10-Q 1 dec2001q.txt FORM 10-Q FOR PERIOD ENDED DECEMBER 31, 2001 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, 2001 [ ] 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 13, 2002, the Registrant had outstanding 13,326,759 shares of Common Stock and 1,039,801 shares of Class B Common Stock. THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
December 31 March 31, December 31 2001 2001 2000 ----------- ----------- ----------- (unaudited) (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 659 $ 2,134 $ 2,463 Accounts receivable, less allowances of $13,316, $6,175 and $8,505, respectively 64,433 57,974 55,934 Inventories 44,622 51,408 51,487 Prepaid expenses 14,639 14,691 15,291 Assets held for sale - 10,000 12,919 Refundable income taxes 5,450 - - Deferred income tax benefits 12,876 13,510 9,679 Net assets of discontinued operations - 87,487 102,770 ----------- ----------- ----------- Total Current Assets 142,679 237,204 250,543 Property, plant and equipment, net 11,314 12,780 10,666 Other assets 7,628 5,440 5,602 Deferred charges 1,290 973 552 Goodwill 28,472 28,118 23,307 ----------- ----------- ----------- TOTAL ASSETS $191,383 $284,515 $290,670 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 21,328 $ 19,969 $ 23,561 Accrued expenses 17,226 12,152 13,279 Deferred revenue 4,411 9,084 5,703 Dividends payable - 574 574 Income taxes currently payable 528 1,004 462 Current portion of long-term debt 4,163 5,202 5,924 ----------- ----------- ----------- Total Current Liabilities 47,656 47,985 49,503 Long-term debt 63,853 106,598 107,646 Deferred income taxes 1,866 1,866 2,606 Other liabilities 1,217 629 1,250 Minority interest 119 - 149 Shareholders' equity: Preferred stock, $1.00 par value, authorized 1,000,000 shares; none issued - - - Common stock, $1.00 par value, authorized 20,000,000 shares issued 13,300,393, 13,282,327 and 13,257,427 shares, respectively 13,300 13,282 13,257 Class B stock, $1.00 par value, authorized 5,000,000 shares; issued 1,043,501, 1,060,901 and 1,085,801 shares, respectively 1,044 1,061 1,086 Additional paid-in capital 43,848 43,845 43,844 Retained earnings 18,480 69,249 71,329 ----------- ----------- ----------- Total Shareholders' Equity 76,672 127,437 129,516 ----------- ----------- ----------- TOTAL LIABILITIES ANDSHAREHOLDERS' EQUITY $191,383 $284,515 $290,670 =========== =========== ===========
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, ----------------------- ----------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) NET REVENUES $165,291 $159,277 $61,167 $54,372 COST AND EXPENSES: Cost of goods sold 99,225 95,229 36,299 33,392 Selling, general and administrative 51,603 47,417 19,850 15,941 Depreciation and amortization 2,388 2,528 983 837 ----------- ----------- ----------- ----------- Total expenses 153,216 145,174 57,132 50,170 OPERATING INCOME 12,075 14,103 4,035 4,202 Interest expense 2,897 2,637 983 769 ----------- ----------- ----------- ----------- Income from continuing operations before income taxes 9,178 11,466 3,052 3,433 Provision for income taxes 3,350 4,185 1,114 1,253 Minority interest 119 149 63 30 ----------- ----------- ----------- ----------- Net income from continuing operations 5,709 7,132 1,875 2,150 Discontinued operations: Operating loss, net of applicable taxes (766) (3,252) - (2,096) Loss on disposal, net of applicable taxes (55,140) (5,210) - (5,210) ----------- ----------- ----------- ----------- Net loss from discontinued operations (55,906) (8,462) - (7,306) ----------- ----------- ----------- ----------- Net income (loss) $(50,197) $ (1,330) $ 1,875 $(5,156) =========== =========== =========== =========== Weighted average number of shares outstanding: Basic 14,343 14,284 14,343 14,343 =========== =========== =========== =========== Diluted 15,014 14,303 15,103 14,343 =========== =========== =========== =========== Net income per share, from continuing operations Basic $ 0.40 $ 0.50 $ 0.13 $ 0.15 ----------- ----------- ----------- ----------- Diluted $ 0.38 $ 0.50 $ 0.12 $ 0.15 ----------- ----------- ----------- ----------- Net loss per share, from discontinued operations Basic $ (3.90) $ (0.59) $ - $ (0.51) ----------- ----------- ----------- ----------- Diluted $ (3.72) $ (0.59) $ - $ (0.51) ----------- ----------- ----------- ----------- NET INCOME(LOSS) PER SHARE Basic $ (3.50) $ (0.09) $ 0.13 $ (0.36) =========== =========== =========== =========== Diluted $ (3.34) $ (0.09) $ 0.12 $ (0.36) =========== =========== =========== =========== See Accompanying Notes
