12,527
Assets held for sale 19,632 22,168 -
Deferred tax assets 9,679 9,679 6,715
------------ ----------- ------------
Total current assets 218,996 200,174 170,788
Property, plant and equipment, net 17,797 17,423 24,709
Other assets 8,780 9,904 9,016
Deferred charges 659 959 1,592
Goodwill 70,964 69,770 58,321
------------ ----------- ------------
TOTAL ASSETS $317,196 $298,230 $264,426
============ =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 39,949 $ 27,350 $ 19,097
Accrued expenses 14,450 16,142 15,233
Deferred revenue 6,363 6,553 -
Dividends payable 574 569 569
Income taxes currently 2,378 3,851 2,509
Current portion of long-term
debt and capital lease
obligations 5,929 7,592 2,441
------------ ----------- ------------
Total current liabilities 69,643 62,057 39,849
Long-term debt 108,249 100,359 90,066
Deferred tax liabilities 2,606 2,606 4,432
Other liabilities 1,324 1,476 1,502
Minority interest 119 - -
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 13,255,792, 13,144,776
and 13,133,976 shares,
respectively 13,256 13,145 13,134
Class B common stock, $1.00
par value, authorized 5,000,000
shares; issued 1,085,801,
1,085,819 and 1,096,619 shares,
respectively 1,086 1,086 1,097
Additional paid-in capital 43,834 43,126 43,126
Retained earnings 77,079 74,375 71,220
------------ ----------- ------------
Total shareholders' equity 135,255 131,732 128,577
------------ ----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $317,196 $298,230 $264,426
============ =========== ============
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ---------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $146,551 $129,226 $81,121 $70,110
COST AND EXPENSES:
Cost of goods sold 82,977 71,638 46,035 38,355
Selling, general and
administrative 52,158 45,075 27,531 23,271
Amortization of goodwill
and non-compete agreements 1,250 763 631 405
----------- ---------- ---------- ----------
Total expenses 136,385 117,476 74,197 62,031
----------- ---------- ---------- ----------
OPERATING INCOME 10,166 11,750 6,924 8,079
Other income (expense) (291) 249 (82) 227
Interest expense 3,731 3,144 1,912 1,624
---------- ---------- ---------- ----------
Income before income taxes and
minority interest 6,144 8,855 4,930 6,682
Provision for income taxes 2,177 3,223 1,799 2,430
Minority interest 119 - 119 -
----------- ---------- ---------- ----------
NET INCOME $ 3,848 $ 5,632 $ 3,012 $ 4,252
=========== ========== ========== ==========
Weighted average number
of shares outstanding:
Basic 14,255 14,253 14,278 14,227
=========== ========== ========== ==========
Diluted 14,289 14,258 14,324 14,230
=========== ========== ========== ==========
NET INCOME PER SHARE:
Basic $0.27 $0.40 $0.21 $0.30
=========== ========== ========== ==========
Diluted $0.27 $0.40 $0.21 $0.30
=========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE $0.08 $0.08 $0.04 $0.04
=========== ========== ========== ==========
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Six Months Ended September 30,
------------------------------
2000 1999
------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM CONTINUING OPERATING
ACTIVITIES:
Net income $ 3,848 $ 5,632
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Minority interest 119 -
Depreciation and amortization 4,386 4,073
Loss on sale of fixed assets and
assets held for sale 236 -
Changes in assets and liabilities, net of
acquisitions and disposals:
Accounts receivable, net (7,474) (4,084)
Inventories (11,259) 1,886
Prepaid expenses (2,773) 347
Accounts payable and accrued expenses 10,907 (5,966)
Deferred revenues (190) -
Income taxes currently payable
and deferred (1,473) (284)
----------- -----------
Net cash provided by (used in) continuing
operations (3,673) 1,604
----------- -----------
Discontinued operations:
Changes in discontinued assets - 33
----------- -----------
Net cash provided by discontinued operations - 33
----------- -----------
Net cash provided by (used in) operating
activities (3,673) 1,637
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,368) (578)
Proceeds from sale of business and
discontinued assets 2,068 421
Purchase of net assets of acquired
companies - net of cash received (760) (4,069)
Changes in other assets and deferred
charges (411) (653)
----------- -----------
Net cash used in investing activities (1,471) (4,879)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 10,850 14,150
Payments under capital lease obligation - (11)
Payments on long-term debt (4,623) (6,019)
Dividends paid (1,139) (1,140)
Proceeds from issuance of common stock 2 1
Common stock repurchased and retired - (1,649)
Other financing activities (94) 161
----------- -----------
Net cash provided by (used in) financing
activities 4,996 5,493
----------- -----------
Net increase (decrease) in cash and cash
equivalents (148) 2,251
Cash and cash equivalents at beginning of
period 814 609
----------- -----------
Cash and cash equivalents at end of period $ 666 $2,860
=========== ===========
Supplemental disclosures of non-cash investing
and financing activities:
Dividends accrued and unpaid $ 574 $ 569
Acquisition of minority interest of
consolidated subsidiary by
issuance of 108,574 common shares $ 760 -
</TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying unaudited consolidated condensed 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
Securities and Exchange Commission 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, 2000.
