-----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, TeOStZpT0VVi4K6awdSuUs73r940H/wbloHC4iyt99AlEy2oipcbPDuAXvILHYe+ NcHcMhyT6d2fntQPcDQS6w== 0000071023-03-000035.txt : 20031114 0000071023-03-000035.hdr.sgml : 20031114 20031114095240 ACCESSION NUMBER: 0000071023-03-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 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: 031000700 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 q092003.txt FORM 10-Q FOR PERIOD ENDED SEPTEMBER 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 September 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 November 13, 2003, the Registrant had outstanding 13,386,162 shares of Common Stock and 1,016,195 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)
September 30, March 31, September 30, 2003 2003 2002 ------------- ------------- ------------ (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,909 $ 1,707 $ 363 Accounts receivable, less allowances of $7,798, $7,311 and $7,425, respectively 56,501 56,806 55,700 Inventories 39,623 33,637 41,236 Prepaid expenses 13,294 13,521 15,597 Assets held for sale 1,615 1,785 2,500 Refundable income taxes - - 7,266 Deferred tax assets 5,085 5,085 7,966 ------------- ------------- ------------ Total current assets 121,027 112,541 130,628 Property, plant and equipment, net 11,961 11,630 9,582 Other assets 7,611 7,358 7,333 Deferred charges 2,421 1,695 1,992 Intangible assets 861 527 512 Goodwill,net 29,304 29,304 29,304 ------------- ------------- ------------ Total Assets $173,185 $163,055 $179,351 ============= ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 23,773 $ 20,218 $ 23,772 Accrued expenses 10,247 13,835 13,067 Deferred revenue 9,435 11,493 8,981 Dividends payable 576 - - Income taxes currently payable 5,243 2,379 1,825 Current portion of long-term debt 3,022 3,622 3,322 ------------- ------------- ------------ Total current liabilities 52,296 51,547 50,967 Long-term debt, less current portion 3,461 22,330 44,641 Deferred tax liabilities 721 721 792 Other liabilities 21,578 590 898 Minority interest 46 43 38 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 13,373,396, 13,350,431 and 13,343,765 shares, respectively 13,373 13,350 13,344 Class B stock, $1.00 par value, aughorized 5,000,000 shares; Issued 1,024,795 shares 1,025 1,025 1,025 Additional paid-in capital 44,201 44,064 44,023 Retained earnings 36,484 29,385 23,623 ------------- ------------- ------------ Total sharesholders' equity 95,083 87,824 82,015 ------------- ------------- ------------ Total Liabilities and Shareholders' Equity $173,185 $163,055 $179,351 ============= ============= ============ See Notes to Condensed Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (000's omitted, unaudited)
Three Months Ended Six Months Ended September 30, September 30, ------------------ ------------------ 2003 2002 2003 2002 ------- ------- -------- -------- Net revenues $63,829 $62,074 $105,660 $103,243 Costs and expenses: Cost of goods sold 36,176 37,656 62,051 62,594 Selling, general & administrative 15,984 16,795 29,649 30,988 Depreciation & amortization 558 588 1,118 1,123 ------- ------- -------- -------- Total costs and expenses 52,718 55,039 92,818 94,705 ------- ------- -------- -------- Operating income 11,111 7,035 12,842 8,538 Other expense (income) 12 18 (179) (74) Interest expense 243 536 487 1,589 ------- ------- -------- -------- Income from continuing operations before income taxes 10,856 6,481 12,534 7,023 Provision for income taxes 4,071 2,365 4,700 2,563 Minority interest 11 16 3 38 ------- ------- -------- -------- Income from continuing operations 6,774 4,100 7,831 4,422 Discontinued operations: Loss on disposal, net of taxes (156) - (156) - ------- ------- -------- -------- Net income $ 6,618 $ 4,100 $ 7,675 $ 4,422 ======= ======= ======== ======== Weighted average number of shares outstanding: Basic 14,393 14,369 14,387 14,368 ======= ======= ======== ======== Diluted 14,761 14,649 14,667 14,665 ======= ======= ======== ======== Net income per share, Basic: Income from continuing operations $ 0.47 $ 0.29 $ 0.54 $ 0.31 Loss from discontinued operations (0.01) - (0.01) - ------- ------- -------- -------- Net income per share $ 0.46 $ 0.29 $ 0.53 $ 0.31 ======= ======= ======== ======== Net income per share, Diluted: Income from continuing operations $ 0.46 $ 0.28 $ 0.53 $ 0.30 Loss from discontinued operations (0.01) - (0.01) - ------- ------- -------- -------- Net income per share $ 0.45 $ 0.28 $ 0.52 $ 0.30 ======= ======= ======== ======== See Notes to Condensed Consolidated Financial Statements
Thomas Nelson, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (000's omitted) (unaudited)
