-----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, Nx+9s3gvrw30nXYLzZTHUj4juS1+CIfd0FGL0djkDCrkhAyRSdsDGka7vr44jWxf 1AYPwbj/vKf19wwu6ByP1A== 0000071023-03-000025.txt : 20030829 0000071023-03-000025.hdr.sgml : 20030829 20030814174621 ACCESSION NUMBER: 0000071023-03-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 DATE AS OF CHANGE: 20030828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NELSON THOMAS INC CENTRAL INDEX KEY: 0000071023 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 620679364 STATE OF INCORPORATION: TN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13788 FILM NUMBER: 03849056 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 q062003.txt FORM 10-Q FOR PERIOD ENDED JUNE 30, 2003 UNITED STATES 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, 2003 [ ] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE TRANSITION SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-13788 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] At August 13, 2003, the Registrant had outstanding 13,365,096 shares of Common Stock and 1,024,795 shares of Class B Common Stock. PART I FINANCIAL INFORMATION Item 1. Financial Statements Thomas Nelson, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (000's omitted, except share amounts) (unaudited)
June 30, March 31, June 30, 2003 2003 2002 ---------- ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 8,943 $ 1,707 $ 505 Accounts receivable, less allowances of $7,190, $7,311 and $5,930, respectively 42,999 56,806 46,951 Inventories 37,924 33,637 40,357 Prepaid expenses 15,567 13,521 19,578 Assets held for sale 1,785 1,785 2,500 Refundable income taxes - - 7,266 Deferred tax assets 5,085 5,085 7,966 ---------- ---------- ---------- Total current assets 112,303 112,541 125,123 Property, plant and equipment, net 11,444 11,630 9,000 Other assets 6,733 7,358 7,489 Deferred charges 1,445 1,695 2,147 Intangible assets 882 527 544 Goodwill, net 29,304 29,304 29,304 ---------- ---------- ---------- Total Assets $162,111 $163,055 $173,607 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 19,910 $ 20,218 $ 16,764 Accrued expenses 9,930 13,835 12,707 Deferred revenue 12,703 11,493 12,800 Income taxes currently payable 3,393 2,379 351 Current portion of long-term debt 3,622 3,622 3,322 ---------- ---------- ---------- Total current liabilities 49,558 51,547 45,944 Long term debt, less current portion 3,461 22,330 47,941 Deferred tax liabilities 721 721 792 Other liabilities 19,394 590 992 Minority interest 35 43 22 Commitments and contingencies - - - 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 13,359,708, 13,350,431 and 13,343,765 shares, respectively 13,360 13,350 13,344 Class B stock, $1.00 par value, authorized 5,000,000 shares; issued 1,024,795, 1,024,795 and 1,024,795 shares, respectively 1,025 1,025 1,025 Additional paid-in capital 44,115 44,064 44,023 Retained earnings 30,442 29,385 19,524 ---------- ---------- ---------- Total shareholders' equity 88,942 87,824 77,916 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $162,111 $163,055 $173,607 ========== ========== ========== See Notes to Condensed Consolidated Financial Statements
Thomas Nelson, Inc. and Subsidiaries Condensed Consolidated Statements of Income (000's omitted, except per share data) (unaudited)
Three Months Ended June 30, ------------------- 2003 2002 -------- -------- Net revenues $ 41,831 $ 41,169 Costs and expenses: Cost of goods sold 25,875 24,937 Selling, general and administrative 13,665 14,150 Depreciation and amortization 560 577 -------- -------- Total costs and expenses 40,100 39,664 -------- -------- Operating income 1,731 1,505 Other income 191 34 Interest expense 244 995 -------- -------- Income before income taxes 1,678 544 Provision for income taxes 629 199 Minority interest (8) 22 -------- -------- Net income $ 1,057 $ 323 ======== ======== Weighted average number of shares outstanding: Basic 14,382 14,367 ======== ======== Diluted 14,607 14,680 ======== ======== NET INCOME PER SHARE: Basic $ 0.07 $ 0.02 ======== ======== Diluted $ 0.07 $ 0.02 ======== ======== See Notes to Condensed Consolidated Financial Statements
Thomas Nelson, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (000's omitted) (unaudited)