The consolidated balance sheet and related information in these notes as
of March 31, 2000, have been taken from the audited consolidated financial
statements as of that date. Certain reclassifications have been made to
conform presentation of the fiscal 2000 financial statements with fiscal 2001
presentation.
Note B - New Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities",
effective, as amended, for fiscal years beginning after June 15, 2000.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 requires all derivatives to be
recognized in the statement of financial position and to be measured at fair
value. The Company anticipates adopting the provisions of SFAS No. 133
effective April 1, 2001 and does not expect that it will have a material
impact on the Company's financial statements.
In September 2000, the Emerging Issue Task Force of the FASB issued
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs"
("EITF 00-10"). EITF 00-10 addresses the income statement classification of
shipping and handling fees both billed and incurred by entities. The Company
will adopt EITF 00-10 on January 1, 2001, and does not expect the adoption to
have a material impact on its consolidated financial statements.
Note C - Inventories
Components of inventories consisted of the following (in thousands):
<TABLE>
<CAPTION> September 30, March 31, September 30,
2000 2000 1999
------------- ----------- -------------
<S> <C> <C> <C>
Finished goods $77,745 $66,261 $58,761
Raw materials and
work in process 8,323 8,548 7,511
------------- ----------- -------------
$86,068 $74,809 $66,272
</TABLE>
Note D - Cash Dividend
On May 25, 2000 the Company's board of directors declared a cash dividend
of $.04 per share of Common and Class B Common Stock. The dividend was paid
August 21, 2000, to shareholders of record on August 7, 2000.
On August 18, 2000, 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 November 20, 2000 to shareholders of record on November 6, 2000.
Note E - Operating Segments
The Company adopted SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," at March 31, 1999, which changed 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, videos and hosts inspirational seminars for women. The
gift segment primarily designs and markets gift products, including
stationery items, albums, journals, candles, 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>
For the Three Months Ended Publishing Gift Other Total
-------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
September 30, 2000:
Revenues $ 53,810 $27,311 $ - $ 81,121
Operating income 6,334 590 - 6,924
September 30, 1999:
Revenue $ 41,141 28,969 - 70,110
Operating income 4,073 4,006 - 8,079
For the Six Months Ended Publishing Gift Other Total
------------------------ ---------- ----------- ---------- ---------
September 30, 2000:
Revenues $100,715 $45,836 $ - $146,551
Operating income 10,169 (3) - 10,166
September 30, 1999:
Revenues $ 80,533 $48,693 $ - $129,226
Operating income 7,412 4,338 - 11,750
As of September 30, 2000:
Identifiable assets $137,428 $84,023 $95,745 $317,196
As of September 30, 1999:
Identifiable assets $126,675 $72,715 $65,036 $264,426
</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>
Six Months Ended Fiscal Year-to-Year
September 30, Increase
2000 1999 (Decrease)
------- ------- ---------------
(%) (%) (%)
<S> <C> <C> <C>
Net revenues
Publishing 68.7 62.3 25.1
Gift 31.3 37.7 (5.9)
----- ----- ------
Total net revenues 100.0 100.0 13.4
----- ----- ------
Expenses
Cost of goods sold 56.6 55.4 15.8
Selling, general and
administrative 35.6 34.9 15.7
Amortization of
goodwill and
non-compete
agreements 0.9 0.6 63.9
----- ----- ------
Total expenses 93.1 90.9 16.1
----- ----- ------
Operating income 6.9 9.1 (13.5)
===== ===== ======
Net income 2.6 4.4 (31.7)
===== ===== ======
</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. Due to this
seasonality, the Company has historically incurred a loss or recognized only
a small profit 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, 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. Future revenue and margin trends cannot be reliably predicted and
may cause the Company to adjust its business strategy during the remainder of
fiscal 2001. The Company disclaims any intent or obligation to update
forward-looking statements.
Results of Operations
---------------------
Net revenues for the first six months of fiscal 2001 increased $17.3
million, or 13.4%, and for the second quarter increased $11.0 million, or
15.7%, over the same periods in fiscal 2000. The publishing product net
revenues for the first six months increased $20.2 million, or 25.1%, and for
the second quarter increased $12.7 million, or 30.8%, compared to the prior
year. The increases for both periods of fiscal 2001 were related almost
entirely to revenues from operations acquired during the past twelve months.