Six Months Ended September 30, ---------------------- 2003 2002 ---------- ---------- Cash Flows From Operating Activities: Net income from continuing operations $ 7,831 $ 4,422 Adjustments to reconcile income to net cash provided by (used in) operations: Depreciation and amortization 1,118 1,123 Amortization of deferred financing fees 105 293 Loss on sale of fixed assets and assets held for sale 15 141 Minority interest 3 38 Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net (361) 5,900 Inventories (1,835) (2,041) Prepaid expenses 261 1,974 Accounts payable and accrued expenses (2,000) 1,675 Deferred revenue (2,058) (2,241) Income taxes currently payable 2,864 1,325 Change in other assets and liabilities and deferred charges 178 (611) ---------- ---------- Net cash provided by continuing operations 6,121 11,998 Discontinued Operations: Loss from discontinued operations (156) - Federal income tax receivable (payable) 20,883 - Change in discontinued net assets 186 (2,163) ---------- ---------- Net cash provided by (used in) discontinued operations 20,913 (2,163) ---------- ---------- Net cash provided by operating activities 27,034 9,835 ---------- ---------- Cash Flows From Investing Activities: Capital expenditures (1,471) (1,582) Net proceeds from sales of property, plant and equipment and assets held for sale 30 24 Purchase of net assets of acquired company (2,708) - Acquisition of publishing rights (375) (500) ---------- ---------- Net cash provided by (used in) investing activities (4,524) (2,058) ---------- ---------- Cash Flows From Financing Activities: Payments under revolving credit facility (17,000) (6,543) Payments on long-term debt (2,469) (1,868) Proceeds from issuance of common stock 161 13 Other financing activities - (51) ---------- ---------- Net cash provided by (used in) financing activities (19,308) (8,449) ---------- ---------- Net increase (decrease) in cash and cash equivalents 3,202 (172) Cash and cash equivalents at beginning of period 1,707 535 ---------- ---------- Cash and cash equivalents at end of period $ 4,909 $ 363 ---------- ---------- Supplemental cash flow information: Dividends accrued and unpaid $ 576 $ - Interest paid, net $ 683 $ 1,484 Income taxes paid (refunded), net $(19,146) $ 3,242 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 the 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 into 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 does not expect the adoption of SFAS No. 150 to have a material impact on its consolidated financial statements. 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 Six Months Ended September 30, September 30 ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Net income (in thousands): As reported $6,618 $4,100 $7,675 $4,422 Less: additional stock-based employee compensation expense determined under fair-value based method for all awards, net of related tax effects 495 390 875 720 ======== ======== ======== ======== Pro forma $6,123 $3,710 $6,800 $3,702 ======== ======== ======== ======== Net income per share: Basic -- As reported $ 0.46 $ 0.29 $ 0.53 $ 0.31 ======== ======== ======== ======== Pro forma $ 0.43 $ 0.26 $ 0.47 $ 0.26 ======== ======== ======== ======== Diluted -- As reported $ 0.45 $ 0.28 $ 0.52 $ 0.30 ======== ======== ======== ======== Pro forma $ 0.41 $ 0.25 $ 0.46 $ 0.25 ======== ======== ======== ========
On June 11, 2003, the Company issued 604,000 options to purchase shares. Three hundred four thousand options for shares of Common Stock were granted under the 1992 Employee Stock Incentive Plan with an exercise price of $12.07, the closing market price that day. Three hundred thousand options were granted under the 2003 Stock Incentive Plan, exercisable for either shares of Common or Class B Common Stock. The exercise price of this grant is $12.33, representing the fair value of Class B Common Stock on the grant date. Vesting under both plans are at a rate of 33-1/3% on the first through third anniversaries of the grant date, subject to certain performance goals, and vest in full if the employee 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:
September 30, 2003 September 30, 2002 ------------------ ------------------ Expected annual future dividend payment $0.16 per share - Expected stock price volatility 40.31% 39.26% Risk free interest rate 5.35% 5.77% Expected life of options 9 years 9 years
Note D - Inventories Components of inventories consisted of the following (in thousands):
September 30, March 31, September 30, 2003 2003 2002 ------------- ------------- ------------- Finished goods $37,759 $31,298 $39,535 Raw materials and work in process 1,864 2,339 1,701 ------------- ------------- ------------- $39,623 $33,637 $41,236 ============= ============= =============
