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, 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
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 10, 2000, the Registrant had outstanding 13,145,400
shares of Common Stock and 1,085,801 shares of Class B Common Stock.
PART I
Item 1. Financial Statements
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30, March 31, June 30,
2000 2000 1999
(Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,396 $ 814 $ 940
Accounts receivable, Less
allowances of $6,307,
$7,171 and $5,908,
respectively 74,704 79,052 73,658
Inventories 88,096 74,809 71,070
Prepaid expenses 16,166 13,652 13,370
Assets held for sale 19,839 22,168 -
Deferred tax assets 9,679 9,679 6,715
----------- ----------- -----------
Total current assets 209,880 200,174 165,753
Property, plant and
equipment, net 17,718 17,423 25,645
Other assets 8,241 9,904 9,359
Deferred charges 791 959 1,193
Goodwill 70,258 69,770 58,515
----------- ----------- -----------
TOTAL ASSETS $306,888 $298,230 $260,465
=========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 33,734 $ 27,350 $ 16,513
Accrued expenses 12,917 16,142 14,526
Deferred revenue 8,448 6,553 22
Dividends payable 569 569 569
Income taxes payable 1,042 3,851 276
Current portion of long-
term debt & capital
lease obligations 5,893 7,592 4,787
----------- ----------- ----------
Total current liabilities 62,603 62,057 36,693
Long-term debt 108,237 100,359 93,024
Deferred tax liabilities 2,606 2,606 4,432
Other liabilities 1,444 1,476 1,505
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 13,145,400,
13,144,776 and
13,123,260, respectively 13,145 13,145 13,123
Class B common stock, $1.00
par value, authorized
5,000,000 shares; issued
1,085,801, 1,085,819 and
1,101,524 shares,
respectively 1,086 1,086 1,102
Additional paid-in capital 43,126 43,126 43,054
Retained earnings 74,641 74,375 67,532
----------- ----------- ----------
Total shareholders' equity 131,998 131,732 124,811
----------- ----------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $306,888 $298,230 $260,465
=========== =========== ==========
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Three Months Ended
June 30,
2000 1999
-------------------------
<S> <C> <C>
NET REVENUES $ 65,430 $ 59,116
COST AND EXPENSES:
Cost of goods sold 36,943 33,283
Selling, general and administrative 24,627 21,779
Amortization of goodwill and
non-compete agreements 619 383
------------------------
Total expenses 62,189 55,445
------------------------
OPERATING INCOME 3,241 3,671
Other income(expense) (210) 22
Interest expense 1,819 1,520
------------------------
Income before income taxes 1,212 2,173
Provision for income taxes 376 793
------------------------
NET INCOME $ 836 $ 1,380
========================
Weighted average number
of shares outstanding:
Basic 14,231 14,279
========================
Diluted 14,259 14,285
========================
NET INCOME PER SHARE:
Basic $ 0.06 $ 0.10
========================
Diluted $ 0.06 $ 0.10
========================
DIVIDENDS DECLARED PER SHARE $ 0.04 $ 0.04
========================
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Three Months Ended June 30,
------------------------------
2000 1999
------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 836 $ 1,380
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 2,200 1,975
Loss on sale of fixed assets
and assets held for sale 261 -
Changes in assets and liabilities,
net of acquisitions and disposals:
Accounts receivable, net 4,348 4,672
Inventories (13,287) ( 2,912)
Prepaid expenses ( 2,514) ( 496)
Accounts payable and accrued
expenses 3,159 ( 6,520)
Deferred revenues 1,895 -
Income taxes currently payable
and deferred ( 2,809) ( 2,517)
-----------------------------
Net cash used in continuing operations ( 5,911) ( 4,418)
-----------------------------
Discontinued operations:
Changes in discontinued assets - 2
Cash provided by discontinued
operations - 50
-----------------------------
Net cash provided by discontinued
operations - 52
-----------------------------
Net cash used in operating activities ( 5,911) ( 4,366)
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 1,328) ( 337)
Proceeds from sale of fixed assets
and assets held for sale 2,011 157
Purchase of net assets of acquired
companies - net of cash received ( 760) ( 6,151)
Changes in other assets and deferred
charges 992 317
-----------------------------
Net cash provided by (used in)
investing activities 915 ( 6,014)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 10,500 13,581
Payments on capital lease obligations - ( 5)
Payments on long-term debt ( 4,321) ( 727)
Dividends paid ( 569) ( 576)
Proceeds from issuance of common stock - -
Common stock repurchased and retired - ( 1,649)
Other financing activities ( 32) 87
-----------------------------
Net cash provided by financing
activities 5,578 10,711
-----------------------------
Net increase in cash and cash
equivalents 582 331
Cash and cash equivalents at beginning
of period 814 609
-----------------------------
Cash and cash equivalents at end
of period $ 1,396 $ 940
=============================
Supplemental disclosures of non-cash
investing and financing activities:
Dividends accrued and unpaid $ 569 $ 569
</TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED 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, 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 is continuing to determine the
effects of SFAS No. 133 on the Company's financial statements.
