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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-4095
THOMAS NELSON, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 62-0679364
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
501 Nelson Place, Nashville, Tennessee 37214-1000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 889-9000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
At August 12, 2002, the Registrant had outstanding 13,343,765 shares of
Common Stock and 1,024,795 shares of Class B Common Stock.
Thomas Nelson, Inc. & Subsidiaries
Consolidated Balance Sheets
(000's omitted, except per share data)
June 30, 2002 March 31, 2002 June 30, 2001
------------- -------------- -------------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash & cash equivalents $ 505 $ 535 $ 1,749
Accounts receivable, less
allowances of $5,900, $6,389
and $4,991, respectively 46,951 61,600 51,762
Inventories 40,357 39,195 50,119
Prepaid expenses 16,999 15,807 16,334
Assets held for sale 2,500 2,500 -
Refundable income taxes 7,266 7,800 -
Deferred income tax benefits 7,966 7,966 13,510
Net assets of discontinued
operations - - 56,537
------------- -------------- -------------
Total current assets 122,544 135,403 190,011
Property, Plant & Equipment, net 9,000 9,242 12,475
Other Assets 7,883 7,392 4,229
Deferred Charges 2,147 2,135 927
Goodwill 29,304 29,304 28,945
------------- -------------- -------------
Total Assets $170,878 $183,476 $236,587
============= ============== =============
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable $ 16,764 $ 22,258 $ 17,198
Accrued expenses 12,707 15,603 11,663
Deferred revenue 10,071 9,309 10,979
Dividends payable - - 574
Income taxes currently payable 351 500 1,435
Current portion of long-term debt 3,322 3,322 5,202
------------- -------------- -------------
Total current liabilities 43,215 50,992 47,051
Long term debt 47,941 53,052 99,662
Deferred income taxes 792 792 1,866
Other liabilities 992 1,064 1,283
Minority interest 22 - -
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 13,343,765, 13,329,759
and 13,285,827 shares,
respectively 13,344 13,330 13,285
Class B stock, $1.00 par value,
authorized 5,000,000 shares;
issued 1,024,795, 1,036,801 and
1,057,401 shares, respectively 1,025 1,037 1,057
Additional paid-in capital 44,023 44,008 43,845
Retained earnings 19,524 19,201 28,538
------------- -------------- -------------
Total shareholders' equity 77,916 77,576 86,725
------------- -------------- -------------
Total Liabilities & Shareholders'
Equity $170,878 $183,476 $236,587
============= ============== =============
Thomas Nelson, Inc. & Subsidiaries
Consolidated Statements of Operations
(000's omitted except per share data)
(unaudited)
Three Months Ended June 30,
2002 2001
------------ ------------
Net revenues $ 41,169 $ 45,414
Costs and expenses:
Cost of goods sold 24,937 27,386
Selling, general & administrative 14,149 15,811
Depreciation & amortization 790 648
------------ ------------
Total expenses 39,876 43,845
------------ ------------
Operating income 1,293 1,569
Other expense 9 20
Interest expense 740 719
------------ ------------
Income from continuing operations before
income taxes 544 830
Provision for income taxes 199 302
Minority interest 22 -
------------ ------------
Net income from continuing operations 323 528
Discontinued operations:
Operating loss, net of applicable taxes - (234)
Cumulative effect of change in
accounting principle - (40,433)
------------ ------------
Net income $ 323 $(40,139)
============ ============
Weighted average number of shares
Basic 14,367 14,343
============ ============
Diluted 14,680 14,358
============ ============
Net income (loss) per share, Basic:
Income from continuing operations $ 0.02 $ 0.04
Loss from discontinued operations - (0.02)
Cumulative effect of change in
accounting principle - (2.82)
------------ ------------
Net income (loss) per share $ 0.02 $ (2.80)
============ ============
Net income (loss) per share, Diluted:
Income from continuing operations $ 0.02 $ 0.04
Loss from discontinued operations - (0.02)
Cumulative effect of change in
accounting principle - (2.82)
------------ ------------
Net income (loss) per share $ 0.02 $ (2.80)
============ ============
Thomas Nelson, Inc. & Subsidiaries
Statement of Cash Flows
(000's omitted)
(unaudited)
Three Months Ended June 30,
2002 2001
------------ ------------
Cash Flows From Operating Activities:
Net income from continuing operations $ 323 $ 528
Adjustments to reconcile income to net cash
