-----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, Cl/dpeqpAP28HTDjFlsFw5k3wwLDRmq9fYWRJiE0w+12d3rHPLP0eAbYhR08Eu6S iFpsDwH9ImkTLYUnySOpBg== 0000071023-01-500045.txt : 20010716 0000071023-01-500045.hdr.sgml : 20010716 ACCESSION NUMBER: 0000071023-01-500045 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NELSON THOMAS INC CENTRAL INDEX KEY: 0000071023 STANDARD INDUSTRIAL CLASSIFICATION: 2731 IRS NUMBER: 620679364 STATE OF INCORPORATION: TN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13788 FILM NUMBER: 1672917 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-K 1 mar2001k.txt FORM 10-K FOR 3/31/2001 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2001 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 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock, Par Value $1.00 per share New York Stock Exchange Class B Common Stock, Par Value $1.00 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 requirement for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of June 25, 2001, the Registrant had outstanding 13,285,827 shares of Common stock and 1,057,401 of Class B common stock. On such date the aggregate market value of shares of common stock and Class B common stock held by nonaffiliates was approximately $101.2 million. The market value calculation was determined using the closing sale price of the Registrant's common stock and Class B common stock on June 25, 2001, as reported on The New York Stock Exchange, and assumes that all shares beneficially held by executive officers and the directors of the Registrant and shares held in the Thomas Nelson Employee Stock Ownership Plan are shares owned by "affiliates," a status which each of such officers and directors individually disclaims. =============================================================================== DOCUMENTS INCORPORATED BY REFERENCE Documents from which portions Part of Form 10-K are incorporated by reference - - ------------------------------------- ------------------------------------- PART I - - ------ Business Page 30 of Annual Report to Shareholders for year ended March 31, 2001 PART II - - ------- Item 5 - Market for Company's Common Page 31 of Annual Report to Equity and Related Shareholders for year ended Shareholder Matters March 31, 2001 (market price and dividend on only) Item 6 - Selected Financial Data Page 9 of Annual Report to Shareholders for year ended March 31, 2001 Item 7 - Management's Discussion and Pages 10 to 13 of Annual Report to Analysis of Financial Shareholders for year ended Condition and Results March 31, 2001 of Operations Item 7A - Quantitative and Qualitative Page 13 of Annual Report to Disclosures about Market Shareholders for year ended Risk March 31, 2001 Item 8 - Financial Statements and Pages 14 to 31 of Annual Report to Supplementary Data Shareholders for year ended March 31, 2001 PART III - - -------- Item 10 - Directors and Executive To be included in Company's Proxy Officers of the Company Statement for the Annual Meeting of Shareholders to be held August 23, 2001, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Item 11 - Executive Compensation To be included in Company's Proxy Statement for the Annual Meeting of Shareholders to be held August 23, 2001, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Item 12 - Security Ownership of To be included in Company's Proxy Certain Beneficial Owners Statement for the Annual and Management Meeting of Shareholders to be held August 23, 2001, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Item 13 - Certain Relationships and To be included in Company's Proxy Related Transactions Statement for the Annual Meeting of Shareholders to be held August 23, 2001, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. PART I Item 1. Business Thomas Nelson, Inc. (the "Company") is a leading publisher, producer and distributor of books emphasizing Christian, inspirational and family value themes, and believes it is the largest commercial publisher of the Bible in English language translations. The Company also designs and markets a broad line of gift and stationery products. The Company believes it is the largest publisher of Christian and inspirational books in the United States and is a major supplier of gift and stationery items. On April 23, 2001, the Company announced that it is actively exploring various strategic alternatives, including the possible merger, sale or recapitalization of its wholly-owned subsidiary, The C.R. Gibson Company. This subsidiary includes the Company's gift product segment. In December, 2000, the Company discontinued its Ceres Candles and Gifts, Inc. ("Ceres") subsidiary and has reported the results from that unit as a discontinued operation. Ceres designs and manufactures high quality candles, primarily under private labels for the specialty and department store markets. It was determined that the full integration of this newly-acquired division was too much of a distraction from the current focus of improving the gift division's long-term profitability. The consolidated financial statements for fiscal years 2001 and 2000 have been restated to show the results of Ceres as a discontinued operation. For fiscal year 2001, the loss from discontinued 0perations (net of tax), including estimated loss on disposal was $8.6 million, compared to an operating loss of $1.0 million for fiscal 2000. During fiscal 2000, the Company completed three business acquisitions. On June 24, 1999, the Company acquired substantially all of the assets of Ceres LLC ("Ceres") for approximately $6.2 million, which included the assumption of certain liabilities. Ceres manufactures and markets high quality candles to specialty and department store markets and is headquartered in Hayward, California. On December 30, 1999, the Company acquired substantially all of the assets of Rutledge Hill Press, Inc. for approximately $4.5 million including the assumption of certain liabilities. Rutledge Hill Press is a Nashville, Tennessee-based publisher that specializes in cooking, quilting, regional interest and Civil War titles. On January 28, 2000, the Company acquired approximately 70% of the outstanding shares of New Life Treatment