-----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, RBUf8h5BOJuL0jKwBoVD2cg63olIr6H4+CJ+/gGkd4Vs/5WknS2zLccFpuoADFh3 dKz5eqh2/gZRB1HovR4XtA== 0000071023-99-000009.txt : 19990816 0000071023-99-000009.hdr.sgml : 19990816 ACCESSION NUMBER: 0000071023-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99687176 BUSINESS ADDRESS: STREET 1: 501 NELSON PLACE CITY: NASHVILLE STATE: TN ZIP: 37214-1000 BUSINESS PHONE: 6158899000 MAIL ADDRESS: STREET 1: P O BOX 141000 CITY: NASHVILLE STATE: TN ZIP: 37214-1000 FORMER COMPANY: FORMER CONFORMED NAME: ROYAL PUBLISHERS INC DATE OF NAME CHANGE: 19721019 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-4095 THOMAS NELSON, INC. (Exact name of Registrant as specified in its charter) Tennessee 62-0679364 (State or other jurisdiction of (I.R.S. Employer 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, 1999, the Registrant had outstanding 13,129,104 shares of Common Stock and 1,096,724 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, 1999 1999 1998 ----------- ----------- ----------- (Unaudited) (Unaudited) ASSETS Current assets Cash and cash equivalents $ 940 $ 609 $ 1,721 Accounts receivable, less allowances of $5,908, $6,982 and $5,030, respectively 73,658 77,298 58,854 Inventories 71,070 65,805 76,522 Prepaid expenses 13,370 12,656 9,864 Deferred tax assets 6,715 6,715 3,276 ----------- ----------- ----------- Total current assets 165,753 163,083 150,237 Property, plant and equipment, net 25,645 25,557 31,372 Other assets 9,359 10,260 10,941 Deferred charges 1,193 1,421 1,628 Goodwill 58,515 55,009 56,141 ----------- ----------- ----------- TOTAL ASSETS $260,465 $ 255,330 $ 250,319 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 16,513 $ 16,355 $ 13,951 Accrued expenses 14,548 19,720 16,234 Dividends payable 569 576 612 Income taxes currently payable 276 2,793 1,013 Current portion of long- term debt & capital lease obligations 4,787 4,845 3,941 ----------- ----------- ----------- Total current liabilities 36,693 44,289 35,751 Long-term debt 93,024 79,542 77,863 Capital lease obligations - - 19 Deferred tax liabilities 4,432 4,432 3,363 Other liabilities 1,505 1,418 1,149 Shareholders' equity Preferred stock, $1.00 par value, authorized 1,000,000 shares; none issued - - - Common stock, $1.00 par value, authorized 20,000,000 shares; issued 13,123,260, 13,286,860 and 14,192,829 shares, respectively 13,123 13,287 14,193 Class B common stock, $1.00 par value, authorized 5,000,000 shares; issued 1,101,524, 1,103,524 and 1,111,924 shares, respectively 1,102 1,104 1,112 Additional paid-in capital 43,054 44,537 56,001 Retained earnings 67,532 66,721 60,868 ----------- ----------- ----------- Total shareholders' equity 124,811 125,649 132,174 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $260,465 $ 255,330 $ 250,319 =========== =========== =========== See Accompanying Notes
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
Three Months Ended June 30, 1999 1998 ----------- ------------ (Unaudited) (Unaudited) NET REVENUES $ 59,116 $ 55,994 COST AND EXPENSES: Cost of goods sold 33,283 30,334 Selling, general and administrative 21,779 22,156 Amortization of goodwill and non-compete agreements 383 408 ----------- ------------ Total expenses 55,445 52,898 ----------- ------------ OPERATING INCOME 3,671 3,096 Other income 22 387 Interest expense 1,520 1,490 ----------- ------------ Income before income taxes 2,173 1,993 Provision for income taxes 793 737 ----------- ------------ NET INCOME $ 1,380 $ 1,256 =========== ============ Weighted average number of shares outstanding: Basic 14,279 16,726 =========== ============ Diluted 14,285 19,991 =========== ============ NET INCOME PER SHARE: Basic $ 0.10 $ 0.08 =========== ============ Diluted $ 0.10 $ 0.08 =========== ============ 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, --------------------------- 1999 1998 ------------ ------------ (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,380 $ 1,256 Adjustments to reconcile net income to net cash used in operations: Depreciation and amortization 1,975 1,952 Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net 