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Nine Months Ended December 31, ------------------------------ 2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income from continuing operations $ 5,709 $ 7,132 Adjustments to reconcile income to net Cash provided by (used in) operations: Minority interest 119 149 Depreciation and amortization 2,388 2,528 Loss on sale of fixed assets and assets held for sale (17) (9) Deferred income taxes 634 - Changes in assets and liabilities, net of acquisitions: Accounts receivable, net (6,459) 636 Inventories 6,786 (6,487) Prepaid expenses 52 (2,690) Accounts payable and accrued expenses 3,328 6,266 Deferred revenues (4,673) (850) Income taxes currently payable (476) (3,389) ------------ ------------ Net cash provided by (used in) continuing operations 7,391 3,286 ------------ ------------ Discontinued Operations Loss from discontinued operations (766) (3,252) Loss on disposal (55,140) (5,210) Changes in discontinued assets 55,609 (943) ------------ ------------ Net cash provided by (used in) discontinued operations (299) (9,405) ------------ ------------ Net cash provided by (used in) operating activities 7,092 (6,119) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment expenditures (751) (2,004) Proceeds from sale of assets held for sale 37,844 3,658 Changes in other assets and deferred charges (1,319) 504 ------------ ------------ Net cash provided by (used in) investing activities 35,774 2,158 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (payments) under credit agreement, net (40,639) 10,650 Payments on long-term debt (3,145) (5,021) Dividends paid (1,148) (1,713) Proceeds from issuance of common stock 1 3 Other financing activities 590 1,684 ------------ ------------ Net cash provided by (used in) financing activities (44,341) 5,603 ------------ ------------ Net increase (decrease) in cash and cash equivalents (1,475) 1,642 Cash and cash equivalents at beginning of period 2,134 821 ------------ ------------ Cash and cash equivalents at end of period $ 659 $ 2,463 ============ ============ Supplemental disclosure of non-cash investing and financing activities: Dividends accrued and unpaid $ - $ 574
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 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, 2001. The consolidated balance sheet and related information in these notes as of March 31, 2001 have been derived from the audited consolidated financial statements as of that date. Certain reclassifications of prior period amounts have been made to conform to the current year's presentation. Note B - New Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("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 adopted the provisions of SFAS No. 133 effective April 1, 2001. The implementation of this pronouncement did not have a material impact on the Company's financial statements. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS 141 supersedes Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations" and requires all business combinations to be accounted for using purchase method accounting. In addition, SFAS 141 requires that identifiable, intangible assets be recognized apart from goodwill based on meeting certain criteria. Implementation of SFAS No. 141 is not expected to have a material impact on the Company. SFAS No. 142 supersedes APB Opinion No. 17, "Intangible Assets" and addresses accounting for intangible assets and goodwill upon and after their acquisition. SFAS No. 142 requires that goodwill no longer be amortized, but tested for impairment by comparing net book carrying values to fair market values upon adoption and periodically thereafter. The Company has adopted the provisions of SFAS No. 142 as of April 1, 2001. The election of SFAS No. 142 favorably impacted the third quarter and fiscal 2002 year-to-date results by eliminating amortization of goodwill, which had a pre-tax impact of $0.1 million and $0.5 million, respectively, in the prior year. The Company expects to complete its full analysis of SFAS No. 142 by the end of fiscal 2002. Implementation of SFAS No. 142 is not expected to have a material impact on the continuing operations of the Company. Note C - Inventories Components of inventories consisted of the following (in thousands):
December 31, March 31, December 31, 2001 2001 2000 ------------ ------------ ------------ Finished goods $40,864 $46,949 $44,995 Raw materials and work in process 3,758 4,459 6,492 ------------ ------------ ------------ $44,622 $51,408 $51,487 ============ ============ ============