Net revenues for the first six months of fiscal 2000 were positively
impacted by a book from a major author being released in the first quarter
of fiscal 2000 with no comparable release in the current year period. Net
revenues from gift products for the first six months decreased $2.9 million,
or 5.9%, and for the second quarter decreased $1.7, or 5.7%, compared to the
prior year. The decreases for both periods of fiscal 2001 were primarily
due to a soft retail market for both publishing and gift segments. The
year-to-date net revenues from gift products were also adversely impacted by
product availability and distribution issues in the month of April. Price
increases did not have a material effect on net revenues.
The Company's cost of goods sold increased for the first six months of
fiscal 2001 by $11.3 million, or 15.8%, and for the second quarter by $7.7
million, or 20.0%, over the same periods in fiscal 2000 and, as a percentage
of net revenues, increased to 56.6% for the first six months of fiscal 2001
from 55.4% and for the second quarter to 56.7% from 54.7% in the comparable
periods in fiscal 2000. The increase in cost of goods sold, as a
percentage of net revenues, for both periods in fiscal 2001 resulted
primarily from the impact of different cost structures of operations acquired
over the past twelve months, which had a higher cost of goods sold as a
percentage to revenue.
Selling, general and administrative expenses for the first six months of
fiscal 2001 increased by $7.1 million, or 15.7%, and for the second quarter
increased $4.3 million, or 18.3%, from the same periods in fiscal 2000.
These expenses, expressed as a percentage of net revenues, increased to
35.6% for the first six months of fiscal 2001 versus 34.9% and for the
second quarter to 33.9% from 33.2% in the same periods in fiscal 2000.
These increases as a percentage of net revenues for both periods were
attributable to lower than anticipated sales volume in the gift product
segment.
The increase in interest expense for the first six months and the second
quarter of fiscal 2001 compared to the prior periods in fiscal 2000 resulted
from increased borrowing levels to fund acquisitions made over the past
twelve months.
Liquidity and Capital Resources
-------------------------------
At September 30, 2000, the Company had $0.7 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 September 30, 2000,
the Company had working capital of $149.4 million.
Net cash provided by (used in) operating activities was ($3.7) million
and $1.6 million for the first six months of fiscal 2001 and 2000,
respectively. Cash used in operations during the first six months of fiscal
2001 was principally attributable to an increase in accounts receivable due
to an increase in revenues and timing of programs with mass merchandisers.
Cash provided by operations during the first six months of fiscal 2000 was
principally attributable to a decrease in inventories.
During the first six months of fiscal 2001, capital expenditures totaled
approximately $2.4 million primarily consisting of computer and warehousing
equipment. During the remainder of fiscal 2001, the Company anticipates
capital expenditures of approximately $1.6 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 September 30, 2000, the Company had
$94.6 million outstanding under the Credit Agreements, and $15.4 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, 2000, the Company had outstanding approximately
$15.6 million of unsecured senior notes ("Senior Notes"). The Senior Notes
bear interest at rates from 6.68% to 8.31% due through fiscal 2006.
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, 2000, 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
2001.
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,
2000.
PART II
Item 2. Changes in Securities and Use of Proceeds
On August 23, 2000, as consideration for the acquisition of
minority interest shares (representing 3%) of a consolidated subsidiary,
New Life Treatment Centers, Inc., the Company issued 108,574 shares of
common stock to the minority shareholder. The issuance of these shares of
common stock was exempt under Section 4(2) of the Securities Act of 1933.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on August 17,
2000 (the "Annual Meeting"). At the Annual Meeting, the stockholders of the
Company voted to elect three Class Two directors, S. Joseph Moore;
Robert J. Niebel, Sr.; and Millard V. Oakley, for three-year terms and
until their successors are duly elected and qualified. The following table
sets for the the number of votes cast for and withheld/abstained with respect
to each of the nominees:
<TABLE>
<CAPTION>
Nominee For Withheld/Abstained Against
---------------------- ------------- ------------------ -----------
<S> <C> <C> <C>
S. Joseph Moore 18,756,510 180,552 34,890
Robert J. Niebel, Sr. 18,775,273 162,789 33,890
Millard V. Oakley 18,758,373 179,589 33,990
</TABLE>
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) The Company filed a Form 8-K on October 27, 2000 to disclose
information concerning the Company's revision of its second
quarter of fiscal 2001 earnings expectations. The Company
filed a Form 8-K on November 1, 2000 to announce its second
quarter of fiscal year 2001 financial results.
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 14, 2000 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)
