Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
[ ] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
TRANSITION SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-13788
THOMAS NELSON, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 62-0679364
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
501 Nelson Place, Nashville, Tennessee 37214-1000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 889-9000
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
At August 13, 2003, the Registrant had outstanding 13,365,096 shares of
Common Stock and 1,024,795 shares of Class B Common Stock.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Thomas Nelson, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(000's omitted, except share amounts)
(unaudited)
June 30, March 31, June 30,
2003 2003 2002
---------- ---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 8,943 $ 1,707 $ 505
Accounts receivable, less allowances of
$7,190, $7,311 and $5,930, respectively 42,999 56,806 46,951
Inventories 37,924 33,637 40,357
Prepaid expenses 15,567 13,521 19,578
Assets held for sale 1,785 1,785 2,500
Refundable income taxes - - 7,266
Deferred tax assets 5,085 5,085 7,966
---------- ---------- ----------
Total current assets 112,303 112,541 125,123
Property, plant and equipment, net 11,444 11,630 9,000
Other assets 6,733 7,358 7,489
Deferred charges 1,445 1,695 2,147
Intangible assets 882 527 544
Goodwill, net 29,304 29,304 29,304
---------- ---------- ----------
Total Assets $162,111 $163,055 $173,607
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,910 $ 20,218 $ 16,764
Accrued expenses 9,930 13,835 12,707
Deferred revenue 12,703 11,493 12,800
Income taxes currently payable 3,393 2,379 351
Current portion of long-term debt 3,622 3,622 3,322
---------- ---------- ----------
Total current liabilities 49,558 51,547 45,944
Long term debt, less current portion 3,461 22,330 47,941
Deferred tax liabilities 721 721 792
Other liabilities 19,394 590 992
Minority interest 35 43 22
Commitments and contingencies - - -
Shareholders' equity:
Preferred stock, $1.00 par value,
authorized 1,000,000 shares; none issued - - -
Common stock, $1.00 par value, authorized
20,000,000 shares; issued 13,359,708,
13,350,431 and 13,343,765 shares,
respectively 13,360 13,350 13,344
Class B stock, $1.00 par value, authorized
5,000,000 shares; issued 1,024,795,
1,024,795 and 1,024,795 shares,
respectively 1,025 1,025 1,025
Additional paid-in capital 44,115 44,064 44,023
Retained earnings 30,442 29,385 19,524
---------- ---------- ----------
Total shareholders' equity 88,942 87,824 77,916
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $162,111 $163,055 $173,607
========== ========== ==========
See Notes to Condensed Consolidated Financial Statements
Thomas Nelson, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(000's omitted, except per share data)
(unaudited)
Three Months Ended
June 30,
-------------------
2003 2002
-------- --------
Net revenues $ 41,831 $ 41,169
Costs and expenses:
Cost of goods sold 25,875 24,937
Selling, general and administrative 13,665 14,150
Depreciation and amortization 560 577
-------- --------
Total costs and expenses 40,100 39,664
-------- --------
Operating income 1,731 1,505
Other income 191 34
Interest expense 244 995
-------- --------
Income before income taxes 1,678 544
Provision for income taxes 629 199
Minority interest (8) 22
-------- --------
Net income $ 1,057 $ 323
======== ========
Weighted average number of shares outstanding:
Basic 14,382 14,367
======== ========
Diluted 14,607 14,680
======== ========
NET INCOME PER SHARE:
Basic $ 0.07 $ 0.02
======== ========
Diluted $ 0.07 $ 0.02
======== ========
See Notes to Condensed Consolidated Financial Statements
Thomas Nelson, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(000's omitted)
(unaudited)
Three Months Ended
June 30,
-------------------
2003 2002
-------- --------
Cash Flows From Operating Activities:
Net income from continuing operations $ 1,057 $ 323
Adjustments to reconcile income to net
cash provided by (used in) operations:
Depreciation and amortization 560 577
Amortization of deferred charges 52 212
Gain/loss on sale of fixed assets
and assets held for sale (1) 6
Minority interest (8) 22
Changes in assets and liabilities,
net of acquisitions and disposals:
Accounts receivable, net 13,807 14,649
Inventories ( 4,287) ( 1,162)
Prepaid expenses ( 2,046) ( 2,007)
Accounts payable and accrued expenses ( 4,171) ( 8,016)
Deferred revenue 1,210 1,578
Income taxes currently payable 1,014 ( 149)
Change in other assets and liabilities
and deferred charges 923 ( 292)
-------- --------
Net cash provided by continuing operations 8,110 5,741
-------- --------
Discontinued Operations:
Federal income tax receivable/payable 18,722 534
Change in discontinued net assets ( 42) ( 374)
-------- --------
Net cash provided by discontinued operations 18,680 160
-------- --------
Net cash provided by operating activities 26,790 5,901