Note D - Cash Dividend On May 31, 2001, the Company's board of directors declared a cash dividend of $0.04 per share of Common and Class B Common stock. The dividend was paid August 20, 2001 to shareholders of record on August 6, 2001. On August 24, 2001, the Company's board of directors determined that it was in the best interest of the Company to use cash for current working capital needs that had previously been used to pay discretionary dividends. The board of directors will review the Company's dividend policy from time-to-time in the future. Note E - Operating Segments The Company adopted SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," at March 31, 1999, which directs the way the Company reports information about its operating segments. The Company is organized and managed based upon its products. After discontinuing the gift product segment, the Company has one reportable business segment, identified as Publishing. The Publishing segment primarily creates and markets Bibles, inspirational books, videos and provides inspirational seminars and literature for women. Note F - Discontinued Operations On October 11, 2001, the Company announced that it had entered into a definitive agreement by which the Company would sell and CRG Acquisition Corp. ("CRG") would purchase the Company's gift business, including substantially all of the assets of the Company's wholly-owned subsidiary, The C.R. Gibson Company ("C.R. Gibson"). The purchase was consummated on November 7, 2001 with an effective date of October 31, 2001 at a purchase price of $30.5 million, plus the assumption of certain liabilities. This sale resulted in a loss on disposal of $55.1 million. The Company utilized net proceeds from the sale to pay down existing debt. C.R. Gibson is a designer, marketer and distributor of premium stationery and memory albums, (i.e. the Company's gift product segment). The financial statements reflect the gift product segment as discontinued operations for all periods presented. Interest allocations to the gift discontinued operations were based on percentage of net assets employed and totaled $1.4 million, $1.9 million and $2.3 million for the nine months ended December 31, 2001 and December 31, 2000 and the fiscal year ended March 31, 2001, respectively. The unaudited Consolidated Pro Forma Statements of Operations presented below are shown for illustrative purposes only and are not necessarily indicative of the financial position or results of operations of the Company that would have actually resulted had the gift sale and debt repayment occurred as of the date or for the period presented, or that may result in the future. The unaudited Consolidated Pro Forma Statements of Operations for the year ended March 31, 2001 assume that the gift disposition occurred at the beginning of the period presented and are based on the operations of the Company for the year ended March 31, 2001. The unaudited Consolidated Pro Forma Statements of Operations should be read in conjunction with the historical financial statements and related notes of the Company for the year ended March 31, 2001, as filed with the Company's Annual Report on Form 10-K. THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS FISCAL YEAR ENDED MARCH 31, 2001 (Dollars in thousands, except per share data) - (Unaudited)
Less: Discontinued Gift Historical Operations Adjustments Pro Forma ----------- ----------- ----------- ----------- NET REVENUES $297,965 $83,818 $214,147 COSTS AND EXPENSES: Cost of goods sold 184,336 55,241 129,095 Selling, general & administrative 92,570 31,627 3,483 64,426 Depreciation & Amortization 6,308 3,309 2,999 ----------- ----------- ----------- ----------- Total Costs and Expenses 283,214 90,177 3,483 196,520 Operating Income (Loss) 14,751 (6,359) (3,483) 17,627 Other income (expense) 36 36 - Interest expense 5,818 - (2,328) 3,490 ----------- ----------- ----------- ----------- Income from continuing operations before income taxes 8,969 (6,323) (1,155) 14,137 Provision for income taxes 3,207 1,953 5,160 ----------- ----------- ----------- ----------- Net income (loss) from continuing operations 5,762 (6,323) (3,108) 8,977 ----------- ----------- ----------- ----------- Discontinued - operating loss (1,332) 6,323 3,108 (4,547) Discontinued - loss on sale (7,264) - - (7,264) ----------- ----------- ----------- ----------- Net loss from discontinued operations (8,596) 6,323 3,108 (11,811) Net Income (loss) $ (2,834) $ - $ - $ (2,834) =========== =========== =========== =========== Weighted average number of shares outstanding 14,299 14,299 Net Income (Loss) Per Share: Income from Continuing Operations $ 0.40 $ 0.63 Loss from Discontinued Operations (0.60) (0.83) ----------- ----------- Net Income (Loss) Per Share: $ (0.20) $ (0.20) =========== =========== ------------------------------------------------------------------------------ Reallocation of corporate expenses in accordance with APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". Allocation of interest to discontinued gift product segment operations based on assets employed.