Centers, Inc. ("NLTC") from a group of investors for approximately $15.4 million in cash. NLTC, headquartered in Plano, Texas, operates two primary businesses. One, Women of Faith, hosts inspirational conferences for women at venues throughout the United States, and the other, Remuda Ranch Center for Anorexia and Bulimia, Inc. ("Remuda Ranch"), operates therapeutic centers in Arizona for women with eating disorders. At the NLTC acquisition date, Remuda Ranch was designated as assets held for sale. During fiscal 2001, the Company paid approximately $0.8 million in cash and issued approximately 108,000 shares of the Company's common stock to acquire an additional 10% of the outstanding shares of NLTC, and, as of March 31, 2001, accepted additional shares of NLTC in lieu of notes receivable from a third party affiliate. At March 31, 2001, the Company owned approximately 95% of the outstanding shares of NLTC. During fiscal 1999, the Company recorded a restructuring charge, including related asset write-downs of $4.7 million ($3 million or $0.19 per basic share, on an after-tax basis). The restructuring initiatives involved the Company's gift manufacturing operations located in Connecticut and included two plant closings and reduction of certain administrative functions. During fiscal 1999, management decided to cease all manufacturing activities in Connecticut. The restructuring resulted in workforce reductions of approximately 300 employees. The products formerly produced at these manufacturing facilities have continued to be designed and distributed by the Company, but are now being manufactured by outside vendors. The restructuring was essentially completed during fiscal 2000, except for the sale of land and buildings, which was completed by March 31, 2001. The following table sets forth the net revenues (in thousands) and the percentage of total net revenues for each of the Company's principal product segments for the periods indicated:
Years Ended March 31, --------------------------------------------------- 2001 2000 1999 --------------------------------------------------- Amount % Amount % Amount % --------------------------------------------------- Publishing $214,147 71.9 $182,001 68.6 $173,904 64.3 Gift 83,818 28.1 83,467 31.4 96,667 35.7 --------------------------------------------------- $297,965 100.0 $265,468 100.0 $270,571 100.0
Additional information regarding the Company's product segments is incorporated by reference to Note T on page 32 of the Annual Report to Shareholders for the year ended March 31, 2001. PUBLISHING The Company's book publishing division publishes and distributes hardcover and trade paperback books emphasizing Christian, inspirational and family value themes. The Company believes it is the largest publisher of Christian and inspirational books in the United States. Books are published by the Company under several imprints including Thomas Nelson(R), Word(R), J. Countryman(R), Tommy Nelson(TM), and Rutledge Hill Press(R), and consist generally of inspirational, trade, gift, children's and reference books emphasizing Christian and family value themes. The Company distributes books primarily through Christian bookstores, general bookstores, mass merchandisers and direct sales to consumers. Occasionally, the Company also distributes books published by other companies to complement its marketing and distribution capabilities. In fiscal 2001, publishing net revenues realized from the distribution of books published by other companies was immaterial. Women of Faith, acquired in the fourth quarter of fiscal 2000, hosts inspirational conferences and has an Internet portal, womenoffaith.com. Both are designed to foster a community setting for Christian women and to provide a forum for them to explore and strengthen their faith. In calendar year 2000, Women of Faith hosted 24 conferences throughout the United States, which attracted over 360,000 participants. Womenoffaith.com has built a base of over 120,000 subscribers in 16 months and receives over 2 million page views per month. The events and the Internet site both provide excellent opportunities to market and sell inspirational products. In fiscal 2001, 2000 and 1999, the Company released over 200 new book titles annually. The Company publishes some of the most well-known communicators in the Christian and inspirational field, including Henry Blackaby, T. Davis Bunn, Larry Burkett, James Dobson, Billy Graham, John Hagee, Barbara Johnson, Thomas Kinkade, Tim LaHaye, Ann Graham Lotz, Max Lucado, John MacArthur, John Maxwell, Frank Peretti, Robert Schuller, Gary Smalley, Charles Stanley, Charles Swindoll and Zig Ziglar. In addition, the Company maintains a backlist of approximately 1,100 titles, which provide a stable base of recurring revenues as many popular titles continue to generate significant sales from year to year. Backlist titles accounted for approximately 44% of the book division's net revenues in fiscal 2001. Authors and titles are supported through the use of radio, television, cooperative advertising, author appearances, in-store promotions, print advertising and other means. The Company's book publishing business is enhanced by the breadth and development of its marketing and distribution channels. In addition to enhancing sales of its products, the Company believes its ability to sign and renew contracts with popular authors is improved because the Company's marketing and distribution capabilities provide exposure for the authors' books to a broader audience than its competitors. See "Marketing, Distribution and Production." The Company believes it is the largest commercial publisher of English translations of the Bible. The Bible is based on ancient manuscripts, which are the surviving reproductions of the original writings. These manuscripts, written in Hebrew, Aramaic or Greek, have been translated into English and other modern languages by biblical scholars and theologians, generally under the auspices of a major Bible society or translation organization. Each of the many English translations available differs in some degree from the others, primarily because of different translation guidelines and principles used as the basis for