provided by (used in) operations:
Minority interest 22 -
Depreciation and amortization 790 648
Loss on sale of fixed assets 6 -
Changes in assets and liabilities:
Accounts receivable, net 14,649 6,087
Federal income tax receivable 534 -
Inventories (1,162) 1,289
Prepaid expenses (1,192) (1,643)
Accounts payable and accrued expenses (8,390) (3,326)
Deferred revenues 762 1,895
Income taxes currently payable (149) 431
Change in other assets and liabilities
and other deferred charges (432) 597
------------ ------------
Net cash provided by continuing operations 5,761 6,506
------------ ------------
Discontinued Operations
Loss from discontinued operations - (234)
Loss on disposal - (328)
Change in discontinued net assets - 1,335
------------ ------------
Net cash provided by discontinued operations - 773
------------ ------------
Net cash provided by operating activities 5,761 7,279
------------ ------------
Cash Flows From Investing Activities:
Property plant and equipment expenditures (351) (154)
Proceeds from sale of fixed assets and
assets held for sale 11 -
------------ ------------
Net cash provided by (used in) investing
activities (340) (154)
------------ ------------
Cash Flows From Financing Activities:
Payments under credit agreement, net (3,243) (4,900)
Payments on long-term debt (1,868) (2,036)
Dividends paid - (574)
Proceeds from issuance of common stock 13 -
Other financing activities (353) -
------------ ------------
Net cash used in financing activities (5,451) (7,510)
------------ ------------
Net decrease in cash and cash equivalents (30) (385)
Cash and cash equivalents at beginning of
period 535 2,134
------------ ------------
Cash and cash equivalents at end of period 505 1,749
============ ============
Supplemental disclosure of non-cash investing
and financing activities:
Dividends accrued and unpaid $ - $ 574
Supplemental cash flow information:
Interest paid, net $ 1,040 $ 1,611
Income taxes paid (received), net $ (186) $ (262)
THOMAS NELSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
reflect all adjustments (which are of a normal recurring nature) that are,
in the opinion of management, necessary for a fair statement of the results
for the interim periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
Securities and Exchange Commission rules and regulations. The statements
should be read in conjunction with the Summary of Significant Accounting
Policies and notes to the consolidated financial statements included in the
Company's annual report for the year ended March 31, 2002.
The consolidated balance sheet and related information in these notes as
of March 31, 2002 have been derived from the audited consolidated financial
statements as of that date. Certain reclassifications of prior period amounts
have been made to conform to the current year's presentation.
Note B - New Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB")issued
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS 141 supercedes Accounting Principles Board ("APB")
Opinion No. 16, "Business Combinations" and requires all business combinations
to be accounted for using the purchase method of accounting. In addition,
SFAS 141 requires that identifiable intangible assets be recognized apart from
goodwill based on meeting certain criteria. Implementation of SFAS No. 141
is expected to have no impact on the Company.
SFAS No. 142 supercedes APB Opinion No. 17, "Intangible Assets" and
addresses how intangible assets and goodwill should be accounted for at and
subsequent to their acquisition. SFAS No. 142 requires that goodwill will 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 decided to early adopt the provisions of SFAS No. 142 effective
April 1, 2001. The Company completed its measurement of this potential
impairment loss during fiscal 2002. The impairment loss relating to the
goodwill and other net assets of the gift segment was $40.4 million.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligation." This Statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The Company will adopt the Statement effective April 1, 2003
and is currently assessing the impact on its operations.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001. The
FASB's new rules on asset impairment supersede SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," and provide a single accounting model for long-lived
assets to be disposed of. The Company adopted the Statement effective
April 1, 2002. Such adoption did not have a material impact on the Company's
financial condition or results of operations.