During December 2000, the Company determined it would dispose of its Ceres Candles operation, a division of its gift segment. This sale was completed in August for approximately $1.5 million. Effective April 1, 2001, Remuda Ranch Center for Anorexia and Bulimia, Inc. ("Remuda Ranch"), which operates therapeutic centers in Arizona for women with eating disorders, was reflected as discontinued operations. For periods prior to April 1, 2001, Remuda Ranch net assets are reflected as assets held for sale in accordance with Emerging Issues Task Force Issue No. 87-11, "Allocation of Purchase Price to Assets to be Sold." Remuda Ranch was part of the New Life Treatment Center, Inc. acquisition during fiscal 2000 and was considered as assets held for sale from the acquisition date through March 31, 2001. The Company closed the sale of the Remuda Ranch assets in July 2001 for approximately $7.2 million in cash and a $2 million note receivable. The operations of Ceres Candles and Remuda Ranch have been accounted for as discontinued operations and accordingly, their assets, liabilities and results of operations are segregated in the accompanying consolidated statements of operations, balance sheets and statements of cash flows and have been reclassified for all periods presented, except Remuda Ranch net assets for periods prior to April 1, 2001 which were classified as assets held for sale. Note G - Depreciation and Amortization This caption on the accompanying consolidated statements of operations includes all depreciation and amortization, including that related to goodwill (for applicable periods), intangible assets, property, plant and equipment and deferred loan costs. 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 Ended Fiscal Year-to-Year December 31, Increase 2001 2000 (Decrease) -------- -------- ------------------- (%) (%) (%) Net revenues 100.0 100.0 3.8 Expenses Cost of goods sold 60.0 59.8 4.2 Selling, general and administrative 31.2 29.8 8.8 Depreciation and amortization 1.5 1.6 (5.5) -------- -------- ------------------- Total expenses 92.7 91.2 5.5 -------- -------- ------------------- Operating income 7.3 8.8 (14.4) -------- -------- ------------------- Net income from continuing operations 3.5 4.5 (20.0) -------- -------- ------------------- Loss from discontinued operations, net of tax (33.8) (5.3) -------- -------- Net income (30.3) (0.8) ======== ========
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. This report, including the following discussion, includes certain forward-looking statements. Forward-looking statements are any statements other than those made solely with respect to historical facts. Actual results could differ materially from those in the forward-looking statements, and a number of factors may affect future results, liquidity and capital resources. These factors include, but are not limited to: softness in the general retail environment, the timing of products being introduced to the market, the level of product returns experienced by the operating divisions, the collectibility of accounts receivable, the financial condition of our customers and suppliers, the level of margins achievable in the marketplace, the ability of the Company to minimize operating expenses, recoupment of royalty advances, realization of inventory values at carrying amounts, access to capital and realization of income tax and intangible assets. Future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its business strategy during the 2002 fiscal year. The Company disclaims any intent or obligation to update forward-looking statements. Results of Operations ===================== Consolidated Results - Third Quarter of Fiscal 2002 Compared with Third Quarter of Fiscal 2001 --------------------------------------------------- Net revenues for the three months ended December 31, 2001 increased $6.8 million, or 12.5%, over the same period in the prior year. The Women of Faith conference division represents $5.1 million of this increase, due to a combination of improved attendance at planned events, an event that was postponed from September (after the terrorist attacks) to December and the introduction of new holiday events for children. The Company's cost of goods sold, excluding depreciation and amortization, increased for the quarter ended December 31, 2001 by $2.9 million, or 8.7%, however, as a percentage of net revenues, decreased to 59.3% this quarter from 61.4% in the comparable prior year quarter. The improvement in cost of goods sold, as a percentage of net revenues, is primarily due to a change in sales mix from lower margin Bible product to higher margin