-------- --------
Cash Flows From Investing Activities:
Capital expenditures ( 370) ( 351)
Net proceeds from sales of property, plant
and equipment and assets held for sale 8 16
Acquisition of publishing rights ( 375) ( 500)
-------- --------
Net cash provided by (used in) investing activities ( 737) ( 835)
-------- --------
Cash Flows From Financing Activities:
Payments under revolving credit facility ( 17,000) ( 3,243)
Payments on long-term debt ( 1,869) ( 1,868)
Proceeds from issuance of common stock 52 15
-------- --------
Net cash provided by (used in) financing activities ( 18,817) ( 5,096)
-------- --------
Net increase (decrease) in cash and cash equivalents 7,236 ( 30)
Cash and cash equivalents at beginning of period 1,707 535
-------- --------
Cash and cash equivalents at end of period $ 8,943 $ 505
-------- --------
Supplemental cash flow information:
Interest paid, net $ 483 $ 1,082
Income taxes paid (refunded), net ($19,108) ($ 186)
See Notes to Condensed Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments (which are of a normal recurring nature) that are, in
the opinion of management, necessary for a fair statement of the results for
the interim periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to Securities and
Exchange Commission rules and regulations. The statements should be read in
conjunction with the Summary of Significant Accounting Policies and notes to
the consolidated financial statements included in the Company's annual report
for the year ended March 31, 2003.
The condensed consolidated balance sheets and related information in these
notes as of March 31, 2003 have been derived from the audited consolidated
financial statements as of that date. Certain reclassifications of prior
period amounts have been made to conform to the current year's presentation.
Total comprehensive income and net income are the same for all periods
presented.
Note B - Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board (FASB) issued
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equities. SFAS No. 150 requires issuers to classify as
liabilities (or assets, in some circumstances) three classes of freestanding
financial instruments that embody obligations for the issuer. Generally,
SFAS No. 150 is effective for financial instruments entered or modified after
May 31, 2003 and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The Company is currently assessing the
impact of the adoption of SFAS No. 150.
Note C - Stock-Based Compensation
The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations including FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25, issued in March 2000,
to account for its fixed-plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for
Stock-Based Compensation, established accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic-value-based method of accounting described
above and has adopted only the disclosure requirements of SFAS No. 123. The
following table illustrates the effect on net income if the fair-value-based
method had been applied to all outstanding and unvested awards in each period.
Three Months Ended June 30,
---------------------------
2003 2002
--------- ---------
Net income (in thousands):
As reported $1,057 $ 323
========= =========
Less: additional stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects 340 250
========= =========
Pro forma $ 717 $ 73
========= =========
Net income per share:
Basic -- As reported $ 0.07 $0.02
========= =========
Pro forma $ 0.05 $0.01
========= =========
Diluted -- As reported $ 0.07 $0.02
========= =========
Pro forma $ 0.05 $0.01
========= =========
On June 11, 2003, the Company issued 304,000 options to purchase common
shares with an exercise price of $12.07, the closing market price that day.
These options were granted under the 1992 Employee Stock Incentive Plan and
vest at a rate of 33-1/3% on the first through third anniversaires of the grant
date, subject to certain performance goals, and vest in full if the executive
is employed on the third anniversary of the grant, regardless of whether such
goals are met.
The fair value of each option on its date of grant has been estimated
for pro forma purposes using the Black-Scholes option pricing model using the
following weighted average assumptions:
2003 2002
--------- ---------
Expected future dividend payment $ - $ -
Expected stock price volatility 44.38% 39.90%
Risk free interest rate 3.90% 5.01%
Expected life of options 9 years 9 years
Note D - Inventories
Components of inventories consisted of the following (in thousands):
June 30, March 31, June 30,
2003 2003 2002
---------- ---------- ----------
Finished goods $36,339 $31,298 $38,163
Raw materials and work in process 1,585 2,339 2,194
---------- ---------- ----------
$37,924 $33,637 $40,357
========== ========== ==========
Note E - Operating Segments
The Company is organized and managed based upon its products and services.