During July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operations, plant closing, or other exit or disposal activities.
Previous accounting guidance was provided by EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 replaces EITF Issue No. 94-3. The new standard is effective for exit
or restructuring activities initiated after December 31, 2002, although
earlier application is encouraged.
Note C - Inventories
Components of inventories consisted of the following (in thousands):
June 30, March 31, June 30,
2002 2002 2001
--------- --------- ---------
Finished goods $38,163 $36,736 $46,050
Raw materials and work in process 2,194 2,459 4,069
--------- --------- ---------
$40,357 $39,195 $50,119
========= ========= =========
Note D - Cash Dividend
On August 24, 2001, the Company's board of directors determined that it
was in the best interest of the Company to use cash for current working capital
needs that had previously been used to pay dividends. The board of directors
will review the Company's dividend policy from time to time in the future.
Note E - Operating Segments
In accordance with SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," the Company reports information about
its operating segments. The Company is organized and managed based upon its
products and services.
Subsequent to the sale of the Company's gift division during fiscal 2002,
the Company has reassessed its segment reporting and has identified two
reportable business segments, identified as publishing and conferences. The
publishing segment primarily creates and markets Bibles, inspirational books
and videos. The conference segment hosts inspirational and motivational
conferences across North America.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column consists
of items related to discontinued operations (in thousands).
For the Three Months Ended Publishing Conferences Other Total
- -------------------------- ---------- ----------- ------- -----
June 30, 2002
- -------------
Revenues $ 34,304 6,865 - $ 41,169
Operating Income 188 1,105 - 1,293
June 30, 2001
- -------------
Revenues $ 38,770 6,644 - $ 45,414
Operating Income 1,685 (116) - 1,569
Fiscal Year Ended
March 31, 2002:
- -----------------
Revenues $187,859 27,693 - $215,552
Operating Income 15,252 936 - 16,188
As of June 30, 2002:
- --------------------
Identifiable Assets $144,442 21,936 4,500 $170,878
As of June 30, 2001:
- --------------------
Identifiable Assets $155,133 25,097 56,357 $236,587
As of March 31, 2002:
- ---------------------
Identifiable Assets $156,355 22,621 4,500 $183,476
Note F - Discontinued Operations
On October 11, 2001, the Company announced that it had entered into a
definitive agreement by which the Company would sell and CRG Acquisition Corp.
("CRG") would purchase the Company's gift business, including substantially
all of the assets of the Company's wholly-owned subsidiary, The C.R. Gibson
Company ("Gibson"). The purchase was consummated on November 7, 2001 by CRG
with an effective date of October 31, 2001 at a purchase price of $30.5 million
plus the assumption of certain liabilities. This sale resulted in a loss on
disposal of $15.3 million. The Company also recognized a $40.4 million
cumulative effect of s change in accounting principle charge to write-off
goodwill associated with Gibson. The Company utilized the net proceeds from
the sale to pay down existing debt. The financial statements reflect the
gift business segment as discontinued operations for all periods presented.
During December 2000, the Company determined it would dispose of its
Ceres candles operation, formerly a division of its gift business segment.
The sale was completed in August 2001 for approximately $1.5 million. This
sale resulted in a loss on disposal of $0.5 million in fiscal 2002 and
$7.3 million in fiscal 2001.
Effective April 1, 2001, Remuda Ranch Center for Anorexia and Bulimia,
Inc., ("Remuda Ranch") which operates therapeutic centers in Arizona for
women with eating disorders, was reflected as a discontinued operation.
