-----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, JWbSd7zERUNH3khHlXFPheVM5Jv2tDssrWfprwr84E8hEaFQu/hiUvCQtGmx8LJK tbEtrClGAmEbIaje/GEW+g== 0000071023-98-000008.txt : 19980817 0000071023-98-000008.hdr.sgml : 19980817 ACCESSION NUMBER: 0000071023-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE 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: SEC FILE NUMBER: 001-13788 FILM NUMBER: 98690403 BUSINESS ADDRESS: STREET 1: P O BOX 141000 CITY: NASHVILLE STATE: TN ZIP: 37214-1000 BUSINESS PHONE: 6158899000 MAIL ADDRESS: STREET 1: P O BOX 141000 CITY: NASHVILLE STATE: TN ZIP: 37214-1000 FORMER COMPANY: FORMER CONFORMED NAME: ROYAL PUBLISHERS INC DATE OF NAME CHANGE: 19721019 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-4095 THOMAS NELSON, INC. (Exact name of Registrant as specified in its charter) Tennessee 62-0679364 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 501 Nelson Place, Nashville, Tennessee 37214-1000 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (615)889-9000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At August 11, 1998, the Registrant had outstanding 14,092,749 shares of Common Stock and 1,106,324 shares of Class B Common Stock. Part I Item 1. Financial Statements THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
June 30, March 31, June 30, 1998 1998 1997 ----------- ---------- ------------ (Unaudited) (Unaudited) ASSETS Current assets Cash and cash equivalents $ 1,721 $ 39,713 $ 26,178 Accounts receivable, less allowances of $5,030, $6,162 and $5,753, respectively 58,854 65,415 60,427 Inventories 76,522 70,590 74,530 Prepaid expenses 9,864 8,177 9,275 Deferred tax assets 3,276 3,276 8,310 --------- --------- --------- Total current assets 150,237 187,171 178,720 Property, plant and equipment, net 31,372 32,103 32,513 Other assets 10,941 9,843 10,533 Deferred charges 1,628 1,789 2,574 Goodwill 56,141 56,536 57,708 --------- --------- --------- TOTAL ASSETS $ 250,319 $ 287,442 $ 282,048 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 13,951 $ 16,701 $ 14,206 Accrued expenses 16,234 21,268 22,657 Dividends payable 612 685 685 Income taxes currently payable 1,013 4,286 5,241 Current portion of long-term debt & capital lease obligations 3,941 3,975 3,256 --------- --------- --------- Total current liabilities 35,751 46,915 46,045 Long-term debt 77,863 79,476 83,128 Capital lease obligations 19 84 297 Deferred tax liabilities 3,363 3,364 3,640 Other liabilities 1,149 1,207 1,814 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 14,192,829, 16,002,817 and 15,997,870 shares, respectively 14,193 16,003 15,998 Class B common stock, $1.00 par value, authorized 5,000,000 shares; issued 1,111,924, 1,111,924 and 1,112,071 shares, respectively 1,112 1,112 1,112 Additional paid-in capital 56,001 79,057 79,417 Retained earnings 60,868 60,224 50,597 --------- --------- --------- Total shareholders' equity 132,174 156,396 147,124 --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 250,319 $ 287,442 $ 282,048 ========= ========= ========= See Accompanying Notes
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
Three Months Ended June 30, 1998 1997 ----------- ----------- (Unaudited) (Unaudited) NET REVENUES $ 5,994 $ 54,459 COST AND EXPENSES: Cost of goods sold 30,334 29,775 Selling, general and administrative 22,156 21,525 Amortization of goodwill and non-compete agreements 408 500 ---------- ---------- Total expenses 52,898 51,800 ---------- ---------- OPERATING INCOME 3,096 2,659 Other income 387 510 Interest expense 1,490 1,571 ---------- ---------- Income before income taxes 1,993 1,598 Provision for income taxes 737 607 ---------- ---------- NET INCOME $ 1,256 $ 991 ========== ========== Weighted average number of shares outstanding: Basic 16,726 17,109 ========== ========== Diluted 19,991 20,359 ========== ========== NET INCOME PER SHARE: Basic $ 0.08 $ 0.06 ========== ========== Diluted $ 0.08 $ 0.06 ========== ========== DIVIDENDS DECLARED PER SHARE $ 0.04 $ 0.04 ========== ========== See Accompanying Notes
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Three Months Ended June 30, ----------------------------- 1998 1997 ------------- ------------ (Unaudited) (Unaudited) CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES: Net income $ 1,256 $ 991 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization 1,695 1,731 Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net 6,561 6,922 Inventories ( 5,932) ( 2,980) Prepaid expenses ( 1,687) 146 Accounts payable and accrued expenses ( 7,097) ( 7,687) Income taxes currently payable and deferred ( 3,273) ( 14,733) ---------- ---------- Net cash used in continuing operations ( 8,477) ( 15,610) ---------- ---------- Discontinued operations: Changes in discontinued assets ( 687) 310 Cash used in discontinued operations - ( 103) ---------- ---------- Net cash provided by (used in) discontinued operations ( 687) 207 ---------- ---------- Net cash used in operating activities ( 9,164) ( 15,403) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 341) ( 634) Changes in other assets and deferred charges ( 1,165) ( 232) ---------- ---------- Net