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 - -------------------------- ----------- ----------- ----------- -------- September 30, 2003: Net Revenues $ 53,754 $10,075 $ - $ 63,829 Operating Income 9,960 1,151 - 11,111 Capital Expenditures 1,064 37 - 1,101 Depreciation and Amortization 493 65 - 558 September 30, 2002: Net Revenues $ 50,167 $11,907 $ - $ 62,074 Operating Income 4,934 2,101 - 7,035 Capital Expenditures 1,203 28 - 1,231 Depreciation and Amortization 525 63 - 588 For the Six Months Ended - ------------------------ September 30, 2003: Net Revenues $ 89,757 $15,903 $ - $105,660 Operating Income 11,852 990 - 12,842 Identifiable Assets 148,086 21,483 3,616 173,185 Capital Expenditures 1,396 75 - 1,471 Depreciation and Amortization 989 129 - 1,118 September 30, 2002: Net Revenues $ 84,568 $18,675 $ - $103,243 Operating Income 5,507 3,031 - 8,538 Identifiable Assets 145,787 21,798 11,766 179,351 Capital Expenditures 1,551 31 - 1,582 Depreciation and Amortization 995 128 - 1,123 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 September 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. Further, it is expected that the Company will reduce its current year income tax payments by approximately $2.2 million related to additional tax credits generated by the tax loss realized on the disposal of C.R. Gibson. 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 and the tax credits will be recorded as a non-current tax liability. If the Company's position is 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 September 30, 2003, the Company had no outstanding borrowings under the Credit Facility. At September 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 September 30, 2003, the Company was in compliance with all covenants of these debt agreements. Note H - Royalty Advances At September 30, 2003, March 31, 2003 and September 30, 2002, prepaid expenses include $8.8 million, $8.4 million and $10.7 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 September 30, 2003, March 31, 2003 and September 30, 2002, other assets include $3.2 million, $2.9 million and $2.8 million, respectively, for royalty advances for products not expected to be released to the market within the next twelve months. Note I - Acquisitions On September 19, 2003, the Company purchased substantially all of the assets of World Bible Publishers ("World") from RiversideWorld, Inc., which is a customer and competitor of the Company, for approximately $5.2 million. As of September 30, 2003, the Company had paid cash in the amount of $2.7 million and issued credit against accounts receivable from RiversideWorld in the amount of $0.7 million. The remaining $1.8 million, which was recorded as a current liability at September 30, 2003, was paid in cash during October 2003. World primarily publishes Bibles and Christian books and was headquartered in Iowa Falls, Iowa. The purchase price has been preliminarily allocated to the net assets acquired, based on their estimated fair values (inventory of $4.2 million and development cost for publication of Bibles of $1 million, which will be amortized over a five-year period). Note J - Cash Dividend On August 21, 2003, 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 on October 20, 2003 to shareholders of record on October 6, 2003. Note K - Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share amounts):
Three Months Ended Six Months Ended September 30, September 30, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Net income $ 6,618 $ 4,100 $ 7,675 $ 4,422 ======== ======== ======== ======== BASIC EARNINGS PER SHARE: Weighted average shares outstanding 14,393 14,369 14,387 14,368 ======== ======== ======== ======== Net income per share $ 0.46 $ 0.29 $ 0.53 $ 0.31 ======== ======== ======== ======== DILUTED EARNINGS PER SHARE: Basic weighted average shares outstanding 14,393 14,369 14,387 14,368 Dilutive stock options - based on treasury stock method using the average market price 368 280 280 297 -------- -------- -------- -------- Total weighted average diluted shares 14,761 14,649 14,667 14,665 ======== ======== ======== ======== Net income per share $ 0.45 $ 0.28 $ 0.52 $ 0.30 ======== ======== ======== ========
Options which are not dilutive were excluded from the diluted weighted average share calculation and totaled approximately 510,000 and 1,158,000 for the quarter and fiscal year-to-date periods ended September 30, 2003, respectively. 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 disclosures 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 condensed 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 condensed 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 condensed 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 condensed 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 condensed 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. In accordance with SFAS No. 142, goodwill is 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 is evaluated using discounted expected cash flows and current market multiples. 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.
