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 December 31, 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 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 February 9, 2000, the Registrant had outstanding 13,144,776
shares of Common Stock and 1,085,819 shares of Class B Common
Stock.
PART 1
Item 1. Financial Statements
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
December 31, March 31, December 31,
1999 1999 1998
___________ ___________ ____________
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 957 $ 609 $ 2,432
Accounts receivable,
less allowances of
$9,586, $6,982 and $9,617,
respectively 76,857 77,298 74,273
Inventories 66,736 65,805 74,017
Prepaid expenses 12,881 12,656 12,607
Deferred tax assets 6,715 6,715 3,276
_________ _________ ________
Total current assets 164,146 163,083 166,605
Property, plant and equipment, net 24,413 25,557 25,200
Other assets 23,140 10,260 9,450
Deferred charges 1,545 1,421 1,790
Goodwill 59,974 55,009 55,394
________ ________ ________
TOTAL ASSETS $273,218 $255,330 $258,439
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 15,802 $ 16,355 $ 15,372
Accrued expenses 14,154 19,720 16,399
Dividends payable 569 576 588
Income taxes currently payable 1,043 2,793 4,371
Current portion of long-term debt &
capital lease obligations 3,956 4,845 4,914
________ ________ ________
Total current liabilities 35,524 44,289 41,644
Long-term debt 100,922 79,542 80,630
Deferred tax liabilities 4,432 4,432 3,364
Other liabilities 1,521 1,418 1,953
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 13,141,476, 13,286,860
and 13,585,590 shares,
respectively 13,141 13,287 13,585
Class B common stock, $1.00
par value, authorized 5,000,000
shares; issued 1,089,119,
1,103,524 and 1,106,324 shares,
respectively 1,089 1,104 1,106
Additional paid-in capital 43,126 44,537 47,920
Retained earnings 73,463 66,721 68,237
________ ________ ________
Total shareholders' equity 130,819 125,649 130,848
________ ________ ________
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $273,218 $255,330 $258,439
======== ======== ========
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
1999 1998 1999 1998
(Unaudited)(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $191,450 $193,023 $ 62,224 $ 66,584
COST AND EXPENSES:
Cost of goods sold 107,712 103,074 36,060 35,590
Selling, general and
administrative 64,657 68,783 19,636 22,353
Amortization of goodwill and
non-compete agreements 1,239 1,234 451 417
-------- -------- -------- --------
Total expenses 173,608 173,091 56,147 58,360
________ ________ ________ ________
OPERATING INCOME 17,842 19,932 6,077 8,224
Other income (expense), net 263 369 13 47
Interest expense 4,804 4,752 1,659 1,672
-------- -------- -------- -------
Income before income taxes 13,301 15,549 4,431 6,599
Provision for income taxes 4,855 5,753 1,617 2,442
-------- ------- -------- -------
NET INCOME $ 8,446 $ 9,796 $ 2,814 $ 4,157
======== ======== ======== =======
Weighted average number
of shares outstanding:
Basic
14,245 15,497 14,225 14,725
Diluted 14,250 18,515 14,227 17,223
NET INCOME PER SHARE:
Basic $0.59 $0.63 $0.20 $0.28
Diluted $0.59 $0.61 $0.20 $0.27
DIVIDENDS DECLARED PER SHARE $0.12 $0.12 $0.04 $0.04
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Nine Months Ended December 31,
1999 1998
___________ __________
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,446 $ 9,796
Adjustments to reconcile net
income to net cash provided
by (used in) operations:
Depreciation and amortization 5,859 6,944
Changes in assets and liabilities,
net of acquisitions and disposals:
Accounts receivable, net 3,140 (8,858)
Inventories 3,896 (3,427)
Prepaid expenses 281 (4,430)
Accounts payable and
accrued expenses (12,444) (5,112)
Income taxes currently payable
and deferred (1,750) 85
-------- --------
Net cash provided by (used in)
operating activities 7,428 (5,002)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,491) (1,619)
Proceeds from sales of property,
plant and equipment 1,445 5,598
Purchase of net assets of acquired
companies - net of cash received (8,407) -
Changes in other assets and deferred
charges (14,938) (2,486)
-------- --------
Net cash provided by (used in) investing
activities (24,391) 1,493
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 27,680 20,500
Payments under capital lease
obligation (16) (189)
Payments on long-term debt (7,173) (18,302)
Dividends paid (1,711) (1,880)
Proceeds from issuance of common
stock - 93
Common stock repurchased and retired (1,649) (33,676)
Other financing activities 180 (318)
-------- ---------
Net cash provided by (used in)
financing activities 17,311 (33,772)
-------- ----------
Net increase (decrease) in cash and
cash equivalents 348 (37,281)
Cash and cash equivalents at beginning
of period 609 39,713
------- -------
Cash and cash equivalents at end of
period $ 957 $ 2,432
======= =======
Supplemental disclosures of non-cash
investing and financing activities:
Dividends accrued and unpaid $ 569 $ 588
</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>
December 31, March 31, December 31,
1999 1999 1998
____________ _________ ____________
<S> <C> <C> <C>
Finished goods $59,170 $56,610 $62,376
Raw materials and
work in process 7,566 9,195 11,641
_______ ________ ________
$66,736 $65,805 $74,017
</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 was paid August 16, 1999, to shareholders of
record on August 2, 1999.