book product lines, as compared with the corresponding quarter in the prior year, substantially offset by increased lower margin revenues from the Women of Faith conferences and the related holiday events for children. Selling, general and administrative expenses, excluding depreciation and amortization, for the three months ended December 31, 2001 increased by $3.9 million, or 24.5%, from the same period in fiscal 2001. These expenses, expressed as a percentage of net revenues, increased to 32.5% this period from 29.3% in the comparable period in the prior fiscal year. This increase is due to the $4.4 million charge in the current period to fully reserve the net receivable balance from Kmart, which filed bankruptcy in January 2002. Kmart has historically accounted for less than 3% of our total consolidated sales. We have resumed shipments to Kmart with payments protected by an administrative priority status under the bankruptcy code. The Kmart loss was partially offset by other accrued expenses that would have been recorded, primarily incentive compensation accruals, had it not been for this loss. The provision for income taxes remains consistent with the prior year at an effective rate of 36.5%. The net loss from discontinued operations in the quarter ended December 31, 2000 was related to the decision to sell the Ceres Candles operations, formerly a part of the Company's gift business. The sale of this operation was finalized in the second quarter of this fiscal year. There was no discontinued operations impact on the Statement of Operations for the quarater ended December 31, 2001. Consolidated Results-First Nine Months of Fiscal 2002 Compared with First Nine Months of Fiscal 2001 ----------------------------------------------------- Net revenues for the first nine months of fiscal 2002 increased $6.0 million, or 3.8%, over the same period in fiscal 2001. The increase in net revenues for the nine months ended December 31, 2001 is primarily attributable to increased revenues from Women of Faith conferences. Publishing product sales for the nine month period ended December 31, 2001 were essentially even with the prior year's nine month period after ending the first quarter $6.3 million behind the prior year. The Company's cost of goods sold, excluding depreciation and amortization, increased for the first nine months of fiscal 2002 by $4.0 million, or 4.2%, over the same period in fiscal 2001 and, as a percentage of net revenues, increased to 60.0% for the first nine months of fiscal 2002 from 59.8% in the comparable period in fiscal 2001. The increase in cost of goods sold, as a percentage of net revenues, for the first nine months of fiscal 2002 resulted from the Company's Women of Faith conferences, which typically experience lower gross margins than our publishing product sales. Also, the attendance rates at the Women of Faith events during July and August were lower due to the slow economy. While the attendance levels at the Women of Faith events dramatically improved during our fiscal third quarter, the Women of Faith division incurred a negative impact on its gross margins from its new introduction of a children's event during the quarter ended December 31, 2001. These children's events are still in the development phase and are expected to be reintroduced again in next year's third quarter for the Christmas holiday season. The cost of goods sold for publishing product sales as a percent of revenue remained essentially the same for the nine month periods ended December 31, 2001 and 2000. Selling, general and administrative expenses, excluding depreciation and amortization, for the nine months ended December 31, 2002 increased by $4.2 million, or 8.8%, from the same period in the prior year. These expenses, expressed as a percentage of net revenues, increased to 31.2% for the first nine months of fiscal 2002 from 29.8% in the comparable period in fiscal 2001. This increase is due to the $4.4 million charge in the current period to fully reserve the net receivable balance from Kmart, which filed bankruptcy in January, 2002. The Kmart loss was partially offset by other accrued expenses that would have been recorded, primarily incentive compensation accruals, had it not been for this loss. Depreciation and amortization for fiscal 2002 decreased $0.1 million from fiscal 2001. This decrease is attributable to the Company ceasing amortization of goodwill effective April 1, 2001 in relation to its early adoption of SFAS No. 142, partially offset by increased amortization of deferred loan costs and a change in the estimated useful life of computer equipment. Interest expense