The Company has identified two reportable business segments: publishing and
conferences. The publishing segment primarily creates and markets Bibles,
inspirational books and videos. The conference segment hosts inspirational and
motivational conferences across North America.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column consists of items
related to discontinued operations (in thousands).
For the Three Months Ended Publishing Conferences Other Total
- -------------------------- ---------- ----------- ---------- ----------
June 30, 2003:
Net Revenues $ 36,004 $ 5,827 $ - $ 41,831
Operating Income (loss) 1,892 ( 161) - 1,731
Identifiable Assets 135,581 22,745 3,785 162,111
Capital Expenditures 332 38 - 370
Depreciation and Amortization 496 64 - 560
June 30, 2002:
Net Revenues $ 34,401 $ 6,768 $ - $ 41,169
Operating Income 575 930 - 1,505
Identifiable Assets 144,942 24,165 4,500 173,607
Capital Expenditures 348 3 - 351
Depreciation and Amortization 512 65 - 577
Fiscal Year Ended March 31, 2003:
- ---------------------------------
Net Revenues $187,599 $29,618 $ - $217,217
Operating Income 14,684 4,242 - 18,926
Identifiable Assets 136,786 22,484 3,785 163,055
Capital Expenditures 4,493 103 - 4,596
Depreciation and Amortization 1,808 253 - 2,061
Note F - Other Liabilities
Other liabilities at June 30, 2003 include a non-current tax liability,
which resulted from a tax refund of $18.7 million received in April 2003. This
tax refund was related to the disposal of the Company's C.R. Gibson gift
division and was used to pay down existing debt. Until such time that the
Company can conclude that the position taken on its income tax returns will
ultimately be sustained by the taxing authorities, the refund will be recorded
as a non-current tax liability. If sustained, the Company will recognize the
refund as income from discontinued operations.
Note G - Debt
The Company's bank credit facility consists of a $65 million Senior
Unsecured Revolving Credit Facility (the "Credit Facility"). The Credit
Facility bears interest at either the lenders' base rate or, at the Company's
option, the LIBOR plus a percentage, based on certain financial ratios. The
Credit Facility has a term of three years and matures on June 28, 2005. At
June 30, 2003, the Company had no outstanding borrowings under the Credit
Facility.
At June 30, 2003, the Company had outstanding approximately $6.5 million
in unsecured senior notes ("Senior Notes"). The Senior Notes bear interest at
rates from 6.68% to 8.31% due through fiscal 2006.
Under the terms of the Credit Facility and the Senior Notes, the Company
has agreed to limit the payment of dividends and to maintain certain financial
ratios and tangible net worth, which are similarly calculated for each debt
agreement. At June 30, 2003, the Company was in compliance with all covenants
of these debt agreements.
Note H - Royalty Advances
At June 30, 2003, March 31, 2003 and June 30, 2002, prepaid expenses
include $9.7 million, $8.6 million and $13.1 million, respectively, of royalty
advances for products that have been released to the market or are expected to
be released within the next twelve months. At June 30, 2003, March 31, 2003
and June 30, 2002, other assets include $2.3 million, $2.9 million and
$2.9 million, respectively, for royalty advances for products not expected to
be released to the market within the next twelve months.
Note I - Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands except per share amounts):
June 30, June 30,
2003 2002
--------- ---------
Net income $ 1,057 $ 323
========= =========
BASIC EARNINGS PER SHARE:
Weighted average shares outstanding 14,382 14,367
========= =========
Net income per share $ 0.07 $ 0.02
========= =========
DILUTED EARNINGS PER SHARE:
Basic weighted average shares outstanding 14,382 14,367
Dilutive stock options - based on treasury
stock method using the average market price 225 313
--------- ---------
Total weighted average diluted shares 14,607 14,680
========= =========
Net weighted average diluted income per share $ 0.07 $ 0.02
========= =========
Options for approximately 973,000 common shares were excluded from the
diluted weighted average share calculation for the June 30, 2003 period due to
these options being anti-dilutive.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. The Company bases
its estimates on historical experience and on various assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. These policies are common with industry
practice and are applied consistently from period to period.