each translation. The distinctiveness of each translation is also, in part, a result of the evolution of the meaning and use of words within the English language. Virtually all Bibles and Bible products currently published in the United States are based on one of 13 major translations. Of these 13 translations, 12 are protected by copyright laws, which grant the copyright owner the exclusive right, for a limited term, to control the publication of such translation. The Company publishes Bibles and Bible products based on eight of the thirteen major translations, of which three are exclusive to the Company as a result of copyright ownership or licensing arrangements. See "Copyrights and Royalty Agreements." Approximately 55% of the Company's net revenues from Bible publishing in fiscal 2001 were generated through sales of its proprietary Bible products. The following table sets forth the eight major Bible translations, in the English language, currently published by the Company:
Date First Proprietary Translation Published to the Company - - ----------- ---------- -------------- King James Version (KJV) 1611 No New American Bible (NAB) 1970 No Revised Standard Version, Catholic Edition (RSVCE) 1965 No New King James Version (NKJV) 1982 Yes International Children's Bible (ICB) 1983 Yes New Century Version (NCV) 1984 Yes New Revised Standard Version (NRSV) 1990 No New Living Translation (NLT) 1996 No
The KJV, currently published in its fourth revision, is the most widely distributed of all English translations of the Bible. In 1975, the Company commissioned the fifth revision of the KJV resulting in the publication of the proprietary NKJV in 1982. During March 2000, the Company returned the exclusive rights to the CEV to the American Bible Society. Electronic Bibles and biblical reference books are published under the Nelson Electronic Publishing(TM) imprint. These products include electronic collections centered on Bible study; electronic libraries featuring well-known authors, such as Jack Hayford, John MacArthur, John Maxwell and Charles Stanley; and software for preparing Bible study lessons. The Company has achieved a leadership position in the industry with its electronic publications, and is aggressively pursuing new digital formats of publication and distribution as they develop, such as the Internet, and emerging portable book technologies. The Company continually seeks to expand its Bible product line by developing or aiding in the development of new translations and editions and seeking new publishing opportunities. The Company also continually makes editorial, design and other changes to its existing line of Bibles and other Bible products in an effort to increase their marketability. The Company currently publishes over 1,100 different Bibles and biblical reference products such as commentaries, study guides and other popular Bible help texts. Styles range from inexpensive paperbacks to deluxe leather-bound Bibles to CD-Rom. Different editions of a particular Bible translation are created by incorporating extra material, such as study helps, concordances, indices and Bible outlines, or artwork, into the biblical text. These editions (which are generally proprietary to the Company regardless of whether or not the Company holds proprietary rights to the underlying Bible translation) are targeted to the general market or positioned for sale to specific market segments. GIFT The Company's gift division designs and distributes journals and gift books, photo albums, baby and wedding memory books, scrapbooks, kitchen accessories, stationery and candles. Products are marketed under the C.R. Gibson(R), Creative Papers(R), C.R. Gibson(R)Kids Kollection(TM), Tomorrow's Treasures(TM), Stepping Stones(R), Artworks and Inspirations(R) brand names, the latter of which incorporates Christian and inspirational text or themes. Certain product lines are marketed as collections, with each collection including a variety of products featuring a common design or theme. Designs include original artwork designed in-house, as well as artwork licensed from artists or design groups such as Beatrix Potter(R), Carter's(R) Infant Apparel, Disney(R), Echo(R), Warren Kimble, and Spode(R). MARKETING, DISTRIBUTION AND PRODUCTION The principal market channels through which the Company markets its products domestically are Christian bookstores, which are primarily independently owned; general bookstores, including national chains such as Barnes & Noble and Borders; specialty gift and department stores, such as SteinMart and May Company; mass merchandisers such as Target, K-Mart, Wal-Mart and Sam's Wholesale Club; and directly to consumers through direct mail, telemarketing, inspirational seminars and the Internet. The Company services these market channels through its sales force and through wholesalers or jobbers servicing bookstores, gift stores, other retail outlets and libraries. In addition, the Company sells certain of its products for promotional purposes and sells specially designed or imprinted products to certain customers. The Company's direct marketing operations sell publishing products directly to approximately 100,000 customers consisting of churches, other religious organizations, pastors and other individuals by direct mail and telemarketing. Retail sales also are made during the summer months on a door-to-door, cash sales basis through a student sales organization operated by the Company. As of March 31, 2001, the Company employed a sales force of approximately 270 people and maintained 24-hour-a-day telemarketing capability. These employees service over 53,000 retail accounts and 44,000 church related accounts. Customer orders are usually shipped through a variety of common carriers, as well as by UPS, FedEx and parcel post. No single customer accounted for more than 10% of net revenues during fiscal 2001. The Company contracts with a number of foreign publishers to translate the Company's English titles into foreign languages. The Company typically retains ownership rights to the titles translated. The Company distributes its products internationally in South America, Europe, Australia, New Zealand, South Africa, the Far