cash used in investing activities ( 1,506) ( 866) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments under capital lease obligations ( 65) ( 80) Payments on long-term debt ( 1,650) ( 25) Dividends paid ( 684) ( 684) Proceeds from issuance of common stock 1 9 Common stock repurchased and retired ( 24,889) ( 4) Other financing activities ( 35) ( 240) ---------- ---------- Net cash used in financing activities ( 27,322) ( 1,024) ---------- ---------- Net decrease in cash and cash equivalents ( 37,992) ( 17,293) Cash and cash equivalents at beginning of period 39,713 43,471 ---------- ---------- Cash and cash equivalents at end of period $ 1,721 $ 26,178 ========== ========== Supplemental disclosures of non-cash investing and financing activities: Dividends accrued and unpaid $ 612 $ 685
THOMAS NELSON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - Basis of Presentation The accompanying unaudited consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to SEC rules and regulations. The statements should be read in conjunction with the Summary of Significant Accounting Policies and notes to the consolidated financial statements included in the Company's annual report for the year ended March 31, 1998. The balance sheet and related information in these notes as of March 31, 1998, have been taken from the audited consolidated financial statements as of that date. Certain reclassifications have been made to conform presentation of the fiscal 1998 financial statements with fiscal 1999 presentation. Note B - New Pronouncements Reporting on the Costs of Start-Up Activities: In April 1998, the Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 requires the costs of start-up activities and organization costs, as defined, to be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The Company will adopt the pronouncement during the first quarter of fiscal 2000. The Company does not expect the adoption to have a material impact on the Company's results of operations, financial condition or cash flows. Note C - Inventories Components of inventories consisted of the following (in thousands):
June 30, March 31, June 30, 1998 1998 1997 ---------- ----------- ---------- Finished goods $ 62,231 $ 54,503 $ 56,740 Raw materials and work in process 14,291 16,087 17,790 ---------- ----------- ---------- $ 76,522 $ 70,590 $ 74,530 ========== =========== ==========
Note D - Cash Dividend On May 21, 1998, the Company's board of directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend is payable August 17, 1998, to shareholders of record on August 3, 1998. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW The following table sets forth for the periods indicated certain selected statements of operations data of the Company expressed as a percentage of net revenues and the percentage change in dollars in such data from the prior fiscal year.
Three Months Ended Fiscal June 30, Year-to-Year ------------------ Increase 1998 1997 (Decrease) ------- -------- ---------- (%) (%) (%) Net revenues Publishing 56.7 59.8 ( 2.4) Gift 43.3 40.2 10.6 ------- ------- Total net revenues 100.0 100.0 2.8 ------- ------- Expenses Cost of goods sold 54.2 54.7 1.9 Selling, general and administrative 39.6 39.5 2.9 Amortization of goodwill and non-compete agreements 0.7 0.9 ( 18.4) ------- ------- Total expenses 94.5 95.1 2.1 ------- ------- Operating income 5.5 4.9 16.4 ======= ======= Net income 2.2 1.8 26.7 ======= =======
The Company's net revenues fluctuate seasonally, with net revenues in the first fiscal quarter historically being lower than those for the remainder of the year. This seasonality is the result of increased consumer purchases of the Company's products during the traditional holiday periods. In addition, the Company's quarterly operating results may fluctuate significantly due to the seasonality of new product introductions, the timing of selling and marketing expenses and changes in sales and product mixes. The following discussion includes certain forward-looking statements. Actual results could differ materially from those reflected by the forward-looking statements and a number of factors may affect future results, liquidity and capital resources. These factors include softness in the general retail environment, the timing of products being introduced into the market, the level of returns experienced by operating divisions, the level of margins achievable in the marketplace and the ability to minimize operating expenses. Although the Company believes it has the business strategy and resources needed for improved operations, future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its business strategy during the remainder of fiscal 1999. The Company disclaims any intent or obligation to update forward- looking statements. Results of Operations Net revenues for the first three months of fiscal 1999 increased $1.5 million, or 2.8%, over the same period in fiscal 1998. The publishing product net revenues decreased $800,000, or 2.4%, compared to the prior year primarily due to timing of new product releases with fewer major releases for the June 1998 quarter than those for the