For periods prior to April 1, 2001, Remuda Ranch net assets are reflected as
assets held for sale in accordance with Emerging Issues Task Force Issue
No. 87-11, "Allocation of Purchase Price to Assets to be Sold." Remuda Ranch
was a wholly owned subsidiary of New Life Treatment Center, Inc., acquired
during fiscal 2000, and was considered as an asset held for sale from the
acquisition date through March 31, 2001. The Company closed the sale of the
Remuda Ranch assets in July 2001 for approximately $7.2 million in cash and
a $2 million note receivable. This sale resulted in a loss on disposal of
$0.3 million during fiscal 2002.
Note G - Depreciation and Amortization
This caption on the accompanying consolidated statements of operations
includes all depreciation and amortization, including that related to
intangible assets, deferred loan costs, and property, plant and equipment.
Note H - 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 Company has agreed to maintain certain financial ratios and
tangible net worth, as well as limit the payments of cash dividends. The
Credit Facility has a term of three years and matures on June 28, 2005.
At June 30, 2002, the Company borrowed $40.9 million under the Credit
Agreement and had $24.1 million available for borrowing. Due to the
seasonality of the Company's business, borrowings under the Credit
Agreement will typically peak during the third quarter of the fiscal
year.
At June 30, 2002, the Company had outstanding approximately $9.5 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, which are similarly calculated for each debt
agreement. At June 30, 2002, the Company was in compliance with all
covenants of these debt agreements.
Note I - Royalty Advances
At June 30, 2002, March 31, 2002 and June 30, 2001, prepaid expenses
include $12.7 million, $12.1 million and $12.2 million, respectively, of
royalty advances for products that have released to the market or are expected
to release within the next twelve months. At June 30, 2002, March 31, 2002
and June 30, 2001, other assets include $2.9 million, $3.1 million and
$2.4 million, respectively, of royalty advances for products not expected to
release to the market within the next twelve months.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 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, effects of acquisitions or
dispositions, financial condition of our customers and suppliers, realization
of inventory values at carrying amounts, access to capital and realization of
income tax and intangible assets. Future revenue and margin trends cannot be
reliably predicted and may cause the Company to adjust its business strategy.
The Company disclaims any intent or obligation to update forward-looking
statements.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. The Company bases
its estimates on historical experience and on various assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. These policies are common with industry
practice and are applied consistently from period to period.
Revenue Recognition: The Company has four primary revenue sources: sales of
publishing product, attendance fees and product sales from its conferences,
royalty income from licensing copyrighted material to third parties and
billed freight. Revenue from the sale of publishing product is recognized
upon shipment to the customer. A reserve for sales returns is recorded where
return privileges exist. The returns reserve is determined by using a 12-month
rolling average return rate, multiplied by gross sales occurring over the
previous four-month period by 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 Company's
current analysis indicates that its experience changed during fiscal 2002
from 90 days to 120 days. The full amount of the returns reserve, net of
inventory and royalty costs (based on current gross margin rates), is shown
as a reduction of accounts receivable in the accompanying consolidated
financial statements. Returns of publishing products from customers are
accepted in accordance with standard industry practice. Generally, products
that are designated as out-of-print are not returnable 180 days after notice
of out-of-print status is given to the customer. Also, certain 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 and handling charges billed to customers
and is recorded as revenue upon shipment of product.
Allowance for Doubtful Accounts: The Company records an estimated reserve
for bad debts as a reduction to accounts receivable in the accompanying
consolidated financial statements. The reserve for bad debts has two
components: an unallocated reserve and a specific reserve. The unallocated
reserve is calculated using a 10-year rolling bad debt history applied to the
accounts receivable balance, less specific reserves. The Company's credit
department management identifies specific reserves for each customer which we
deem to be a collection risk or files for bankruptcy protection.
Inventories: Inventories are stated at the lower of cost or market 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 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, international freight
and duty costs, when applicable. The Company policy is to expense all
internal editorial, typesetting, production, warehousing and domestic
freight-in costs as incurred, except for certain indexing, stickering and
assembly costs, which are capitalized into inventory. Costs of abandoned
publishing projects are charged to operations when identified. The Company
also maintains a reserve for excess and obsolete inventory as a reduction to
inventory in the accompanying consolidated financial statements. This reserve
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 at contract execution, as is standard in the publishing industry.