East, Mexico and Canada. In fiscal 2001, the Company's export operations accounted for less than 10% of the Company's total net revenues. Substantially all of the Company's products are manufactured by domestic and foreign commercial printers, binders and manufacturers which are selected on the basis of competitive bids. The Company may contract separately for paper and certain other supplies used by its manufacturers. COPYRIGHTS AND ROYALTY AGREEMENTS The Company customarily secures copyrights on its books and Bible editions in order to protect its publishing rights. Almost all of the Company's book products are published under royalty agreements with their respective authors or other copyright proprietors. Many of the Company's gift products incorporate copyrighted artwork, which is licensed directly from the artist or the owning entity under a royalty agreement. COMPETITION The Company believes that it is the largest publisher of Christian and inspirational books, the largest commercial publisher of Bibles in English language translations and a major designer of gift and stationery items. The publishing and gift divisions each compete with numerous other companies that publish and distribute Christian and inspirational books or design and distribute gift products, many of which have significantly longer operating histories and larger revenue bases than the Company and certain of which are tax-exempt organizations. While the Company's prices are comparable to those of its competitors, the Company believes that its breadth of product line, established market channels, established sales forces and customer service give it a competitive advantage. The most important factor with respect to the competitive position of the Company's publishing division is the contractual relationships it establishes and maintains with authors. The Company competes with other book publishing companies, both Christian and secular, for signing top authors. The Company's ability to sign and re-sign popular authors depends on a number of factors, including distribution and marketing capabilities, the Company's management team and the royalty and advance arrangements offered. The Company believes its relationships with its authors, which are based on its reputation in the publishing industry, its marketing experience and its management expertise give it a competitive advantage in signing and maintaining contracts with top Christian and inspirational authors. The Company's gift division has many competitors with respect to certain of its product lines, but the Company believes there are few competitors who distribute all of the Company's gift product lines. The gift division also competes with numerous religious publishers and suppliers, including tax-exempt church-owned organizations, in connection with the sale of its church supply products, and with numerous large and small companies in the sale of stationery products, gift wrap and paper tableware. EMPLOYEES As of March 31, 2001, the Company employed approximately 1,080 persons. The Company has not suffered any work stoppages as a result of labor disputes in recent years and considers relations with its employees to be good. EXECUTIVE OFFICERS Officers of the Company are elected by the Board of Directors and serve at the pleasure of the Board of Directors. Following is certain information regarding the executive officers of the Company:
Name Age Position with the Company ------------------------------------------------------------------------- Sam Moore 71 Chairman of the Board, Chief Executive Officer, President and Director S. Joseph Moore 38 Executive Vice President and Director; President, Thomas Nelson Gift Division Joe L. Powers 55 Executive Vice President and Secretary Lee Gessner 48 Executive Vice President, Thomas Nelson Publishing and Sales Group Ray Capp 48 Senior Vice President of the Company; Executive Vice President of the Thomas Nelson Direct Group of Companies Vance Lawson 42 Senior Vice President, Finance and Operations Group Eric Heyden 47 Vice President and General Counsel
Except as indicated below, each executive officer has been an employee of the Company as his/her principal occupation for more than the past five years. Sam Moore has been Chairman of the Board, Chief Executive Officer, President and a Director of the Company since its founding in 1961. Sam Moore is the father of S. Joseph Moore. S. Joseph Moore was appointed Executive Vice President and Director of the Company in 1995 and President of the Thomas Nelson Gift Division in 1996, and prior to such appointments, he served as Divisional Vice President of the Company in various capacities since 1991. S. Joseph Moore is the son of Sam Moore. Joe L. Powers was appointed Executive Vice President of the Company in 1995. Previously, Mr. Powers served as a Vice President of the Company since 1980. Lee Gessner was appointed Executive Vice President of the Company in December of 2000. Previously, Mr. Gessner served as Senior Vice President and Publishing Group Executive with Word Publishing, Publisher and COO of Word Publishing, Senior Vice President of Sales with the Thomas Nelson Publishing Group and Vice President of Sales with Word Publishing since 1989. Ray Capp was appointed Senior Vice President of the Company and Executive Vice President of Thomas Nelson Sales and Internet Development in 2000. Previously, Mr. Capp served as Senior Vice President of the Company since 1995. Prior to joining the Company, Mr. Capp was the President and Chief Operating Officer of Ingram Merchandising Services and Assistant to the Chairman of Ingram Distribution, Inc. since 1992 and Executive Vice President and Chief Operating Officer of Ingram Entertainment from 1987 to 1992. Vance Lawson was appointed Senior Vice President, Finance and Operations Group in 2000. Previously, Mr. Lawson served as Vice President, Finance of the Company since 1993 and had served as Senior Vice President of Finance and Operations at Word since 1988. Eric Heyden has been the Vice President and General Counsel of the Company since 1998, Vice President and Deputy General Counsel of the Company since 1997 and Assistant General Counsel of the Company since 