Note C - Inventories
Components of inventories consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, March 31, June 30,
2000 2000 1999
-------------------------------------
<S> <C> <C> <C>
Finished goods $ 85,017 $ 66,261 $ 64,705
Raw materials and
work in process 3,079 8,548 6,365
-------------------------------------
$ 88,096 $ 74,809 $ 71,070
=====================================
</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 is payable August 21, 2000, to shareholders of record on
August 7, 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, 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>
Three Months Ended Publishing Gift Other Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 2000:
Revenues $ 46,905 $ 18,525 $ 0 $ 65,430
Operating income 3,922 ( 681) 0 3,241
June 30, 1999:
Revenues $ 39,386 $ 19,730 $ 0 $ 59,116
Operating income 3,402 269 0 3,671
As of June 30, 2000:
Identifiable assets 133,165 78,392 95,331 306,888
As of June 30, 1999:
Identifiable assets: 124,067 71,167 65,231 260,465
</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
2000 1999 (Decrease)
------------------------------------
(%) (%) (%)
<S> <C> <C> <C>
Net revenues:
Publishing 71.7 66.6 19.1
Gift 28.3 33.4 ( 6.1)
------------------------------------
Total net revenues 100.0 100.0 10.7
------------------------------------
Expenses:
Cost of goods sold 56.5 56.3 11.0
Selling, general and
administrative 37.6 36.8 (13.1)
Amortization of goodwill
and non-compete agreements 0.9 0.7 (61.6)
------------------------------------
Total expenses 95.0 93.8 12.2
------------------------------------
Operating income 5.0 6.2 (11.7)
====================================
Net income 1.3 2.3 (39.4)
====================================
</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 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 2001. The
Company disclaims any intent or obligation to update forward-looking
statements.
Results of Operations
---------------------
Net revenues for the first three months of fiscal 2001 increased
$6.3 million, or 10.7%, over the same period in fiscal 2000. The publishing
product net revenues increased $7.5 million, or 19.1%, compared to the prior
year primarily due to revenues generated by the recently acquired operations
of Women of Faith and Rutledge Hill Press and a strong performance by our
core publishing groups across the board. Net revenues from gift products
decreased $1.2 million, or 6.1%, primarily due to product availability and
distribution issues in the month of April, which the stronger sales permance
in May and June did not fully offset. 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
2001 increased by $3.7 million, or 11.0%, over the same period in fiscal
2000 and, as a percentage of net revenues, increased to 56.5% for the first
three months of fiscal 2001 from 56.3% in the comparable period in fiscal
2000. This small increase in cost of goods sold as a percentage of net
revenues is due to a slight shift in product mix from higher margin book
products to lower margin Bible products.
Selling, general and administrative expenses for the first three months
of fiscal 2001 increased by $2.8 million, or 13.1%, from the same period
in fiscal 2000 and as a percentage of net revenues, increased to 37.6% for
the first three months of fiscal 2001 versus 36.8% in the same period in
fiscal 2000. The increase in selling, general and administrative expenses
in dollars and as a percentage of net revenues is directly related to the
three prior year acquisitions of Ceres, Rutledge Hill Press and Women of
Faith, which were not included in the Company's operations during the first
quarter of fiscal 2000. Each of these operations went through its seasonally
weakest period in the first quarter.
Interest expense for the first three months of fiscal 2001 increased
by $299,000, or 19.7%, over the same period in fiscal 2000. The increase in
interest expense is directly related to borrowings associated with the three
prior year acquisitions.
Liquidity and Capital Resources
-------------------------------
At June 30, 2000, the Company had $1.4 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, 2000, the Company had
working capital of $147.3 million.
Net cash used in operating activities was $5.9 million and $4.4 million
for the first three months of fiscal 2001 and 2000, respectively. Cash used
in operations during the first three months of fiscal 2001 was principally
attributable to increases in inventory. Inventories grew by $17 million
from last year. Approximately $5 million of the increase is attributable
to inventories of acquired operations discussed above. Gift and Publishing
inventories increased by approximately $8 million and $4 million,
respectively. The Gift increase resulted from the Company's move to
outsource manufacturing of gift products, coupled with a desire to minimize
fill rate issues encountered in the fourth quarter of fiscal 2000.
Publishing increases occurred in the Bible area, where the Company also
sought to improve fill rates.
During the first three months of fiscal 2001, capital expenditures
totaled approximately $1.3 million, which was used primarily to purchase
computer and warehousing equipment. During the remainder of fiscal 2001,
the Company anticipates capital expenditures of approximately $2.7 million,
primarily consisting of additional 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, 2000,
the Company had $94 million of borrowings outstanding under the Credit
Agreements, and $16 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, 2000, over the prior year
is primarily attributable to the acqusisions of Rutledge Hill Press and
Women of Faith, which occurred in the third and fourth quarters of fiscal
2000, respectively.
At June 30, 2000, the Company had outstanding approximately
$15.5 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, 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 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, 2000.
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, 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)