These advances are either recorded as prepaid assets or other (long-term)
assets in the accompanying consolidated financial statements, depending on
the expected publication date (availability for shipment) of the product.
Author advances for trade books are generally amortized over five months
beginning when the product is first sold into the market. The Company's
historical experience is that typically 80% of book product sales occur
within the first five months after release into the market. Reference and
video royalty advances are generally amortized over a twelve-month period
beginning with the first sale date of the product, as these products
typically have a longer sales cycle than books. Royalty advances for
significant new Bible products are amortized on a straight-line basis for
a period not to exceed five years (as determined by management).
When royalty advances are earned through product sales at a faster pace than
the amortization period, the amortization expense is accelerated to match
the royalty earnings. Outstanding 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 and prior) 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.
Bible and reference products typically have the longest life cycle.
Pre-production costs for significant Bible and reference products are recorded
as other assets in the accompanying consolidated financial statements and are
amortized on a straight-line basis, for a period not to exceed five years
(as determined by management).
Goodwill and Intangible Assets: In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that
goodwill no longer be amortized, but tested for impairment by comparing net
book carrying values to fair market values upon adoption and periodically
thereafter. The Company has adopted the provisions of SFAS No. 142 as of
April 1, 2001. The election of SFAS No. 142 resulted in a $40.4 million
cumulative effect of a change in accounting principle charge to write-off
goodwill associated with the Company's gift division, which was discontinued
and sold during fiscal 2002. In accordance with SFAS No. 142, goodwill was
tested for impairment by the Company's reporting units: Publishing,
Conferences and Gift. The fair value for the assets of the Publishing and
Conferences reporting units was evaluated using discounted
expected cash flows and current market multiples, and it was determined that
no impairment existed during fiscal 2002. The fair value of the Gift assets
was determined by the actual sales price for that division. Goodwill will be
tested for impairment annually during the fourth quarter.
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.
Fiscal
Three Months Ended Year-to-Year
June 30, Increase
2002 2001 (Decrease)
--------- --------- ---------
(%) (%) (%)
Net revenues 100.0 100.0 (9.3)
Expenses
Cost of goods sold 60.6 60.3 (8.9)
Selling, general and administrative 34.4 34.8 (10.5)
Depreciation and amortization 1.9 1.4 21.9
--------- ---------- ---------
Total expenses 96.9 96.5 (9.1)
--------- ---------- ---------
Operating income 3.1 3.5 (17.6)
--------- ---------- ---------
Net income from continuing operations 0.8 1.2 (40.2)
--------- ---------- ---------
Loss from discontinued operations,
net of tax - (0.5) n/a
Cumulative effect of change in
accounting principle - (89.1) n/a
--------- ---------- ---------
Net income 0.8 (88.4) n/a
========= ========== =========
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.
Results of Operations
- ---------------------
Net revenues for the first three months of fiscal 2003 decreased
$4.2 million, or 9.3%, over the same period in fiscal 2002. The decrease
in net revenues for the first quarter ended June 30, 2002 is primarily
attributable to timing of new publishing product releases, with no key
releases in the current year quarter compared to strong releases last year,
and continued softness in the retail markets. Management believes its
customers are experiencing slower store traffic and are tightening their
inventory levels. Net revenues for the conference segment increased 3% over
the prior year period.
The Company's cost of goods sold decreased for the first three months
of fiscal 2003 by $2.4 million, or 8.9%, from the same periods in fiscal 2002
and, as a percentage of net revenues, remained relatively consistent with the
previous year's period at 60.6% for the first three months of fiscal 2003,
compared to 60.3% in the comparable period in fiscal 2002. Gross margin
declines in the publishing segment were primarily due to lower sales
volumes, resulting in a larger impact of royalty advance amortization and
losses on obsolete inventory. These declines were offset by improved margins
in the conference segment. The improvement in margins from conferences is
due to strong ticket sales and improved cost structures.