Revenue Recognition: The Company has four primary revenue sources:
sales of publishing product, attendance fees and product sales from its
conferences, royalty income from licensing copyrighted material to third
parties and billed freight. Revenue from the sale of publishing product is
recognized upon shipment to the customer. In accordance with Securities and
Exchange Commission's Staff Accounting Bulletin No. 101 regarding revenue
recognition, we recognize revenue only when all of the following criteria are
met: persuasive evidence of an arrangement exists; delivery has occurred or
services have been rendered; the seller's price to the buyer is fixed or
determinable; and collectibility is reasonably assured. An allowance for
sales returns is recorded where return privileges exist. The returns
allowance is determined by using a 12-month rolling average return rate,
multiplied by gross sales occurring over the previous four-month period by
market sales channel. Historical experience reflects that product is
generally returned from and credited to customers' accounts within the first
120 days of the original sale. The full amount of the returns allowance, net
of inventory and royalty costs (based on current gross margin rates) is shown
as a reduction of accounts receivable in the accompanying consolidated
financial statements. Returns of publishing products from customers are
accepted in accordance with standard industry practice. Generally, products
that are designated as out-of-print are not returnable 90 days after notice of
out-of-print status is given to the customer. Also, certain high discount
sales are not returnable. Revenue from conferences is recognized as the
conferences take place. Cash received in advance of conferences is included
in the accompanying financial statements as deferred revenue. Royalty income
from licensing the Company's publishing rights is recorded as revenue when
earned under the terms of the applicable license, net of amounts due to authors.
Billed freight consists of shipping charges billed to customers and is recorded
as revenue upon shipment of product.
Allowance for Doubtful Accounts: The Company records an allowance for
bad debts as a reduction to accounts receivable in the accompanying
consolidated financial statements. The valuation allowance has a specific
component related to accounts with known collection risks and a component
which is calculated using a 5-year rolling bad debt history applied as a
percentage of the accounts receivable balance, less the specific component of
the allowance. In fiscal 2003, the Company changed from a 10-year rolling bad
debt history to a 5-year history to compute the allowance in order to better
reflect the current economic environment. This change did not have a material
impact on the allowance balance. Our credit department identifies specific
allowances for each customer who is deemed to be a collection risk, may have
filed for bankruptcy protection or may have disputed amounts with the Company.
Inventories: Inventories are stated at the lower of cost or market
value using the first-in, first-out (FIFO) valuation method. The FIFO method
of accounting for inventory was selected to value our inventory at the lower
of market value or current cost because the Company continuously introduces
new products, eliminates existing products and redesigns products. Therefore,
inflation does not have a material effect on the valuation of inventory.
Costs of producing publishing products are included in inventory and charged
to operations when product is sold or otherwise disposed. These costs include
paper, printing, binding, outside editorial and design, typesetting, artwork,
international freight and duty costs, when applicable. The Company policy is
to expense all internal editorial, production, warehousing and domestic
freight-in costs as incurred, except for certain indexing, stickering,
typesetting and assembly costs, which are capitalized into inventory. Costs
of abandoned publishing projects are charged to operations when identified.
The Company also maintains an allowance for excess and obsolete inventory as a
reduction to inventory in the accompanying consolidated financial statements.
This allowance is based on historical liquidation recovery rates applied to
inventory quantities identified in excess of a twenty-four month supply on
hand for each category of product.
Royalty Advances/Pre-Production Costs: Royalty advances are typically
paid to authors, as is standard in the publishing industry. These advances
are either recorded as prepaid assets or other (long-term) assets in the
accompanying consolidated financial statements, depending on the expected
publication date (availability for shipment) of the product. Author advances
for trade books are generally amortized over five months beginning when the
product is first sold into the market. The Company's historical experience is
that typically 80% of book product sales occur within the first five months
after release into the market. Reference and video royalty advances are
generally amortized over a twelve-month period beginning with the first sale
date of the product, as these products typically have a longer sales cycle
than books. Royalty advances for significant new Bible products are amortized
on a straight-line basis for a period not to exceed five years (as determined
by management).