1995. Mr. Heyden was previously Vice President and General Counsel with Knoedler Publishing, Inc. from 1985 to 1995. Item 2. Properties The Company's executive, editorial, sales and production offices are primarily located at its corporate headquarters at 501 Nelson Place in Nashville, Tennessee. These facilities are housed in a 74,000 square foot building completed in 1981, which is owned by the Company subject to a mortgage securing a debt with an outstanding balance at March 31, 2001 of approximately $1,126,000. The Company's major warehouse facilities for its publishing division are located in a building containing approximately 215,000 square feet adjacent to its corporate headquarters in Nashville, Tennessee. This building, which was completed in fiscal 1978, is owned by the Company. An addition to the warehouse and distribution center of approximately 120,000 square feet was completed during fiscal 1993. This addition was financed by a $5,000,000 construction and term loan secured by a mortgage with an outstanding balance of approximately $333,000 at March 31, 2001. The Company maintains offices and other warehousing facilities for its gift division in Beacon Falls, Connecticut (of approximately 112,000 square feet), which are owned by the Company. The Company's significant leased properties are described below:
Square Annual Lease Location Use/Segment Feet Rent Expiration - - ------------------------------------------------------------------------------- Carmel, IN Retail store/gift 12,500 $ 88,000 09/2004 Hayward, CA Manufacturing and offices/Ceres 54,600 $358,000 05/2005 Monroe, CT Warehousing/gift 114,000 $508,000 09/2005 Nashville, TN Creative and sales office/ 30,000 $357,000 11/2001 publishing and gift Nashville, TN Creative office/publishing 13,700 $284,000 09/2002 Nashville, TN Retail store/gift 3,804 $106,000 05/2007 Nashville, TN Warehousing/publishing 169,400 $599,000 12/2003 Norwalk, CT Warehouse and retail store/gift 28,000 $215,000 09/2001 Plano, TX Office/Women of Faith 16,409 $ 53,000 10/2010 Shelton, CT Warehousing/gift 152,000 $645,000 03/2002
All building improvements on the properties are brick veneer, metal or block construction and are considered adequate and suitable by the Company for the purposes for which they are used. The Company's machinery and equipment are located in Nashville, Tennessee and Beacon Falls, Monroe and Shelton, Connecticut and consist primarily of computer equipment, warehousing and shipping racks, conveyors and other material handling equipment located at the various warehousing facilities and office equipment. Such machinery and equipment are in good repair and adequate for the Company's present operations. All such equipment, other than a portion of the computer equipment that is leased, is owned by the Company. The Company's properties are operated at or near capacity. Additional personnel are employed as required. Item 3. Legal Proceedings Remuda Ranch has certain pending litigation and has received a subpoena from the Department of Defense, Office of the Inspector General, requesting information regarding patients who were covered by a certain third party insurance provider. At issue is whether Remuda Ranch was an authorized and participating provider and was precluded from billing the patients for the difference between the approved benefit and the full cost of the treatment received. Remuda Ranch has challenged whether it was, in fact, an authorized or participating provider at the time of these admissions and has denied that it is required to make any refunds. The Company believes that the results of the above noted litigation will not have a material adverse effect on the financial condition, results of operations or liquidity of the Company. The Company is subject to various other legal proceedings, claims and liabilities which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders The Company did not submit any matter to a vote of its security holders during the last quarter of its fiscal year ended March 31, 2001. PART II Item 5. Market for the Company's Common Equity and Related Shareholder Matters Incorporated by reference to the Annual Report to Shareholders for the year ended March 31, 2001 (the "Annual Report"). Item 6. Selected Financial Data Incorporated by reference to the Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated by reference to the Annual Report. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Incorporated by reference to the Annual Report. Item 8. Financial Statements and Supplementary Data Incorporated by reference to the Annual Report. Includes selected unaudited quarterly financial data for the years ended March 31, 2001 and 2000. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Company Information regarding the directors of the Company and compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on August 23, 2001 (the "Proxy Statement"), to be filed within 120 days of March 31, 2001 with the Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A under the Exchange Act. Information regarding the Company's executive officers is contained in Part 1, Item 1 herein. Item 11. Executive Compensation Incorporated by reference to the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated by reference to the Proxy Statement. Item 13. Certain Relationships and Related Transactions Incorporated by reference to the Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of Report 1. Financial Statements The following consolidated financial statements of the Company included in the Annual Report are incorporated herein by reference as set forth in Part II, Item 8: Statements of operations -- years ended March 31, 2001, 2000 and 1999 Balance sheets -- March 31, 2001 and 2000 Statements of shareholders' equity -- years ended March 31, 2001, 2000 and 1999 Statements of cash flow -- years ended March 31, 2001, 2000 and 1999 Notes to consolidated financial statements Report of Arthur Andersen LLP, Independent Public Accountants 2. Financial Statement Schedules The following consolidated financial statement schedules are included herein: Page ---- Report of Arthur Andersen LLP, Independent Public Accountants 18 Schedule II -- Valuation and Qualifying Accounts and Reserves 19 Schedules not listed above have been omitted because they are not required,are inapplicable or the required information has been given in the consolidated financial statements or notes thereto. 