June 1997 quarter. In addition, expiration of certain agreements whereby the Company acted as a distributor of publishing products contributed to the decrease in revenues from the prior year. The Company anticipates that the publishing product will experience increased revenues for the remainder of fiscal 1999. Net revenues from gift products increased $2.3 million, or 10.6%, primarily due to increased sales of a special selection of products to mass merchandisers and sales to specialty stores. Price increases did not have a material effect on net revenues. The Company's cost of goods sold for the first three months of fiscal 1999 increased by $600,000, or 1.9%, over the same period in fiscal 1998 and, as a percentage of net revenues, decreased to 54.2% for the first three months of fiscal 1999 from 54.7% in the comparable period in fiscal 1998. The decrease in cost of goods sold, as a percentage of net revenues, for the first three months resulted primarily from increased revenues from higher margin gift product categories. Selling, general and administrative expenses for the first three months of fiscal 1999 increased by $600,000, or 2.9%, from the same period in fiscal 1998. These expenses, expressed as a percentage of net revenues, were relatively unchanged at 39.6% for the first three months of fiscal 1999 versus 39.5% in the same period in fiscal 1998. The Company's selling, general and administrative expenses are relatively fixed during the fiscal year and do not materially increase with revenue increases. Revenues for the remainder of the 1999 fiscal year are expected to be greater than the revenues for the first quarter because of seasonal sales increases and new product introductions; therefore, selling, general and administrative expenses should decrease as a percentage of revenues. Interest expense for the first three months of fiscal 1999 decreased by $100,000, or 5.2%, over the same period in fiscal 1998 due to scheduled debt retirement. Liquidity and Capital Resources At June 30, 1998, the Company had $1.7 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, 1998, the Company had working capital of $114.5 million. On June 10, 1998, the Company announced its intention to repurchase up to three million shares of common stock and/or Class B common stock from time to time in the open market or through privately negotiated transactions. As of June 30, 1998, the Company had repurchased approximately 1.8 million shares of common stock in the open market with an additional 200,000 purchased through July 22, 1998. Net cash used in operating activities was $9.2 million and $15.4 million for the first three months of fiscal 1999 and 1998, respectively. Cash used in operations during the first three months of fiscal 1999 was principally attributable to decreases in accounts payable and accrued expenses and an increase in inventories for the Christmas selling season. Cash used in opera- tions during the first three months of fiscal 1998 was principally attributable to the decrease in income taxes currently payable. During the first three months of fiscal 1999, capital expenditures totaled approximately $300,000, which was used primarily to purchase computer equipment. During the remainder of fiscal 1999, the Company anticipates capital expenditures of approximately $2.7 million primarily consisting of additional computer equipment and warehousing and manufacturing equipment. The Company's bank credit facilities are unsecured and consist of a $75 million credit facility and a $10 million credit facility (collectively, the "Credit Agreements"). The $75 million credit facility bears interest at either the prime rate or, at the Company's option, LIBOR plus a percentage, subject to adjustment based on certain financial ratios, and matures on December 13, 2002. The $10 million credit facility bears interest at the prime rate and matures on July 31, 1999. At June 30, 1998, the Company had no borrowings outstanding under the Credit Agreements, and $85 million available for borrowing. Due to the seasonality of the Company's business, borrowings under the Credit Agreements typically peak during the third quarter of the fiscal year. At June 30, 1998, the Company had outstanding approximately $23.3 million of unsecured senior notes ("Senior Notes"). The Senior Notes bear interest at rates from 6.68% to 9.50% due through fiscal 2008. Under the terms of the Credit Agreements and the Senior Notes, the Company has agreed to limit the payment of dividends and to maintain certain interest coverage and debt-to-total-capital ratios which are similarly calculated for each debt agreement. At June 30, 1998, the Company was in compliance with all covenants of these debt agreements, as amended. The Company also has outstanding $54.1 million of 5.75% convertible subordinated notes ("Convertible Subordinated Notes") due November 30, 1999. During the first quarter of fiscal 1999, the Company purchased $900,000 of the Convertible Subordinated Notes at par. The Convertible Subordinated Notes presently are convertible into common stock at $17.00 per share and are redeemable at the Company's option