4,672 6,561 Inventories ( 2,912) ( 5,932) Prepaid expenses ( 496) ( 1,687) Accounts payable and accrued expenses ( 6,520) ( 7,097) Income taxes currently payable and deferred ( 2,517) ( 3,273) ------------ ------------ Net cash used in continuing operations ( 4,418) ( 8,220) ------------ ------------ Discontinued operations: Changes in discontinued assets 2 ( 687) Cash provided by discontinued operations 50 - ------------ ------------ Net cash provided by (used in) discontinued operations 52 ( 687) ------------ ------------ Net cash used in operating activities ( 4,366) ( 8,907) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 337) ( 341) Proceeds from sale of fixed assets 157 - Purchase of net assets of acquired companies - net of cash received ( 6,151) - Changes in other assets and deferred charges 317 ( 1,422) ------------ ------------ Net cash used in investing activities ( 6,014) ( 1,763) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under line of credit 13,581 - Payments on capital lease obligations ( 5) ( 65) Payments on long-term debt ( 727) ( 1,650) Dividends paid ( 576) ( 684) Proceeds from issuance of common stock - 1 Common stock repurchased and retired ( 1,649) ( 24,889) Other financing activities 87 ( 35) ------------ ------------ Net cash provided by (used in) financing activities 10,711 ( 27,322) ------------ ------------ Net increase (decrease) in cash and cash equivalents 331 ( 37,992) Cash and cash equivalents at beginning of period 609 39,713 ------------ ------------ Cash and cash equivalents at end of period $ 940 $ 1,721 ============ ============ Supplemental disclosures of non-cash investing and financing activities: Dividends accrued and unpaid $ 569 $ 612
THOMAS NELSON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - Basis of Presentation The accompanying unaudited consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to SEC rules and regulations. The statements should be read in conjunction with the Summary of Significant Accounting Policies and notes to the consolidated financial statements included in the Company's annual report for the year ended March 31, 1999. The balance sheet and related information in these notes as of March 31, 1999, have been taken from the audited consolidated financial statements as of that date. Certain reclassifications have been made to conform presentation of the fiscal 1999 financial statements with fiscal 2000 presentation. Note B - New Pronouncements Reporting on the Costs of Start-Up Activities: Effective April 1, 1999, the Company adopted Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 requires the costs of start-up activities and organization costs, as defined, to be expensed as incurred. The adoption of this pronouncement has not had a material impact on the Company's results of operations, financial condition or cash flows. Note C - Inventories Components of inventories consisted of the following (in thousands):
June 30, March 31, June 30, 1999 1999 1998 ----------- ---------- ---------- Finished goods $ 64,705 $ 56,610 $ 62,231 Raw materials and work in process 6,365 9,195 14,291 ----------- ---------- ---------- $ 71,070 $ 65,805 $ 76,522 =========== ========== ==========
Note D - Cash Dividend On May 20, 1999, the Company's board of directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend is payable August 16, 1999, to shareholders of record on August 2, 1999. Note E - Operating Segments The Company adopted SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," at March 31, 1999, which changes the way the Company reports information about its operating segments. The Company is organized and managed based upon its products. The Company has two reportable business segments, identified as publishing and gift. The publishing segment primarily creates and markets Bibles, inspirational books and videos. The gift segment primarily designs and markets stationery items including albums, journals, etc. Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column includes corporate related items not allocated to reportable segments (in thousands).