3. Exhibits The following exhibits are included herein or incorporated by reference as indicated. Exhibit numbers refer to Item 601 of Regulation S-K. Exhibit Number - - ------- 3.1 -- Thomas Nelson, Inc. Amended and Restated Charter (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 33-80086) and incorporated herein by reference) 3.2 -- Thomas Nelson, Inc. Amended Bylaws (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended March 31, 1999 and incorporated herein by reference) 4.1 -- Loan Agreement dated May 18, 1990, between the Company and The Industrial Development Board of The Metropolitan Government of Nashville and Davidson County (filed as Exhibit 4(e) to the Company's Annual Report on Form 10-K for the year ended March 31, 1990 and incorporated herein by reference) 4.2 -- Promissory Note dated May 18, 1990, of the Company payable to The Industrial Development Board of the Metropolitan Government of Nashville and Davidson County (filed as Exhibit 4(f) to the Company's Annual Report on Form 10-K for the year ended March 31, 1990 and incorporated herein by reference) 4.3 -- Deed of Trust and Security Agreement dated May 18, 1990, from the Company to SunTrust Bank, Nashville, N.A. (filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the year ended March 31, 1991 and incorporated herein by reference) 4.4 -- Construction and Term Loan Agreement dated March 31, 1992, between the Company and SunTrust Bank, Nashville, N.A. (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference) 4.5 -- Promissory Note dated March 31, 1992, of the Company payable to SunTrust Bank, Nashville, N.A. (filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference) 4.6 -- Deed of Trust and Security Agreement dated March 31, 1992, from the Company to SunTrust Bank, Nashville, N.A. (filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference) 4.7 -- Amended and Restated Credit Agreement dated as of December 13, 1995, and as amended January 3, 1996, among the Company, SunTrust Bank, Nashville, N.A., National City Bank of Louisville, First American National Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and Creditanstalt Corporate Finance, Inc. (formerly Creditanstalt- Bankverein) in New York (filed as Exhibit 4.1 to the Company's Form 10-Q for the quarter ended December 31, 1995 and incorporated herein by reference) 4.8 -- June 1996 Amendment and Waiver with Respect to Amended and Restated Credit Agreement Dated as of December 13, 1995, among the Company, SunTrust Bank, Nashville, N.A., National City Bank of Louisville, First American National Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and Creditanstalt Corporate Finance, Inc. (formerly Creditanstalt-Bankverein) in New York (filed as Exhibit 4.12 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference) 4.9 -- Second Amendment to Credit Agreement dated as of November 15, 1996, among the Company, SunTrust Bank, Nashville, N.A., National City Bank of Louisville, First American National Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and Creditanstalt Corporate Finance, Inc. (formerly Creditanstalt-Bankverein) in New York (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated January 6, 1997 and incorporated herein by reference) 4.10 -- Third Amendment to Credit Agreement dated as of January 7, 1997, among the Company, SunTrust Bank, Nashville, N.A., National City Bank of Louisville, First American National Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and Creditanstalt Corporate Finance, Inc. (formerly Creditanstalt-Bankverein) in New York (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated January 6, 1997 and incorporated herein by reference) 4.11 -- Fourth Amendment to Credit Agreement dated as of March 31, 1998, among the Company, SunTrust Bank, Nashville, N.A., National City Bank of Louisville, First American National Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and Creditanstalt Corporate Finance, Inc. (formerly Creditanstalt-Bankverein) in New York (filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated September 30, 1998 and incorporated herein by reference) 4.12 -- Fifth Amendment to Credit Agreement dated as of November 30, 1998, among the Company, SunTrust Bank, Nashville, N.A., National City Bank of Louisville, First American National Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and Creditanstalt Corporate Finance, Inc. (formerly Creditanstalt-Bankverein) in New York (filed as Exhibit 4.1 to the Company's Form 10-Q dated December 31, 1998 and incorporated herein by reference) 4.13 -- Note Purchase Agreement dated January 3, 1996, among the Company and Metropolitan Life Insurance Company (filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995 and incorporated herein by reference) 4.14 -- Letter Amendment No. 1 dated June 28, 1996, to Note Purchase Agreement dated January 3, 1996, among the Company and Metropolitan Life Insurance Company and related waiver, dated as of March 31, 1996 (filed as Exhibit 4.14 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference) 4.15 -- Assumption and Amendment Agreement dated as of May 30, 1996, and as amended June 28, 1996, between the Company and Metropolitan Life Insurance Company (filed as Exhibit 4.15 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference) 4.16 -- Loan Agreement dated as of September 21, 1989 between C.R. Gibson and Metropolitan Life Insurance Company (filed by C.R. Gibson as Exhibit 4(c) to The C.R. Gibson Company's Registration Statement on Form S-2 (No. 33-43644) dated November 4, 1991 and incorporated herein by reference) 4.17 -- Loan Agreement dated as of June 23, 1994 between C.R. Gibson and Metropolitan Life Insurance Company (filed by C.R. Gibson (Commission File No. 0-4855) as Exhibit 4(b) to C.R. Gibson's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, filed with the Commission on March 14, 1995 and incorporated herein by reference) 4.18 -- Sixth Amendment to Credit Agreement dated as of June 29, 2001, among the Company, SunTrust Bank, Nashville, N.A., Bank of America, N.A. in Nashville, Creditanstalt Corporate Finance, Inc. (formerly Creditanstalt-Bankverein) in New York, National City Bank, Kentucky in Louisville and Amsouth Bank in Nashville. 