When royalty advances are earned through product sales at a faster pace
than the amortization period, the amortization expense is accelerated to match
the royalty earnings. Unamortized advances are reviewed monthly for abandoned
projects or titles that appear to have unrecoverable advances. All abandoned
projects and advances that management does not expect to fully recover are
charged to operations when identified.
For authors with multiple book/product contracts, the advance is
amortized over a period that encompasses the publication of all products,
generally not to exceed 24 months or the actual recovery period, whichever is
shorter. Advances to our most important authors are typically expensed as
they are recovered through sales. These authors generally have multiple year
and multiple book contracts, as well as strong sales history of backlist
titles (products published during preceding fiscal years) that can be used to
recover advances over long periods of time.
Many Bible, reference and video products require significant development
costs prior to the actual printing or production of the saleable product.
These products also typically have a longer life cycle. All video pre-
production costs are amortized over 12 months on a straight-line basis. Pre-
production costs for significant Bible and reference products are recorded as
deferred charges in the accompanying consolidated financial statements and are
amortized on a straight-line basis, for a period not to exceed five years (as
determined by management).
Goodwill and Intangible Assets: In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that
goodwill no longer be amortized, but tested for impairment by comparing net
book carrying values to fair market values upon adoption and periodically
thereafter. The Company has adopted the provisions of SFAS No. 142 as of
April 1, 2001. The election of SFAS No. 142 resulted in a $40.4 million
cumulative effect of a change in accounting principle charge to write-off
goodwill associated with the Company's gift division, which was discontinued
and sold during fiscal 2002. The adoption of this new pronouncement had a
favorable impact on continuing operations by eliminating amortization of
remaining goodwill attributable to continuing operations, which amounted to a
pre-tax impact of $1 million. In accordance with SFAS No. 142, goodwill was
tested for impairment by the Company's reporting units: Publishing and
Conferences. The fair value for the assets of the Publishing and Conferences
reporting units was evaluated using discounted expected cash flows and current
market multiples, and it was determined that no impairment existed during
fiscal 2003. Unless circumstances dictate an earlier analysis, we will
conduct our annual goodwill impairment test in our fourth fiscal quarter.
OVERVIEW
The following table sets forth for the periods indicated certain selected
statements of income data of the Company expressed as a percentage of net
revenues and the percentage change in dollars in such data from the prior
fiscal year.
Three Months Ended Fiscal
June 30, Year-to-Year
------------------ Increase
2003 2002 (Decrease)
-------- -------- --------------
(%) (%) (%)
Net revenues:
Publishing 86.1 83.6 4.7
Conferences 13.9 16.4 (13.9)
-------- -------- --------------
Total net revenues 100.0 100.0 1.6
Expenses:
Cost of goods sold 61.9 60.6 3.8
Selling, general and administrative 32.7 34.4 (3.4)
Depreciation and amortization 1.3 1.4 (2.9)
-------- -------- --------------
Total expenses 95.9 96.3 1.1
-------- -------- --------------
Operating income 4.1 3.7 15.0
-------- -------- --------------
Net income 2.5 0.8 227.2
======== ======== ==============
The Company's net revenues fluctuate seasonally, with net revenues in the
first fiscal quarter historically being lower than those for the remainder of
the year. This seasonality is the result of increased consumer purchases of
the Company's products during the traditional holiday periods. In addition,
the Company's quarterly operating results may fluctuate significantly due to
the seasonality of new product introductions, the timing of selling and
marketing expenses and changes in sales and product mixes.
Note On Forward-Looking Statements
The following discussion includes certain forward-looking statements.
Actual results could differ materially from those in the forward-looking
statements, and a number of factors may affect future results, liquidity and
capital resources. These factors include, but are not limited to, softness in
the general retail environment, the timing and acceptance of products being
introduced to the market, the level of product returns experienced, the level
of margins achievable in the marketplace, the collectibility of accounts
receivable, recoupment of royalty advances, the effects of acquisitions or
dispositions, the financial condition of our customers and suppliers, the
realization of inventory values at carrying amounts, our access to capital and
realization of income tax (including the outcome of any future Internal Revenue
Service audits) and intangible assets. Future revenue and margin trends cannot
be reliably predicted and may cause the Company to adjust its business strategy.
The Company disclaims any intent or obligation to update
forward-looking statements.