Three Months Ended June 30, ------------------- 2003 2002 -------- -------- Cash Flows From Operating Activities: Net income from continuing operations $ 1,057 $ 323 Adjustments to reconcile income to net cash provided by (used in) operations: Depreciation and amortization 560 577 Amortization of deferred charges 52 212 Gain/loss on sale of fixed assets and assets held for sale (1) 6 Minority interest (8) 22 Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net 13,807 14,649 Inventories ( 4,287) ( 1,162) Prepaid expenses ( 2,046) ( 2,007) Accounts payable and accrued expenses ( 4,171) ( 8,016) Deferred revenue 1,210 1,578 Income taxes currently payable 1,014 ( 149) Change in other assets and liabilities and deferred charges 923 ( 292) -------- -------- Net cash provided by continuing operations 8,110 5,741 -------- -------- Discontinued Operations: Federal income tax receivable/payable 18,722 534 Change in discontinued net assets ( 42) ( 374) -------- -------- Net cash provided by discontinued operations 18,680 160 -------- -------- Net cash provided by operating activities 26,790 5,901 -------- -------- Cash Flows From Investing Activities: Capital expenditures ( 370) ( 351) Net proceeds from sales of property, plant and equipment and assets held for sale 8 16 Acquisition of publishing rights ( 375) ( 500) -------- -------- Net cash provided by (used in) investing activities ( 737) ( 835) -------- -------- Cash Flows From Financing Activities: Payments under revolving credit facility ( 17,000) ( 3,243) Payments on long-term debt ( 1,869) ( 1,868) Proceeds from issuance of common stock 52 15 -------- -------- Net cash provided by (used in) financing activities ( 18,817) ( 5,096) -------- -------- Net increase (decrease) in cash and cash equivalents 7,236 ( 30) Cash and cash equivalents at beginning of period 1,707 535 -------- -------- Cash and cash equivalents at end of period $ 8,943 $ 505 -------- -------- Supplemental cash flow information: Interest paid, net $ 483 $ 1,082 Income taxes paid (refunded), net ($19,108) ($ 186) See Notes to Condensed Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note A - Basis of Presentation The accompanying unaudited condensed 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, 2003. The condensed consolidated balance sheets and related information in these notes as of March 31, 2003 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. Total comprehensive income and net income are the same for all periods presented. Note B - Accounting Pronouncements In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equities. SFAS No. 150 requires issuers to classify as liabilities (or assets, in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, SFAS No. 150 is effective for financial instruments entered or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company is currently assessing the impact of the adoption of SFAS No. 150. Note C - Stock-Based Compensation The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above and has adopted only the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards in each period.
Three Months Ended June 30, --------------------------- 2003 2002 --------- --------- Net income (in thousands): As reported $1,057 $ 323 ========= ========= Less: additional stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 340 250 ========= ========= Pro forma $ 717 $ 73 ========= ========= Net income per share: Basic -- As reported $ 0.07 $0.02 ========= ========= Pro forma $ 0.05 $0.01 ========= ========= Diluted -- As reported $ 0.07 $0.02 ========= ========= Pro forma $ 0.05 $0.01 ========= =========
On June 11, 2003, the Company issued 304,000 options to purchase common shares with an exercise price of $12.07, the closing market price that day. These options were granted under the 1992 Employee Stock Incentive Plan and vest at a rate of 33-1/3% on the first through third anniversaires of the grant date, subject to certain performance goals, and vest in full if the executive is employed on the third anniversary of the grant, regardless of whether such goals are met. The fair value of each option on its date of grant has been estimated for pro forma purposes using the Black-Scholes option pricing model using the following weighted average assumptions:
2003 2002 --------- --------- Expected future dividend payment $ - $ - Expected stock price volatility 44.38% 39.90% Risk free interest rate 3.90% 5.01% Expected life of options 9 years 9 years
Note D - Inventories Components of inventories consisted of the following (in thousands):
June 30, March 31, June 30, 2003 2003 2002 ---------- ---------- ---------- Finished goods $36,339 $31,298 $38,163 Raw materials and work in process 1,585 2,339 2,194 ---------- ---------- ---------- $37,924 $33,637 $40,357 ========== ========== ==========
Note E - Operating Segments The Company is organized and managed based upon its products and services. The Company has identified two reportable business segments: publishing and conferences. The publishing segment primarily creates and markets Bibles, inspirational books and videos. The conference segment hosts inspirational and motivational conferences across North America. Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column consists of items related to discontinued operations (in thousands).
