-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EbUFFNJpI2eyTx4yBLnAAYlp5WuUlT0LTM4pNx3PPqKbGJn+mcrEmhkaxlp1KneY Sz63icq+57GMBvobNUjY1A== 0000071023-00-000002.txt : 20000307 0000071023-00-000002.hdr.sgml : 20000307 ACCESSION NUMBER: 0000071023-00-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 DATE AS OF CHANGE: 20000301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NELSON THOMAS INC CENTRAL INDEX KEY: 0000071023 STANDARD INDUSTRIAL CLASSIFICATION: 2731 IRS NUMBER: 620679364 STATE OF INCORPORATION: TN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13788 FILM NUMBER: 544711 BUSINESS ADDRESS: STREET 1: 501 NELSON PLACE CITY: NASHVILLE STATE: TN ZIP: 37214-1000 BUSINESS PHONE: 6158899000 MAIL ADDRESS: STREET 1: P O BOX 141000 CITY: NASHVILLE STATE: TN ZIP: 37214-1000 FORMER COMPANY: FORMER CONFORMED NAME: ROYAL PUBLISHERS INC DATE OF NAME CHANGE: 19721019 10-Q 1 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 THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
December 31, March 31, December 31, 1999 1999 1998 ___________ ___________ ____________ (Unaudited) (Unaudited) 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
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
Nine Months Ended Three Months Ended December 31, December 31, 1999 1998 1999 1998 (Unaudited)(Unaudited) (Unaudited) (Unaudited) 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
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Nine Months Ended December 31, 1999 1998 ___________ __________ (Unaudited) (Unaudited) 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
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):
December 31, March 31, December 31, 1999 1999 1998 ____________ _________ ____________ 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
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).
Publishing Gift Other Total ---------- --------- -------- -------- 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
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.
Nine Months EndedFiscal Year-to-Year December 31, Increase 1999 1998 (Decrease) (%) (%) (%) 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) ===== =====
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) EX-27 2
5 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. 1,000 9-MOS MAR-31-2000 APR-01-1999 DEC-31-1999 957 0 86,443 9,586 66,736 164,146 48,602 24,189 273,218 35,524 100,922 0 0 14,230 116,589 273,218 189,245 191,450 107,712 172,369 1,239 1,225 4,804 13,301 4,855 8,446 0 0 0 8,446 0.59 0.59
EX-11 3 EXHIBIT 11 STATEMENT RE-COMPUTATION OF PER SHARE EARNINGS (Dollars in thousands, except per share data)
Nine Months Ended Three Months Ended December 31, December 31, 1999 1998 1999 1998 --------- --------- --------- --------- (Unaudited)(Unaudited)(Unaudited)(Unaudited) 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 ======== ======== ======= ======= Adjusted for interest on convertible debt for 1998
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