Results of Operations
Consolidated Results -
First Quarter of Fiscal 2004 Compared with First Quarter of Fiscal 2003
- -----------------------------------------------------------------------
Net revenues for the three months ended June 30, 2003 increased $0.7
million, or 1.6%, from the same period in the prior year. Net revenues from
publishing products increased $1.6 million, or 4.7%, primarily due to a strong
performance by the book divisions. Net revenues from conferences decreased
$0.9 million or 13.9%, primarily due to lower attendance levels compared to
the prior year. We believe the lower attendance levels are primarily due to
the war in Iraq. There was one additional conference this year compared to
the prior year's quarter. Price increases did not have a material effect on
net revenues.
The Company's cost of goods sold increased for the three months ended
June 30, 2003 by $0.9 million, or 3.8% from the same period in the prior year,
and as a percentage of net revenues, increased to 61.9% from 60.6% in the
prior year. This increase as a percentage of net revenues is primarily
attributable to the lower attendance levels at conference events, as the
publishing cost of goods sold was consistent with the prior year as a
percentage of net revenues.
Selling, general and administrative expenses, excluding depreciation and
amortization, for the three months ended June 30, 2003 decreased $0.5 million,
or 3% from the same period in the prior year. These expenses, expressed as a
percentage of net revenues, decreased to 33% from 34% in the prior year. This
reduction is primarily attributable to curtailed advertising expenses and
lower lease expense due to fewer leased facilities.
Depreciation and amortization for the three months ended June 30, 2003,
as compared to the three months ended June 30, 2002, were relatively unchanged.
Interest expense for the three months ended June 30, 2003 was $0.2 million,
a decrease of $0.8 million from the same period in the prior year due to lower
debt levels.
The provision for income taxes has been increased from 36.5% to 37.5% for
the current fiscal year due to increased business activity in states with higher
income tax rates without the benefit of state net operating loss carry forwards
that existed in prior periods, and accruals for other tax items.
Liquidity and Capital Resources
- -------------------------------
At June 30, 2003, the Company had approximately $8.9 million in cash and
cash equivalents. The primary sources of liquidity to meet the Company's
future obligations and working capital needs are cash generated from operations
and borrowings available under bank credit facilities. At June 30, 2003, the
Company had working capital of $62.7 million.
Net cash provided by continuing operations was $8.1 million for the three
months ended June 30, 2003 and $5.2 million for the same period last year.
Cash provided by continuing operations during the three months ended June 30,
2003 was principally attributable to collections of accounts receivable.
In April 2003, the Company received a tax refund of $18.7 million. This
tax refund was related to the recognition of a loss on disposal of the Company's
C.R. Gibson gift division and was used to pay down debt. Until such time that
we conclude that the position taken on our income tax returns will ultimately
be sustained by the taxing authorities, the refund will be recorded as a
non-current tax liability. If sustained, the Company will record the refund
as income from discontinued operations.
Fiscal year-to-date capital expenditures have totaled approximately
$0.4 million, primarily consisting of building improvements, computer software
and equipment. During the remainder of fiscal 2004, the Company anticipates
capital expenditures of approximately $3.6 million, primarily consisting of
building improvements and computer software and equipment.
The Company's bank credit facility consists of a $65 million Senior
Unsecured Revolving Credit Facility (the "Credit Facility"). The Credit
Facility bears interest at either the lenders' base rate or, at the Company's
option, the LIBOR plus a percentage, based on certain financial ratios. The
Credit Facility has a term of three years and matures on June 28, 2005. At
June 30, 2003, the Company had no outstanding borrowings under the Credit
Agreement.
At June 30, 2003, the Company had outstanding approximately $6.5 million
of unsecured senior notes ("Senior Notes"). The Senior Notes bear interest at
rates from 6.68% to 8.31% due through fiscal 2006.
Under the terms of the Credit Facility and the Senior Notes, the Company
has agreed to limit the payment of dividends and to maintain certain financial
ratios and tangible net worth. At June 30, 2003, the Company was in compliance
with all covenants of these debt agreements.