currently at 101.64% of the principal amount, declining to 100.82% on November 30, 1998, and to 100% on November 30, 1999. This conversion would result in 3,182,353 additional shares outstanding. Management believes cash generated by operations and borrowings available under the Credit Agreements will be sufficient to fund anticipated working capital requirements for existing operations through the remainder of fiscal 1999. Year 2000 Conversion The Company has established a task force to coordinate the implementation of changes to computer systems and applications necessary to become year 2000 compliant with no material adverse effect on customers or disruption to business operations. These actions are necessary to ensure that the systems and applications will recognize and process the year 2000 and beyond. The Company believes that possible risks if compliance is not accomplished will include delays in receiving and/or shipping of products and in invoicing to and/or receiving payments from customers in the days immediately after January 1, 2000. The Company anticipates that, beginning in the third quarter of fiscal 1999, testing will commence for receipt of electronic orders, customer invoicing and other Company systems. The Company also is communicating with suppliers, customers, financial institutions and others with which it does business to determine the status of their being year 2000 compliant. The Company anticipates that its compliance tests will include electronic and other communications with a cross-section of its customers. The Company has also evaluated non-system issues, i.e. security, elevators, timekeeping, etc. relative to the year 2000. The Company expensed approximately $100,000 in costs during the first quarter of fiscal 1999 primarily for programmer costs related to becoming year 2000 compliant and expects to incur additional costs of $800,000 and $400,000 for the remainder of fiscal 1999 and for fiscal year 2000, respectively. These costs are expected to include programmer costs for modification of software programs, costs for a testing site, software purchases and consulting fees and will be expensed as they are incurred. PART II Item 5. Other Information Pursuant to Regulation 14a-8 of the Securities and Exchange Commission, proposals by shareholders which are intended for inclusion in the Company's proxy statement and proxy and to be presented at the Company's next Annual Meeting of Shareholders must be received by the Company by March 12, 1999, in order to be considered for inclusion in the Company's proxy materials. Such proposals should be addressed to the Company's Secretary and may be included in next year's proxy materials if they comply with certain rules and regu- lations of the Securities and Exchange Commission governing shareholder proposals. For all other proposals by shareholders to be timely, a Shareholders' Notice must be delivered to or mailed and received at the principal executive offices of the Company not less than sixty days nor more than ninety days prior to the meeting; provided, however, that in the event that less than seventy days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder, to be timely, must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-K Exhibit 11- Statement re Computation of Per Share Earnings Exhibit 27- Financial Data Schedule (b) No Form 8-K was filed by the Company during the quarter ended June 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Thomas Nelson, Inc. (Registrant) August 14, 1998 BY /s/ Joe L. Powers - ------------------------ ----------------------------- Joe L. Powers Executive Vice President (Principal Financial and Accounting Officer) INDEX TO EXHIBITS Exhibit Number - ------ 11 -- Statement re Computation of Per Share Earnings 27 -- Financial Data Schedule (for SEC purposes only) EX-27 2
5 This schedule contains summary financial information extracted from the Company's 10-Q for the period ended June 30, 1998, and is qualified in its entirety by reference to such financial statements and the notes thereto. 1,000 3-MOS MAR-31-1999 APR-01-1998 JUN-30-1998 1,721 0 63,884 5,030 76,522 150,237 59,220 27,848 250,319 35,751 77,882 0 0 15,305 116,869 250,319 55,647 55,994 30,334 52,490 408 466 1,490 1,993 737 1,256 0 0 0 1,256 0.08 0.08
EX-11 3 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (Dollars and Shares in thousands, except per share data)
Three Months Ended June 30, 1998 1997 ------------- ------------ BASIC EARNINGS PER SHARE: Weighted average shares outstanding 16,726 17,109 ========== ========== Net income $ 1,256 $ 991 ========== ========== Net income per share $ 0.08 $ 0.06 ========== ========== DILUTED EARNINGS PER SHARE: Weighted average shares outstanding 16,726 17,109 Dilutive effect of common stock options 83 15 Convertible notes 3,182 3,235 ---------- ---------- Total shares 19,991 20,359 ========== ========== Net income $ 1,783 $ 1,505 ========== ========== Net income per share $ 0.08 $ 0.06 ========== ========== Adjusted for interest on convertible debt Anti-dilutive; use basic earnings per share
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