Six Months Ended September 30, Fiscal Year-to-Year ---------------- Increase 2003 2002 (Decrease) ------- ------- ------------------- (%) (%) (%) Net revenues: Publishing 84.9 81.9 6.4 Conferences 15.1 18.1 (16.0) ------- ------- ------------------- Total net revenues 100.0 100.0 2.3 Expenses: Cost of goods sold 58.7 60.6 (0.9) Selling, general and administrative 28.1 30.0 (4.3) Depreciation and amortization 1.1 1.1 (0.4) ------- ------- ------------------- Total expenses 87.9 91.7 (2.0) ------- ------- ------------------- Operating income 12.1 8.3 50.4 ------- ------- ------------------- Net income 7.3 4.3 73.6 ======= ======= ===================
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 - Second Quarter of Fiscal 2004 Compared with Second Quarter of Fiscal 2003 - ------------------------------------------------------------------------- Net revenues for the three months ended September 30, 2003 increased $1.8 million, or 3%, from the same period in the prior year. Net revenues from publishing products increased $3.6 million, or 7%. The increase in publishing revenues is primarily due to strong book product releases in the quarter. Net revenues from conferences decreased $1.8 million or 15%, primarily due to there being one less 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 decreased for the three months ended September 30, 2003 by $1.5 million, or 4% from the same period in the prior year, and as a percentage of net revenues, decreased to 57% from 61% in the prior year. This decrease as a percentage of net revenues is primarily attributable to strong-performing publishing products with the increase in sales occurring in a higher margin product and market mix. Selling, general and administrative expenses, excluding depreciation and amortization, for the three months ended September 30, 2003 decreased $0.8 million, or 4.8% from the same period in the prior year. These expenses, expressed as a percentage of net revenues, decreased to 25% from 27% in the prior year. This reduction is primarily attributable to planned reductions in advertising expenditures. Depreciation and amortization for the three months ended September 30, 2003, as compared to the three months ended September 30, 2002, were relatively unchanged. Interest expense for the three months ended September 30, 2003 was $0.2 million, a decrease of $0.3 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. Consolidated Results - First Six Months of Fiscal 2004 Compared with the First Six Months of Fiscal 2003 - ---------------------------------------------------------------------------- Net revenues for the six months ended September 30, 2003 increased $2.4 million, or 2%, from the same period in the prior year. Net revenues from publishing products increased $5.4 million, or 6%, primarily due to a strong performance by the book divisions. Net revenues from conferences decreased $3.0 million or 16%, 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 and venue of conferences, compared to the prior year period. The same number of conferences were held this year compared to the prior year's period. Price increases did not have a material effect on net revenues. The Company's cost of goods sold decreased for the six months ended September 30, 2003 by $0.5 million, or 1% from the same period in the prior year, and as a percentage of net revenues, decreased to 59% from 61% in the prior year. This decrease as a percentage of net revenues is primarily attributable to strong-performing publishing products with larger print runs, partially offset by lower attendance levels at conference events with fixed costs. Selling, general and administrative expenses, excluding depreciation and amortization, for the six months ended September 30, 2003 decreased $1.3 million, or 4% from the same period in the prior year. These expenses, expressed as a percentage of net revenues, decreased to 28% from 30% in the prior year period. This reduction is primarily attributable to curtailed advertising expenses and lower lease expense due to fewer leased facilities. Depreciation and amortization for the six months ended September 30, 2003, as compared to the six months ended September 30, 2002, were relatively unchanged. Interest expense for the six months ended September 30, 2003 was $0.5 million, a decrease of $1.0 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 September 30, 2003, the Company had approximately $4.9 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 September 30, 2003, the Company had working capital of $69.3 million. Net cash provided by continuing operations was $6.1 million for the six months ended September 30, 2003 and $12.0 million for the same period last year. Cash provided by continuing operations during the six months ended September 30, 2003 was principally attributable to net income from continuing operations. Cash provided by continuing operations during the six months ended September 30, 2002 was principally attributable to income from continuing operations and the collection 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. Further, it is expected that the Company will reduce its current year income tax payments by approximately $2.2 million related to additional tax credits generated by the tax loss realized on the disposal of C.R. Gibson. 