10.1 -- Thomas Nelson, Inc. Amended and Restated 1990 Deferred Compensation Option Plan for Outside Directors (filed as Exhibit 4.5 to the Company's Registration Statement on Form S-8 (No. 33-80086) dated June 13, 1994 and incorporated herein by reference)* 10.2 -- Thomas Nelson, Inc. Amended and Restated 1992 Employee Stock Incentive Plan (filed as Exhibit 4.6 to the Company's Proxy Statement dated July 26, 1995, for the Annual Meeting of Shareholders held on August 24, 1995 and incorporated herein by reference)* 10.3 -- Severance Agreement dated as of May 17, 1991, between the Company and Sam Moore (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended March 31, 1991 and incorporated herein by reference)* 10.4 -- Employment Agreement dated as of May 13, 1996, between the Company and Sam Moore (filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference)* 10.5 -- Employment Agreement dated as of May 10, 1996, between the Company and S. Joseph Moore (filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference)* 10.6 -- Employment Agreement dated as of May 10, 1996, between the Company and Joe L. Powers (filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference)* 10.7 -- Employment Agreement dated as of May 13, 1996, between the Company and Charles Z. Moore (filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference)* 10.8 -- Employment Agreement dated as of December 22, 1994, between the Company and Raymond T. Capp (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended March 31, 1995 and incorporated herein by reference)* 10.9 -- Employment Agreement dated as of June 23, 1993, between the Company and Vance Lawson (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended March 31, 1994 and incorporated herein by reference)* 10.10 -- Employment Agreement dated as of July 10, 1995, between the Company and Eric Heyden (filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended March 31, 1998 and incorporated herein by reference)* 10.11 -- Asset Purchase Agreement, dated as of November 21, 1996 by and among the Company, Word, Incorporated and Word Direct Partners, L.P. as Sellers and Gaylord Entertainment Company as Buyer (filed as Exhibit 2.1 to the Company's Form 8-K dated January 6, 1997 and incorporated herein by reference) 10.12 -- Amendment No. 1 to the Asset Purchase Agreement dated as of January 6, 1997, by and among the Company, Word, Incorporated and Word Direct Partners, L.P. as Sellers and Gaylord Entertainment Company as Buyer (filed as Exhibit 2.2 to the Company's Form 8-K dated January 6, 1997 and incorporated herein by reference) 10.13 -- Asset Purchase Agreement dated as of January 6, 1997, by and between Nelson Word Limited and Word Entertainment Limited (filed as Exhibit 2.3 to the Company's Current Report on Form 8-K dated January 6, 1997 and incorporated herein by reference) 10.14 -- Subsidiary Asset Purchase Agreement executed on January 6, 1997, and dated as of November 21, 1996, between Word Communications, Ltd. and Word Entertainment (Canada), Inc. (filed as Exhibit 2.4 to the Company's Current Report on Form 8-K dated January 6, 1997 and incorporated herein by reference) 10.15 -- Addendum to Employment Agreement dated as of May 13, 1996, between the Company and Sam Moore (executed on June 22, 2000) (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended March 31, 2000 and incorporated herein by reference)* 10.16 -- Addendum to Employment Agreement dated as of May 10, 1996, between the Company and S. Joseph Moore (executed on June 22, 2000) (filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended March 31, 2000 and incorporated herein by reference)* 10.17 -- Addendum to Employment Agreement dated as of May 10, 1996, between the Company and Joe L. Powers (executed on June 22, 2000) (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended March 31, 2000 and incorporated herein by reference)* 10.18 -- Thomas Nelson, Inc. 1997 Deferred Compensation Plan for Non-employee Directors (adopted on May 22, 1997) (filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended March 31, 2000 and incorporated herein by reference)* 11 -- Statement re Computation of Per Share Earnings 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 2001 (to the extent of portions specifically incorporated by reference) 21 -- Subsidiaries of the Company 23 -- Consent of Independent Public Accountants - - ------------------------------ *Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K The following reports were filed on Form 8-K: - The Company filed a current report on Form 8-K on October 26, 2000 to revise its earnings expectations for the second quarter of fiscal year 2001. - The Company filed a current report on Form 8-K on November 1, 2000 to announce its fiscal year 2001 second quarter earnings. - The Company filed a current report on Form 8-K on January 30, 2001 to announce its fiscal year 2001 third quarter earnings release date and conference call. - The Company filed a current report on Form 8-K on April 23, 2001 to announce its intention to explore strategic alternatives related to The C.R. Gibson(R) Company. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/ Sam Moore ------------------------ Sam Moore, Chief Executive Officer and President Date: June 29, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date ------------- --------- -------- /s/ Sam Moore Chairman of the Board of June 29, 2001 ----------------------- Directors, Chief Executive Sam Moore Officer and President (Principal Executive Officer) /s/ S. Joseph Moore Executive Vice President June 29, 2001 ----------------------- and Director S. Joseph Moore /s/ Joe L. Powers Executive Vice President June 29, 2001 ----------------------- and Secretary (Principal Joe L. Powers Financial and Accounting Officer) /s/ Brownlee O. Currey, Jr. Director June 29, 2001 ----------------------- Brownlee O. Currey, Jr. /s/ W. Lipscomb Davis, Jr. Director June 29, 2001 ----------------------- W. Lipscomb Davis, Jr. /s/ Robert J. Niebel Director June 29, 2001 ----------------------- Robert J. Niebel /s/ Millard V. Oakley Director June 29, 2001 ----------------------- Millard V. Oakley /s/ Andrew Young Director June 29, 2001 ----------------------- Andrew Young