On August 19, 1999, 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 November 15, 1999, to shareholders
of record on November 1, 1999.
On November 18, 1999, the Company's board of directors
declared a cash dividend of $0.04 per share of Common and Class B
Common Stock. The dividend is payable February 14, 2000, to
shareholders of record on January 31, 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 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
photo 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>
Publishing Gift Other Total
---------- --------- -------- --------
<S> <C> <C> <C> <C>
For the three months ended:
December 31, 1999:
Revenues $ 43,654 $18,570 - $ 62,224
Operating income (Loss) 6,589 (512) - 6,077
December 31, 1998:
Revenues $ 49,715 $16,869 - $ 66,584
Operating income (Loss) 9,457 (1,233) - 8,224
For the nine months ended:
December 31, 1999:
Revenues $124,181 $67,269 - $191,450
Operating income (Loss) 14,375 3,467 - 17,842
December 31, 1998:
Revenues $123,136 $69,887 - $193,023
Operating income (Loss) 15,639 4,293 - 19,932
As of December 31, 1999:
Identifiable assets $124,836 $68,060 $80,322 $273,218
As of December 31, 1998:
Identifiable assets $135,618 $62,751 $60,070 $258,439
</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>
Nine Months EndedFiscal Year-to-Year
December 31, Increase
1999 1998 (Decrease)
(%) (%) (%)
<S> <C> <C> <C>
Net revenues:
Publishing 64.9 63.8 .8
Gift 35.1 36.2 (3.7)
----- ----- ------
Total net revenues 100.0 100.0 ( .8)
Expenses:
Cost of goods sold 56.3 53.4 4.5
Selling, general and
administrative 33.8 35.6 (6.0)
Amortization of goodwill and
non-compete agreements 0.6 0.7 .4
----- -----
Total expenses 90.7 89.7 .3
----- -----
Operating income 9.3 10.3 (10.5)
===== =====
Net income 4.4 5.1 (13.8)
===== =====
</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 Form 10-Q contains certain forward-looking statements
within the meaning of the federal securities laws, which are
intended to be covered by the safe harbors created thereby.
Those statements include any statement other than with respect to
historical fact, but may not be limited to, the discussions of
the Company's operating and growth strategy, including its
development plans and possible acquisitions. Investors are
cautioned that all forward-looking statements involve risks and
uncertainties. 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 nine months of fiscal 2000
decreased $1.6 million, or 0.8%, and for the third quarter
decreased $4.4 million, or 6.5%, over the same periods in fiscal
1999. The publishing product net revenues for the first nine
months increased $1.0 million, or 0.8%, and for the third quarter
decreased $6.1 million, or 12.2%, compared to the prior year.
The decrease in net revenues for the third quarter is
attributable to a strong showing during the third quarter of
fiscal 1999 from the introduction of books related to the Prince
of Egypt theatrical film. This provided a significant volume of
sales in the prior period with no comparable releases in the
current period. Another factor affecting publishing sales was a
current year publishing sales force reorganization that did not
bring desired results. The Company returned to its previous
sales force organization for both the publishing and gift divisions
effective January 1, 2000 in an effort to produce better results
in the fourth quarter. The net revenue variances for this fiscal
year were also impacted by a somewhat higher than expected rate of
returned products. Net revenues from gift products for the first
nine months decreased $2.6 million, or 3.7%, and for the third quarter
increased $1.7 million, or 10.1%, compared to the prior year. The
decrease in net revenue for the first nine months was 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. The increase in the third quarter reflects
the operations of Ceres Candles, which was acquired this fiscal year.
Price increases did not have a material effect on net revenues.
The Company's cost of goods sold increased for the first nine
months of fiscal 2000 by $4.6 million, or 4.5%, and for the third
quarter by $0.5 million, or 1.3%, over the same periods in fiscal
1999 and, as a percentage of net revenues, increased to 56.3% for
the first nine months of fiscal 2000 from 53.4% and for the third
quarter to 58.0% from 53.5% in the comparable periods in fiscal
1999. The increase in cost of goods sold, as a percentage of net
revenues, for both periods in fiscal 2000 resulted from several
factors. First, the Company has been more aggressive in the
current year in selling excess inventory at or below cost. The
high volume of Prince of Egypt product sales in the prior year
resulted in favorable margins with nothing comparable in the
current year. The restructuring of the Gift division, including
the outsourcing of manufacturing operations, was essentially
completed in the third quarter. During the transition period,
duplicate manufacturing costs were incurred. Further, during the
current year the Company experienced a product mix shift from
higher margin book product to lower margin Bible product.