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 and the tax credits will be recorded as a non-current tax liability. If the Company's position is sustained,the Company will recognize the refund as income from discontinued operations. Fiscal year-to-date capital expenditures have totaled approximately $1.5 million, primarily consisting of building improvements, computer software and equipment. During the remainder of fiscal 2004, the Company anticipates capital expenditures of approximately $2.5 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 September 30, 2003, the Company had no outstanding borrowings under the Credit Agreement. At September 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 September 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.
Contractual Payments Due by Fiscal Year Commitments ------------------------------------------------------------ (in 000's) Year 1 Year 2 Year 3 Year 4 Thereafter Total - ------------------ -------- -------- -------- -------- ---------- -------- Long-term debt $ 3,022 $ 3,461 $ - $ - $ - $ 6,483 Inventory purchases 3,905 6,407 5,000 5,000 5,834 26,146 Operating leases 1,609 1,106 648 402 1,102 4,867 Royalty advances 5,387 1,494 1,273 295 46 8,495 -------- -------- -------- -------- ---------- -------- Total obligations $13,923 $12,468 $6,921 $5,697 $6,982 $45,991 ======== ======== ======== ======== ========== ========
Withheld/ Nominee For Abstained Against - ----------------- ---------- --------- --------- Ronald W. Blue 17,624,826 352,989 5,167 S. Joseph Moore 17,624,706 352,848 5,287 Millard V. Oakley 17,623,449 405,586 6,544 At the Annual Meeting, the shareholders of the Company also voted to consider and act upon a proposal to adopt the Company's 2003 Stock Incentive Plan. The following table sets forth the number of votes cast for, withheld/abstained and against the plan:
Withheld/ For Abstained Against ---------- --------- --------- 11,995,059 45,998 4,054,802
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits required by Item 601 of Regulation S-K Exhibit Number ------- 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 furnished 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 furnished a current report on Form 8-K to announce the results and financial condition for the first quarter of fiscal 2004. - On August 22, 2003, the Company furnished a current report on Form 8-K to announce the results of the shareholder election and the decision of the Board of Directors to resume the payment of dividends. - On October 29, 2003, the Company furnished a current report on Form 8-K to announce the date and time of the conference call regarding the financial results of the second quarter of fiscal 2004. - On November 5, 2003, the Company furnished a current report on Form 8-K to announce the results and financial condition for the second 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: November 13, 2003 By: /s/ Joe L. Powers ------------------- ------------------------ Joe L. Powers Executive Vice President (Principal Financial and Accounting Officer) INDEX TO EXHIBITS Exhibit Number - ------- 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 EX-31 4 ex311092003q.txt EXHIBIT 31.1 TO SEPTEMBER 30, 2003 FORM 10-Q 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 the 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: November 13, 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 the 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: November 13, 2003 By: /s/ Joe L. Powers ------------------------ Joe L. Powers Executive Vice President and Secretary (Principal Financial and Accounting Officer) EX-32 5 ex321092003q.txt EXHIBIT 32.1 TO SEPTEMBER 30, 2003 FORM 10-Q 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 September 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 November 13, 2003 In connection with the Quarterly Report of Thomas Nelson, Inc. (the "Company") on Form 10-Q for the period ending September 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) November 13, 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-----