For the Three Months Ended Publishing Conferences Other Total - -------------------------- ---------- ----------- ---------- ---------- June 30, 2003: Net Revenues $ 36,004 $ 5,827 $ - $ 41,831 Operating Income (loss) 1,892 ( 161) - 1,731 Identifiable Assets 135,581 22,745 3,785 162,111 Capital Expenditures 332 38 - 370 Depreciation and Amortization 496 64 - 560 June 30, 2002: Net Revenues $ 34,401 $ 6,768 $ - $ 41,169 Operating Income 575 930 - 1,505 Identifiable Assets 144,942 24,165 4,500 173,607 Capital Expenditures 348 3 - 351 Depreciation and Amortization 512 65 - 577 Fiscal Year Ended March 31, 2003: - --------------------------------- Net Revenues $187,599 $29,618 $ - $217,217 Operating Income 14,684 4,242 - 18,926 Identifiable Assets 136,786 22,484 3,785 163,055 Capital Expenditures 4,493 103 - 4,596 Depreciation and Amortization 1,808 253 - 2,061
Note F - Other Liabilities Other liabilities at June 30, 2003 include a non-current tax liability, which resulted from a tax refund of $18.7 million received in April 2003. This tax refund was related to the disposal of the Company's C.R. Gibson gift division and was used to pay down existing debt. Until such time that the Company can conclude that the position taken on its income tax returns will ultimately be sustained by the taxing authorities, the refund will be recorded as a non-current tax liability. If sustained, the Company will recognize the refund as income from discontinued operations. Note G - Debt The Company's bank credit facility consists of a $65 million Senior Unsecured Revolving Credit Facility (the "Credit Facility"). The Credit Facility bears interest at either the lenders' base rate or, at the Company's option, the LIBOR plus a percentage, based on certain financial ratios. The Credit Facility has a term of three years and matures on June 28, 2005. At June 30, 2003, the Company had no outstanding borrowings under the Credit Facility. At June 30, 2003, the Company had outstanding approximately $6.5 million in 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 Facility and the Senior Notes, the Company has agreed to limit the payment of dividends and to maintain certain financial ratios and tangible net worth, which are similarly calculated for each debt agreement. At June 30, 2003, the Company was in compliance with all covenants of these debt agreements. Note H - Royalty Advances At June 30, 2003, March 31, 2003 and June 30, 2002, prepaid expenses include $9.7 million, $8.6 million and $13.1 million, respectively, of royalty advances for products that have been released to the market or are expected to be released within the next twelve months. At June 30, 2003, March 31, 2003 and June 30, 2002, other assets include $2.3 million, $2.9 million and $2.9 million, respectively, for royalty advances for products not expected to be released to the market within the next twelve months. Note I - Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share amounts):
June 30, June 30, 2003 2002 --------- --------- Net income $ 1,057 $ 323 ========= ========= BASIC EARNINGS PER SHARE: Weighted average shares outstanding 14,382 14,367 ========= ========= Net income per share $ 0.07 $ 0.02 ========= ========= DILUTED EARNINGS PER SHARE: Basic weighted average shares outstanding 14,382 14,367 Dilutive stock options - based on treasury stock method using the average market price 225 313 --------- --------- Total weighted average diluted shares 14,607 14,680 ========= ========= Net weighted average diluted income per share $ 0.07 $ 0.02 ========= =========
Options for approximately 973,000 common shares were excluded from the diluted weighted average share calculation for the June 30, 2003 period due to these options being anti-dilutive. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CRITICAL ACCOUNTING POLICIES The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. These policies are common with industry practice and are applied consistently from period to period. Revenue Recognition: The Company has four primary revenue sources: sales of publishing product, attendance fees and product sales from its conferences, royalty income from licensing copyrighted material to third parties and billed freight. Revenue from the sale of publishing product is recognized upon shipment to the customer. In accordance with Securities and Exchange Commission's Staff Accounting Bulletin No. 101 regarding revenue recognition, we recognize revenue only when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable; and collectibility is reasonably assured. An allowance for sales returns is recorded where return privileges exist. The returns allowance is determined by using a 12-month rolling average return rate, multiplied