Selling, general and administrative expenses for the first
nine months of fiscal 2000 decreased by $4.1 million, or 6.0%,
and for the third quarter decreased $2.7 million, or 12.2%, from
the same periods in fiscal 1999. These expenses, expressed as a
percentage of net revenues, decreased to 33.8% for the first nine
months of fiscal 2000 versus 35.6% and for the third quarter to
31.6% from 33.6% in the same periods in fiscal 1999. These
decreases for both periods were attributable to reducing
duplicate back-office expenses as a result of the gift division
restructuring, and elimination of expensive third-party
telemarketing services in our direct marketing area.
Interest expense for the first nine months and the third
quarter of fiscal 2000 was relatively consistent when compared to
the same period in fiscal 1999.
Liquidity and Capital Resources
At December 31, 1999, the Company had approximately $1.0
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 December 31, 1999,
the Company had working capital of $128.6 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 December 31,
1999 the Company had repurchased approximately 2.9 million shares
of common stock at an aggregate cost to the Company of $39.2
million.
Net cash provided by (used in) operating activities was $7.4
million and (5.0) million for the first nine months of fiscal
2000 and 1999, respectively. Cash provided by operations during
the first nine months of fiscal 2000 was principally attributable
to a decrease in inventories. Cash used in operations during the
first nine months of fiscal 1999 was principally attributable to
an increase in accounts receivable.
During the first nine months of fiscal 2000, capital
expenditures totaled approximately $2.5 million, primarily
consisting of computer software and equipment and expenditures
associated with the restructuring of the gift division. During
the remainder of fiscal 2000, the Company anticipates capital
expenditures of approximately $1.5 million, primarily consisting
of computer and warehousing equipment as well as manufacturing
equipment and leasehold improvements for its Ceres Candle
manufacturing facility.
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
December 31, 1999, the Company had $84.5 million outstanding
under the Credit Agreements, and $15.5 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 December 31, 1999, the Company had outstanding
approximately $17.4 million of unsecured senior notes ("Senior
Notes"). The Senior Notes bear interest at rates from 6.68% to
8.35% 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 December 31, 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.
On January 28, 2000, the Company completed the acquisition of
67% of the outstanding shares of New Life Treatment Centers, Inc.
from a group of investors for aggregate consideration of
approximately $15 million. The Company funded this purchase
through borrowings under the Credit Agreements. At December 31,
1999,approximately $13.6 million of the cash tendered for the
purchase was in escrow pending the closing of the transaction,
and thus is reflected in other assets on the December 31, 1999
balance sheet.
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 did not experience any significant problems
relating to the Year 2000 and its information and other systems.
The Company expensed approximately $15,000 in costs during the
first nine months of fiscal 2000, primarily for staff
coordination related to being year 2000 compliant. Our
expenditures have been consistent with prior expectations.
The Company does not anticipate that it will incur significant
additional costs in connection with its information or other
systems and their ability to process dates in the year 2000 or
thereafter. Also, the Company does not believe issues relating to
the Year 2000 will have a material effect on the Company's
results of operations, liquidity or financial condition.
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit
Number
------
11 - Statement re Computation of Per Share Earnings
27 - Financial Data Schedule
(b) No Form 8-K was filed by the Company during the quarter
ended December 31, 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)
February 14, 2000 BY /s/ 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 from the
Company's 10Q for the period ended December 31, 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> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 957
<SECURITIES> 0
<RECEIVABLES> 86,443
<ALLOWANCES> 9,586
<INVENTORY> 66,736
<CURRENT-ASSETS> 164,146
<PP&E> 48,602
<DEPRECIATION> 24,189
<TOTAL-ASSETS> 273,218
<CURRENT-LIABILITIES> 35,524
<BONDS> 100,922
0
0
<COMMON> 14,230
<OTHER-SE> 116,589
<TOTAL-LIABILITY-AND-EQUITY> 273,218
<SALES> 189,245
<TOTAL-REVENUES> 191,450
<CGS> 107,712
<TOTAL-COSTS> 172,369
<OTHER-EXPENSES> 1,239
<LOSS-PROVISION> 1,225
<INTEREST-EXPENSE> 4,804
<INCOME-PRETAX> 13,301
<INCOME-TAX> 4,855
<INCOME-CONTINUING> 8,446
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,446
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.59
</TABLE>
<TABLE>
EXHIBIT 11
STATEMENT RE-COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share data)
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
1999 1998 1999 1998
--------- --------- --------- ---------
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Weighted average shares
outstanding 14,245 15,497 14,225 14,725
======== ======== ======= =======
Net income $ 8,446 $ 9,796 $2,814 $4,157
======== ======== ======= =======
Income per share $ 0.59 $ 0.63 $ 0.20 $ 0.28
======== ======== ======= =======
DILUTED EARNINGS PER SHARE:
Weighted average shares
outstanding 14,245 15,497 14,225 14,725
Dilutive effect of common
stock options 5 73 2 58
Convertible notes - 2,945 - 2,440
-------- -------- ------- -------
Total shares 14,250 18,515 14,227 17,223
======== ======== ======= =======
Net income (F1) $ 8,446 $11,280 $2,814 $4,574
======== ======== ======= =======
Income per share per share $ 0.59 $ 0.61 $ 0.20 $ 0.27
======== ======== ======= =======
<F1> Adjusted for interest on convertible debt for 1998
</TABLE>