Three Months Ended Publishing Gift Other Total - ---------------- ---------- -------- ------- --------- June 30, 1999: - ------------- Revenues $ 39,386 $ 19,730 $ 0 $ 59,116 Operating income 3,402 269 0 3,671 Identifiable assets 124,067 71,167 65,231 260,465 June 30, 1998: - ------------- Revenues $ 31,758 $ 24,236 $ 0 $ 55,994 Operating income 730 2,366 0 3,096 Identifiable assets 120,544 69,984 59,791 250,319
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 1999 1998 (Decrease) ------------------------------- (%) (%) (%) Net revenues: Publishing 66.6 56.7 24.0 Gift 33.4 43.3 (18.6) ------------------- Total net revenues 100.0 100.0 5.6 ------------------- Expenses: Cost of goods sold 56.3 54.2 9.7 Selling, general and administrative 36.8 39.6 (1.7) Amortization of goodwill and non-compete agreements 0.7 0.7 (6.1) ------------------- Total expenses 93.8 94.5 4.8 ------------------- Operating income 6.2 5.5 18.6 =================== Net income 2.3 2.2 9.9 ===================
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 2000. The Company disclaims any intent or obligation to update forward- looking statements. Results of Operations Net revenues for the first three months of fiscal 2000 increased $3.1 million, or 5.6%, over the same period in fiscal 1999. The publishing product net revenues increased $7.6 million, or 24.0%, compared to the prior year primarily due to timing of new product releases, with a book from one of the Company's major authors being released in the first quarter of fiscal 2000 and no comparable release in the prior period. Net revenues from gift products decreased $4.5 million, or 18.6%, primarily due to timing of special product programs with mass merchandisers and the temporary effect of the restructuring of the gift sales force. In fiscal 1999, first quarter revenues reflected a major program with one of our larger mass merchants and there was no comparable program in this year's first quarter. 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 2000 increased by $2.9 million, or 9.7%, over the same period in fiscal 1999 and, as a percentage of net revenues, increased to 56.3% for the first three months of fiscal 2000 from 54.2% in the comparable period in fiscal 1999. The increase in cost of goods sold, as a percentage of net revenues, for the first three months resulted primarily from greater sales this fiscal quarter than last year for excess publishing inventory sold at or below cost. In addition, the cost of gift products sold this fiscal quarter was adversely impacted by some remaining fixed manufacturing costs since the Company's transition to outsourcing manufacturing. These fixed manufacturing costs are also expected to impact the second quarter of fiscal 2000 and are expected to diminish in the last six months of the year. Selling, general and administrative expenses for the first three months of fiscal 2000 decreased by $400,000, or 1.7%, from the same period in fiscal 1999 and as a percentage of net revenues, decreased to 36.8% for the first three months of fiscal 2000 versus 39.6% in the same period in fiscal 1999. The Company's selling, general and administrative expenses are relatively fixed during the fiscal year and do not materially increase with revenue increases. The strong performance of publishing revenues had a positive impact on the selling, general and administrative expenses as a percentage of revenues. Interest expense for the first three months of fiscal 2000 increased by $30,000, or 2.0%, over the same period in fiscal 1999. Liquidity and Capital Resources At June 30, 1999, the Company had $900,000 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, 1999, the Company had working capital of $129.1 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, 1999, the Company had repurchased approximately 2.9 million shares of common stock at an aggregate cost to the Company of $39.1 million. Net cash used in operating activities was $4.4 million and $8.9 million for the first three months of fiscal 2000 and 1999, respectively. Cash used in operations during the first three months of fiscal 2000 was principally attributable to decreases in accounts payable and accrued expenses primarily relating to payments of accrued royalties. Cash used in operations during the first three months of fiscal 1999 was principally attributable to an increase in inventories for the Christmas selling season. During the first three months of fiscal 2000, capital expenditures totaled approximately $300,000, which was used primarily to purchase computer equipment. During the remainder of fiscal 2000, the Company anticipates capital expenditures of approximately $2.0 million primarily consisting of computer and warehousing equipment. The Company's bank credit facilities are unsecured and consist of a $100 million credit facility and a $10 million credit facility (collectively, the "Credit Agreements"). The $100 million credit facility bears interest at either the prime rate or, at the Company's option, LIBOR plus a percentage, subject to adjustment based on certain financial ratios, and matures on December 13, 2005. The $10 million credit facility bears interest at LIBOR plus a percentage, subject to adjustment based on certain financial ratios and matures on July 31, 2001. At June 30, 1999, the Company had $74 million of borrowings outstanding under the Credit Agreements, and $36 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. The increase in long-term debt at June 30, 1999, over the prior year is primarily attributable to the purchase of Ceres Candles for approximately $6 million, the increase in accounts receivable and the repurchase of stock. At June 30, 1999, the Company had outstanding approximately $20.6 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, 1999, the Company was in compliance with all covenants of these debt agreements, as amended. Management believes cash generated by operations and borrowings available under the Credit Agreements will be sufficient to fund anticipated working capital requirements for existing operations through the remainder of fiscal 2000. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in the Company's investment strategies, types of financial instruments held or the risks associated with such instruments which would materially alter the market risk disclosures made in the Company's Annual Report on Form 10-K for the year ended March 31, 1999. Year 2000 Conversion The Company has established a task force to coordinate the assessment and implementation of changes to computer systems and applications necessary to become year 2000 compliant. These actions are necessary to ensure that the systems and applications will recognize and process the year 2000 and beyond with no material adverse effect on customers or disruption to business operations. The task force has also evaluated non-systems issues, e.g. security, elevators, timekeeping, etc., relative to the year 2000. In addition, the task force has been actively communicating with third parties, with whom the Company has material relationships, concerning the status of their year 2000 readiness. These third parties include the Company's financial institutions, as well as selected customers, vendors, landlords and suppliers of telecommunication services and other utilities. As part of the process of attempting to mitigate third party risks, the task force is collecting and analyzing information from these third parties. To date, no third party has advised the Company that it anticipates specific problems regarding non- performance risk for the year 2000. As of March 31, 1999, the Company had completed all known programming revisions required in its computer systems and has completed initial testing of its systems for receipt of electronic orders, customer invoicing and other processes for transactions dated in year 2000. The Company anticipates that further compliance tests will include electronic and other communications with appropriate customers. The Company has also engaged consultants to test that specific systems are year 2000 compliant. In addition, the Company has also completed remediation necessary for its non-systems issues. The effect of year 2000 non-compliance on the business of the Company is difficult to predict. The Company believes that possible risks if compliance is not accomplished could 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 considers that its primary risk relates to third parties with whom the Company has material relationships, and over which the Company has no control. At this time, the Company does not believe its year 2000 risks will have a material adverse effect on the Company's results of operations, liquidity or financial condition. The Company expensed approximately $10,000 in costs during the first three months of fiscal 2000, primarily for staff coordination related to being year 2000 compliant, and expects to incur additional costs of $200,000 for the remainder of fiscal 2000. These fiscal 2000 costs will include costs for a testing site and consulting fees, and will be expensed as they are incurred. As of March 31, 1999, the task force had completed a contingency plan to address financial and operational problems that might arise on and around January 1, 2000. This contingency plan identifies alternate vendors and back-up processes that do not rely on computers, whenever possible. The following areas have been addressed in the contingency plan: purchasing, product development, distribution, collections, royalties, marketing, sales, facilities and telecommunications. The task force will reevaluate this plan on a quarterly basis particularly to address risks that may be identified in communications with third parties. PART II 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, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Thomas Nelson, Inc. (Registrant) August 13, 1999 BY 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, 1999, and is qualified in its entirety by reference to such financial statements and the notes thereto. 1,000 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 940 0 79,566 5,908 71,070 165,753 49,841 24,196 260,465 36,693 93,024 14,225 0 0 110,586 260,465 58,641 59,116 33,283 55,062 383 565 1,520 2,173 793 1,380 0 0 0 1,380 0.10 0.10
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, 1999 1998 ------------- ------------ BASIC EARNINGS PER SHARE: Weighted average shares outstanding 14,279 16,726 ========== ========== Net income $ 1,380 $ 1,256 ========== ========== Net income per share $ 0.10 $ 0.08 ========== ========== DILUTED EARNINGS PER SHARE: Weighted average shares outstanding 14,279 16,726 Dilutive effect of common stock options 6 83 Convertible notes -- 3,182 ---------- ---------- Total shares 14,285 19,991 ========== ========== Net income $ 1,380 $ 1,783 ========== ========== Net income per share $ 0.10 $ 0.08 ========== ========== Adjusted for interest on convertible debt for June 1998 Anti-dilutive; use basic earnings per share
-----END PRIVACY-ENHANCED MESSAGE-----