by gross sales occurring over the previous four-month period by market sales channel. Historical experience reflects that product is generally returned from and credited to customers' accounts within the first 120 days of the original sale. The full amount of the returns allowance, net of inventory and royalty costs (based on current gross margin rates) is shown as a reduction of accounts receivable in the accompanying consolidated financial statements. Returns of publishing products from customers are accepted in accordance with standard industry practice. Generally, products that are designated as out-of-print are not returnable 90 days after notice of out-of-print status is given to the customer. Also, certain high discount sales are not returnable. Revenue from conferences is recognized as the conferences take place. Cash received in advance of conferences is included in the accompanying financial statements as deferred revenue. Royalty income from licensing the Company's publishing rights is recorded as revenue when earned under the terms of the applicable license, net of amounts due to authors. Billed freight consists of shipping charges billed to customers and is recorded as revenue upon shipment of product. Allowance for Doubtful Accounts: The Company records an allowance for bad debts as a reduction to accounts receivable in the accompanying consolidated financial statements. The valuation allowance has a specific component related to accounts with known collection risks and a component which is calculated using a 5-year rolling bad debt history applied as a percentage of the accounts receivable balance, less the specific component of the allowance. In fiscal 2003, the Company changed from a 10-year rolling bad debt history to a 5-year history to compute the allowance in order to better reflect the current economic environment. This change did not have a material impact on the allowance balance. Our credit department identifies specific allowances for each customer who is deemed to be a collection risk, may have filed for bankruptcy protection or may have disputed amounts with the Company. Inventories: Inventories are stated at the lower of cost or market value using the first-in, first-out (FIFO) valuation method. The FIFO method of accounting for inventory was selected to value our inventory at the lower of market value or current cost because the Company continuously introduces new products, eliminates existing products and redesigns products. Therefore, inflation does not have a material effect on the valuation of inventory. Costs of producing publishing products are included in inventory and charged to operations when product is sold or otherwise disposed. These costs include paper, printing, binding, outside editorial and design, typesetting, artwork, international freight and duty costs, when applicable. The Company policy is to expense all internal editorial, production, warehousing and domestic freight-in costs as incurred, except for certain indexing, stickering, typesetting and assembly costs, which are capitalized into inventory. Costs of abandoned publishing projects are charged to operations when identified. The Company also maintains an allowance for excess and obsolete inventory as a reduction to inventory in the accompanying consolidated financial statements. This allowance is based on historical liquidation recovery rates applied to inventory quantities identified in excess of a twenty-four month supply on hand for each category of product. Royalty Advances/Pre-Production Costs: Royalty advances are typically paid to authors, as is standard in the publishing industry. These advances are either recorded as prepaid assets or other (long-term) assets in the accompanying consolidated financial statements, depending on the expected publication date (availability for shipment) of the product. Author advances for trade books are generally amortized over five months beginning when the product is first sold into the market. The Company's historical experience is that typically 80% of book product sales occur within the first five months after release into the market. Reference and video royalty advances are generally amortized over a twelve-month period beginning with the first sale date of the product, as these products typically have a longer sales cycle than books. Royalty advances for significant new Bible products are amortized on a straight-line basis for a period not to exceed five years (as determined by management). When royalty advances are earned through product sales at a faster pace than the amortization period, the amortization expense is accelerated to match the royalty earnings. Unamortized advances are reviewed monthly for