Selling, general and administrative expenses, excluding depreciation
and amortization, for the first three months of fiscal 2003 decreased by
$1.7 million, or 10.5%, from the same period in fiscal 2002. These expenses,
expressed as a percentage of net revenues, decreased to 34.4% for the first
three months of fiscal 2003 from 34.8% in the comparable period in fiscal
2002. The slight improvement as a percent of net revenues is due to reduced
overhead for the conference segment and a restructuring of some of the
publishing segment's direct-to-consumer sales areas; specifically, changing a
door-to-door program with sales commissions to a wholesale arrangement with no
commissions.
Depreciation and amortization for fiscal 2003 increased $0.1 million
from fiscal 2002. This increase is attributable to the Company accelerating
the amortization of deferred loan costs related to the previous revolving
credit facility which was replaced effective June 28, 2002 by a new credit
facility.
Interest expense attributable to continuing operations remained consistent
with the first quarter of fiscal 2002.
Liquidity and Capital Resources
- -------------------------------
At June 30, 2002, the Company had approximately $0.5 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, an expected tax refund and borrowings available under bank credit
facilities. At June 30, 2002, the Company had working capital of
$79.3 million.
Net cash provided by operating activities was $5.8 million and
$7.3 million for the first three months of fiscal 2003 and 2002, respectively.
Cash provided by operations during the first three months of fiscal 2003 was
principally attributable to collections of accounts receivable, partially
offset by payments of accounts payable and accrued expenses.
During the first three months of fiscal 2003, capital expenditures
totaled approximately $0.4 million, primarily consisting of computer
software and equipment. During the remainder of fiscal 2003, the Company
anticipates capital expenditures of approximately $4.6 million, primarily
consisting of computer, warehousing, merchandising equipment and building
improvements. The Company is also obligated to pay $2.5 million to repurchase
its former Beacon Falls Distribution Center under the terms of a "put option"
from the Asset Purchase Agreement between CRG Acquisition Corp. and Thomas
Nelson for the sale of C.R. Gibson. The Company has engaged the services of
a commercial real estate broker to list the property for sale.
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 Company has agreed to maintain certain financial ratios and
tangible net worth, as well as limit the payments of cash dividends. The
Credit Facility has a term of three years and matures on June 28, 2005.
At June 30, 2002, the Company borrowed $40.9 million under the Credit
Agreement and had $24.1 million available for borrowing. Due to the
seasonality of the Company's business, borrowings under the Credit
Agreement will typically peak during the third quarter of the fiscal
year.
At June 30, 2002, the Company had outstanding approximately $9.5 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, which are similarly calculated for each debt
agreement. At June 30, 2002, the Company was in compliance with all
covenants of these debt agreements.
Management believes cash generated by operations, an expected tax refund
and borrowings available under the Credit Facilities will be sufficient to
fund anticipated working capital requirements for existing operations through
the remainder of fiscal 2003. 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, 2002, as well as the $2.5 million purchase of the Beacon Falls
Distribution Center. 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 special purpose entities (SPE's). Management also is not aware of
any undisclosed material related party transactions or relationships with
management, officers or directors.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
There have been no material changes in the Company's investment
strategies, types of financial instruments held or the risks associated
with such instruments which would materially alter the market risk
disclosures made in the Company's Annual Report on Form 10-K as of and
for the year ended March 31, 2002.
Item 2(b).
The Company's new Credit Facility contains restrictions on its
ability to pay cash dividends to shareholders, based on a percentage of
the Company's net income.
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit
Number
-------
11 - Statement re Computation of Per Share Earnings
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on August 9,
2002, as amended by Form 8-K/A on August 13, 2002, to announce
its change in independent accountants and to announce the date
and times of its earnings release and conference call for the
first quarter of FY2003.
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, 2002 BY /s/ Joe L. Powers
------------------ -------------------------
Joe L. Powers
Executive Vice President
(Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
Number
- -------
11 -- Statement re Computation of Per Share Earnings