attributable to continuing operations remained consistent with fiscal 2001. The provision for income taxes remains consistent with the prior year at an effective rate of 36.5%. The net loss from discontinued operations for the nine months ended December 31, 2001 was related to the decision to sell the Company's gift division, principally the net assets of the C.R. Gibson, and the closing of the sale of this discontinued operation along with the sale of the net assets of Remuda Ranch and Ceres Candles, both of which occurred in the second quarter of this fiscal year. The net loss from discontinued operations for the nine months ended December 31, 2000 represents last fiscal year's decision to sell the Ceres Candles' operation. Liquidity and Capital Resources =============================== At December 31, 2001, 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, 2001, the Company had working capital of $95.0 million. When circumstances permit, the Company uses available cash to pay down borrowings under the Credit Agreements. Net cash provided by (used in) operating activities was $7.4 million and $3.3 million for the first nine months of fiscal 2002 and 2001, respectively. Cash provided by operations during the first nine months of fiscal 2002 was principally attributable to income from continuing operations, reductions in inventory and increases in accrued expenses, offset principally by increases in accounts receivable. The Company received net proceeds from the sale of discontinued operations during the first nine months of fiscal 2002 in the amount of $37.8 million. All of these proceeds were used to pay down the Company's debt under its Credit Agreements. During the first nine months of fiscal 2002, capital expenditures totaled approximately $0.8 million, primarily consisting of computer software and equipment. During the remainder of fiscal 2002, the Company anticipates capital expenditures of approximately $1 million, primarily consisting of computer, warehousing and merchandising equipment. The Company's bank credit facilities are unsecured and consist of a revolving credit facility and a $10 million credit facility (collectively, the "Credit Agreements"). The revolving 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. On June 29, 2001, the revolving credit facility was amended and included provisions to approve certain asset sales, amend certain financial covenants, adjust the interest rate structure, recommend the cessation of the cash dividend and to change the maturity date to April 1, 2003. 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, 2002 The $10 million credit facility is used for temporary cash needs on a daily basis and is classified as long-term debt, as long as the revolving credit facility has the capacity to absorb the balance. Effective July 25, 2001, with the sale of Remuda Ranch, the revolving credit facility was reduced from $100 million to $92.8 million. Effective November 7, 2001, the revolving credit facility was further reduced to $68.2 million due to the sale of C.R. Gibson. At December 31, 2001, the Company had $53.5 million outstanding under the Credit Agreements, and $24.7 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, 2001, the Company had outstanding approximately $12.5 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 maintain certain interest coverage and debt-to-total-capital ratios, which are similarly calculated for each debt agreement. The Company is currently 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 2002 and through the term of the Credit Agreements. The Company's current cash commitments include current maturities of debt and operating lease obligations that are disclosed in the Company's Annual Report on Form 10-K for the year ended March 31, 2001. The Company also has current inventory purchase and royalty advance commitments in the ordinary course of business that requir cash payments as vendors and authors fulfill their requirements to the Company in the form of delivering satisfactory product orders and manuscripts, respectively. Management is not aware of any off-balance sheet commitments or transactions with any special purpose entities (SPE's). Management also is not aware of any undisclosed related party transactions or relationships with management, officers or directors. 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, 2001. 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 (b) No Form 8-K was filed by the Company during the quarter ended December 31, 2001. 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, 2002 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