abandoned projects or titles that appear to have unrecoverable advances. All abandoned projects and advances that management does not expect to fully recover are charged to operations when identified. For authors with multiple book/product contracts, the advance is amortized over a period that encompasses the publication of all products, generally not to exceed 24 months or the actual recovery period, whichever is shorter. Advances to our most important authors are typically expensed as they are recovered through sales. These authors generally have multiple year and multiple book contracts, as well as strong sales history of backlist titles (products published during preceding fiscal years) that can be used to recover advances over long periods of time. Many Bible, reference and video products require significant development costs prior to the actual printing or production of the saleable product. These products also typically have a longer life cycle. All video pre- production costs are amortized over 12 months on a straight-line basis. Pre- production costs for significant Bible and reference products are recorded as deferred charges in the accompanying consolidated financial statements and are amortized on a straight-line basis, for a period not to exceed five years (as determined by management). Goodwill and Intangible Assets: In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. 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 resulted in a $40.4 million cumulative effect of a change in accounting principle charge to write-off goodwill associated with the Company's gift division, which was discontinued and sold during fiscal 2002. The adoption of this new pronouncement had a favorable impact on continuing operations by eliminating amortization of remaining goodwill attributable to continuing operations, which amounted to a pre-tax impact of $1 million. In accordance with SFAS No. 142, goodwill was tested for impairment by the Company's reporting units: Publishing and Conferences. The fair value for the assets of the Publishing and Conferences reporting units was evaluated using discounted expected cash flows and current market multiples, and it was determined that no impairment existed during fiscal 2003. Unless circumstances dictate an earlier analysis, we will conduct our annual goodwill impairment test in our fourth fiscal quarter. OVERVIEW The following table sets forth for the periods indicated certain selected statements of income 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.
Three Months Ended Fiscal June 30, Year-to-Year ------------------ Increase 2003 2002 (Decrease) -------- -------- -------------- (%) (%) (%) Net revenues: Publishing 86.1 83.6 4.7 Conferences 13.9 16.4 (13.9) -------- -------- -------------- Total net revenues 100.0 100.0 1.6 Expenses: Cost of goods sold 61.9 60.6 3.8 Selling, general and administrative 32.7 34.4 (3.4) Depreciation and amortization 1.3 1.4 (2.9) -------- -------- -------------- Total expenses 95.9 96.3 1.1 -------- -------- -------------- Operating income 4.1 3.7 15.0 -------- -------- -------------- Net income 2.5 0.8 227.2 ======== ======== ==============
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. Note On Forward-Looking Statements The following discussion includes certain forward-looking statements. 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 and acceptance of products being introduced to the market, the level of product returns experienced, the level of margins achievable in the marketplace, the collectibility of accounts receivable, recoupment of royalty advances, the effects of acquisitions or dispositions, the financial condition of our customers and suppliers, the realization of inventory values at carrying amounts, our access to capital and realization of income tax (including the outcome of any future Internal Revenue Service audits) and intangible assets. Future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its business strategy. The Company disclaims any intent or obligation to update forward-looking statements. Results of Operations Consolidated Results - First Quarter of Fiscal 2004 Compared with First Quarter of Fiscal 2003 - ----------------------------------------------------------------------- Net revenues for the three months ended June 30, 2003 increased $0.7 million, or 1.6%, from the same period in the prior year. Net revenues from publishing products increased $1.6 million, or 4.7%, primarily due to a strong performance by the book divisions. Net revenues from conferences decreased $0.9 million or 13.9%, primarily due to lower attendance levels compared to the prior year. We believe the lower attendance levels are primarily due to the war in