Management believes cash generated by operations and borrowings available
under the Credit Facility will be sufficient to fund anticipated working
capital requirements for existing operations through the remainder of fiscal
2004. The Company's current cash commitments include current maturities of
debt and operating lease obligations that are disclosed in the Company's
Annual Report on Form 10-K as of and for the year ended March 31, 2003. The
Company also has current inventory purchase and royalty advance commitments in
the ordinary course of business that require cash payments as vendors and
authors fulfill their requirements to the Company in the form of delivering
satisfactory product orders and manuscripts, respectively. The Company has no
off-balance sheet commitments or transactions with any variable interest
entities (VIE's). Management also is not aware of any undisclosed material
related party transactions or relationships with management, officers or
directors.
Payments Due by Fiscal Year
Contractual -------------------------------------------------------------
Commitments 2008 and
(in 000's) 2004 2005 2006 2007 thereafter Total
- ------------------ -------- -------- -------- -------- ---------- --------
Long-term debt $ 3,622 $ 3,461 $ - $ - $ - $ 7,083
Inventory purchases 4,812 7,813 5,000 5,000 8,333 30,958
Operating leases 1,451 1,348 932 408 1,303 5,442
Royalty advances 4,059 1,292 431 721 75 6,578
-------- -------- -------- -------- ---------- --------
Total obligations $13,944 $13,914 $6,363 $6,129 $9,711 $50,061
======== ======== ======== ======== ========== ========
From time to time, the Company may consider acquisition or sale
transactions. The Company has indicated its non-binding interest in purchasing
certain assets of a small publishing business. Discussions are continuing, but
no agreement has been reached and there can be no assurance that an agreement
will be reached or consummated.
Accounting Pronouncements
- -------------------------
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equities.
SFAS No. 150 requires issuers to classify as liabilities (or assets, in some
circumstances) three classes of freestanding financial instruments that embody
obligations for the issuer. Generally, SFAS No. 150 is effective for financial
instruments entered or modified after May 31, 2003 and is otherwise effective at
the beginning of the first interim period beginning after June 15, 2003. The
Company is currently assessing the impact of the adoption of SFAS No. 150.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of and for the period ended June 30, 2003, there have been no material
changes in the Company's investment strategies, types of financial instruments
held or the risks associated with such instruments which would materially alter
the market risk disclosures made in the Company's Annual Report on Form 10-K
as of and for the period ended June 30, 2003.
Item 4. Controls and Procedures
The President and Chief Executive Officer and the Executive Vice President
and Secretary (Principal Financial and Accounting Officer) have conducted an
evaluation of the effectiveness of the Company's disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period
covered by this quarterly report. Based on that evaluation, the President and
Chief Executive Officer and the Executive Vice President and Secretary
(Principal Financial and Accounting Officer) concluded that, as of the end of
the period covered by this quarterly report, the Company's disclosure controls
and procedures are effective in ensuring that all material information required
to be disclosed in the Company's reports that it files or submits to the SEC
under the Securities Exchange Act of 1934 has been made known to them in a
timely fashion. There have been no changes in the Company's internal control
over financial reporting that occurred during the period covered by this report
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit
Number
-------
11 - Statement re Computation of Per Share Earnings
31.1 - Certifications of the President and Chief Executive
Officer and the Executive Vice President and Secretary
(Principal Financial and Accounting Officer) of the
Company pursuant to Rule 13a-14 or 15d-14 of the
Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1 - Certifications of the President and Chief Executive
Officer and the Executive Vice President and Secretary
(Principal Financial and Accounting Officer) of the
Company Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K
- On August 6, 2003 the Company filed a current report on Form 8-K
to announce the date and time of the conference call regarding
the financial results of the first quarter of fiscal 2004.
- On August 13, 2003 the Company filed a current report on
Form 8-K to announce the results and financial condition for
the first quarter of fiscal 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Thomas Nelson, Inc.
(Registrant)
Date: August 14, 2003 By: /s/ Joe L. Powers
-------------------- --------------------------
Joe L. Powers
Executive Vice President
(Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
Number
- -------
11 - Statement re Computation of Per Share Earnings
31.1 - Certifications of the President and Chief Executive Officer and the
Executive Vice President and Secretary (Principal Financial and
Accounting Officer) of the Company pursuant to Rule 13a-14 or 15d-14 of
the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.2 - Certifications of the President and Chief Executive Officer and the
Executive Vice President and Secretary (Principal Financial and
Accounting Officer)of the Company Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002