Iraq. There was one additional conference this year compared to the prior year's quarter. Price increases did not have a material effect on net revenues. The Company's cost of goods sold increased for the three months ended June 30, 2003 by $0.9 million, or 3.8% from the same period in the prior year, and as a percentage of net revenues, increased to 61.9% from 60.6% in the prior year. This increase as a percentage of net revenues is primarily attributable to the lower attendance levels at conference events, as the publishing cost of goods sold was consistent with the prior year as a percentage of net revenues. Selling, general and administrative expenses, excluding depreciation and amortization, for the three months ended June 30, 2003 decreased $0.5 million, or 3% from the same period in the prior year. These expenses, expressed as a percentage of net revenues, decreased to 33% from 34% in the prior year. This reduction is primarily attributable to curtailed advertising expenses and lower lease expense due to fewer leased facilities. Depreciation and amortization for the three months ended June 30, 2003, as compared to the three months ended June 30, 2002, were relatively unchanged. Interest expense for the three months ended June 30, 2003 was $0.2 million, a decrease of $0.8 million from the same period in the prior year due to lower debt levels. The provision for income taxes has been increased from 36.5% to 37.5% for the current fiscal year due to increased business activity in states with higher income tax rates without the benefit of state net operating loss carry forwards that existed in prior periods, and accruals for other tax items. Liquidity and Capital Resources - ------------------------------- At June 30, 2003, the Company had approximately $8.9 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 June 30, 2003, the Company had working capital of $62.7 million. Net cash provided by continuing operations was $8.1 million for the three months ended June 30, 2003 and $5.2 million for the same period last year. Cash provided by continuing operations during the three months ended June 30, 2003 was principally attributable to collections of accounts receivable. In April 2003, the Company received a tax refund of $18.7 million. This tax refund was related to the recognition of a loss on disposal of the Company's C.R. Gibson gift division and was used to pay down debt. Until such time that we conclude that the position taken on our income tax returns will ultimately be sustained by the taxing authorities, the refund will be recorded as a non-current tax liability. If sustained, the Company will record the refund as income from discontinued operations. Fiscal year-to-date capital expenditures have totaled approximately $0.4 million, primarily consisting of building improvements, computer software and equipment. During the remainder of fiscal 2004, the Company anticipates capital expenditures of approximately $3.6 million, primarily consisting of building improvements and computer software and equipment. The Company's bank credit facility consists of a $65 million Senior Unsecured Revolving Credit Facility (the "Credit Facility"). The Credit Facility bears interest at either the lenders' base rate or, at the Company's option, the LIBOR plus a percentage, based on certain financial ratios. The Credit Facility has a term of three years and matures on June 28, 2005. At June 30, 2003, the Company had no outstanding borrowings under the Credit Agreement. At June 30, 2003, the Company had outstanding approximately $6.5 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 Facility and the Senior Notes, the Company has agreed to limit the payment of dividends and to maintain certain financial ratios and tangible net worth. At June 30, 2003, the Company was in compliance with all covenants of these debt agreements. Management believes cash generated by operations and borrowings available under the Credit Facility will be sufficient to fund anticipated working capital requirements for existing operations through the remainder of fiscal 2004. 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 as of and for the year ended March 31, 2003. The Company also has current inventory purchase and royalty advance commitments in the ordinary course of business that require cash payments as vendors and authors fulfill their requirements to the Company in the form of delivering satisfactory product orders and manuscripts, respectively. The Company has no off-balance sheet commitments or transactions with any variable interest entities (VIE's). Management also is not aware of any undisclosed material related party transactions or relationships with management, officers or directors.
Payments Due by Fiscal Year Contractual ------------------------------------------------------------- Commitments 2008 and (in 000's) 2004 2005 2006 2007 thereafter Total - ------------------ -------- -------- -------- -------- ---------- -------- Long-term debt $ 3,622 $ 3,461 $ - $ - $ - $ 7,083 Inventory purchases 4,812 7,813 5,000 5,000 8,333 30,958 Operating leases 1,451 1,348 932 408 1,303 5,442 Royalty advances 4,059 1,292 431 721 75 6,578 -------- -------- -------- -------- ---------- -------- Total obligations $13,944 $13,914 $6,363 $6,129 $9,711 $50,061 ======== ======== ======== ======== ========== ========
From time to time, the Company may consider acquisition or sale transactions. The Company has indicated its non-binding interest in purchasing certain assets of a small publishing business. Discussions are continuing, but no agreement has been reached and there can be no assurance that an agreement will be reached or consummated. Accounting Pronouncements - ------------------------- In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equities. SFAS No. 150 requires issuers to classify as liabilities (or assets, in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, SFAS No. 150 is effective for financial instruments entered or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company is currently assessing the impact of the adoption of SFAS No. 150. Item 3. Quantitative and Qualitative Disclosures About Market Risk As of and for the period ended June 30, 2003, 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 as of and for the period ended June 30, 2003. Item 4. Controls and Procedures The President and Chief Executive Officer and the Executive Vice President and Secretary (Principal Financial and Accounting Officer) have conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this quarterly report. Based on that evaluation, the President and Chief Executive Officer and the Executive Vice President and Secretary (Principal Financial and Accounting Officer) concluded that, as of the end of the period covered by this quarterly report, the Company's disclosure controls and procedures are effective in ensuring that all material information required to be disclosed in the Company's reports that it files or submits to the SEC under the Securities Exchange Act of 1934 has been made known to them in a timely fashion. There have been no changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 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 31.1 - Certifications of the President and Chief Executive Officer and the Executive Vice President and Secretary (Principal Financial and Accounting Officer) of the Company pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 - Certifications of the President and Chief Executive Officer and the Executive Vice President and Secretary (Principal Financial and Accounting Officer) of the Company Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K - On August 6, 2003 the Company filed a current report on Form 8-K to announce the date and time of the conference call regarding the financial results of the first quarter of fiscal 2004. - On August 13, 2003 the Company filed a current report on Form 8-K to announce the results and financial condition for the first quarter of fiscal 2004. 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) Date: August 14, 2003 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 31.1 - Certifications of the President and Chief Executive Officer and the Executive Vice President and Secretary (Principal Financial and Accounting Officer) of the Company pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.2 - Certifications of the President and Chief Executive Officer and the Executive Vice President and Secretary (Principal Financial and Accounting Officer)of the Company Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 EX-11 4 ex11062003q.txt EXHIBIT 11 FOR FORM 10-Q FOR JUNE 30, 2003 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS THREE MONTHS ENDED JUNE 30, 2003 AND 2002 (Dollars and Shares in thousands, except per share data) (unaudited)
June 30, June 30, 2003 2002 ---------- ---------- Net income $ 1,057 $ 323 ========== ========== BASIC EARNINGS PER SHARE: Weighted average shares outstanding 14,382 14,367 ========== ========== Net income per share $ 0.07 $ 0.02 ========== ========== DILUTED EARNINGS PER SHARE: Basic weighted average shares outstanding 14,382 14,367 Dilutive stock options - based on treasury stock method using the average market price 225 313 ---------- ---------- Total weighted average diluted shares 14,607 14,680 ========== ========== Net income per share $ 0.07 $ 0.02 ========== ==========
EX-12 5 ex311062003q.txt EXHIBIT 31.1 FOR FORM 10-Q FOR JUNE 30, 2003 EXHIBIT 31.1 CERTIFICATIONS -------------- I, Sam Moore, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Thomas Nelson, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 By: /s/ Sam Moore -------------------- Sam Moore Chairman, Chief Executive Officer and President I, Joe L. Powers, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Thomas Nelson, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 By: /s/ Joe L. Powers ------------------------ Joe L. Powers Executive Vice President and Secretary (Principal Financial and Accounting Officer) EX-13 6 ex321062003q.txt EXHIBIT 32.1 FOR FORM 10-Q FOR JUNE 30, 2003 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Thomas Nelson, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sam Moore, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Sam Moore - -------------------- Sam Moore Chairman, Chief Executive Officer and President August 14, 2003 In connection with the Quarterly Report of Thomas Nelson, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joe L. Powers, Executive Vice Presidnet and Secretary (Principal Financial and Accounting Officer)of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joe L. Powers - ------------------------ Joe L. Powers Executive Vice President and Secretary (Principal Financial and Accounting Officer) August 14, 2003 These certifications shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to liability pursuant to that section. Such certifications shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference. A signed original of these written statements required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----