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Thomas Nelson, Inc.: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Thomas Nelson, Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated May 18, 2001. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP ------------------------- Nashville, Tennessee May 18, 2001
THOMAS NELSON, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES March 31, 2001 March 31, 2000 March 31, 1999 ---------------------------------------------------- Reserve for Sales Returns: Balance at beginning of period $5,071,000 $4,844,000 $3,934,000 Additions: 1. Charged to costs and expenses - 227,000 910,000 2. Charged to other accounts - - - Deductions: charge-offs 309,000 - - ---------------------------------------------------- Balance at end of period $4,762,000 $5,071,000 $4,844,000 ==================================================== Reserve for Doubtful Accounts: Balance at beginning of period $1,724,000 $2,138,000 $2,228,000 Additions: 1. Charged to costs and expenses 2,920,000 1,993,000 2,027,000 2. Charged to other accounts - 336,000 - Deductions: charge-offs 2,743,000 2,743,000 2,117,000 ---------------------------------------------------- Balance at end of period $1,901,000 $1,724,000 $2,138,000 ==================================================== Discontinued Operations: Balance at beginning of period $2,424,000 $2,705,000 $5,197,000 Additions: 1. Charged to costs and expenses - - - 2. Charged to other accounts - - - Deductions: charge-offs 459,000 281,000 2,492,000 ---------------------------------------------------- Balance at end of period $1,965,000 $2,424,000 $2,705,000 ==================================================== Restructuring: Balance at beginning of period $ - $3,067,000 $ - Additions: 1. Charged to costs and expenses - - 4,666,000 2. Charged to other accounts - - - Deductions: charge-offs - 3,067,000 1,599,000 ---------------------------------------------------- Balance at end of period $ - $ - $3,067,000 ====================================================
INDEX TO EXHIBITS Exhibit Page Number Number - - ------- ------ 4.18 -- Sixth Amendment to Credit Agreement dated as of June 29, 2001, among the Company, SunTrust Bank, Nashville, N.A., Bank of America, N.A. in Nashville, Creditanstalt Corporate Finance, Inc. (formerly Creditanstalt-Bankverein) in New York, National City Bank, Kentucky in Louisville and Amsouth Bank in Nashville. 21 11 -- Statement re Computation of Per Share Earnings 28 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 2001 (to the extent of portions specifically incorporated by reference) 21 -- Subsidiaries of the Company 29 23 -- Consent of Independent Public Accountants 30
EX-4 2 ex4301k.txt EXHIBIT 4.18 FOR 3/31/2001 FORM 10-K EXHIBIT 4.18 SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Sixth Amendment") is entered into on June 29, 2001 (the "Effective Date"), by and among THOMAS NELSON, INC., a Tennessee corporation ("Nelson"), SUNTRUST BANK, a Georgia state banking corporation, successor-in-interest to SunTrust Bank, Nashville, N.A. ("SunTrust"), the other banks and lending institutions listed on the signature pages hereof and any assignees of SunTrust or such other banks and lending institutions that become "Lenders" (SunTrust and such other banks, lending institutions and assignees are referred to collectively herein as the "Lenders"), and SUNTRUST BANK, in its capacity as agent for the Lenders (the "Agent"). R E C I T A L S: WHEREAS, Lenders, Agent and Nelson entered into an Amended and Restated Credit Agreement dated as of December 13, 1995, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of January 3, 1996, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated as of November 15, 1996, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated as of January 7, 1997, as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated as of March 31, 1998, and as further amended by that certain Sixth Amendment to Amended and Restated Credit Agreement dated November 30, 1998, effective as of June 10, 1998 (as amended or otherwise modified from time to time, the "Credit Agreement"), wherein Lenders agreed to extend certain financial accommodations to Nelson; and WHEREAS, Nelson has requested that Lenders consent to the sale of (i) certain real property located in Arizona acquired in January, 2000 (the "Remuda Ranch") and (ii) Gibson, as such term is defined in the Credit Agreement; and Lenders are willing to consent to such transactions, and to modify the application of certain provisions of the Credit Agreement with respect to such transactions, upon the terms contained herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are mutually acknowledged, the parties hereby agree as follows: 1. Defined Terms. All defined terms used and not otherwise defined herein shall have the meaning ascribed to such terms in the Credit Agreement. 2. Remuda Ranch Sale. Lenders consent to the disposition by merger or sale of the common stock or the sale of assets by Nelson of Remuda Ranch (the "Remuda Ranch Sale") provided that the net cash proceeds of such sale are in a range from $5,000,000 to $15,000,000; and Lender hereby waives any provisions of the Credit Agreement that would be in conflict with the Remuda Ranch Sale, including without limitation Section 11.03. 3. Gibson Sale. Lenders consent to the disposition by merger or sale of the common stock or the sale of assets by Nelson of Gibson (the "Gibson Sale") provided that the net cash proceeds for such sale are in a range from $30,000,000 to $60,000,000; and Lender hereby waives any provisions of the Credit Agreement that would be in conflict with the Gibson Sale, including without limitation Section 11.03. 4. Mandatory Reduction of Amounts Outstanding under Revolving Credit Notes and Revolving Loan Commitment. Nelson and Lenders agree that upon consummation of the Remuda Ranch Sale and/or the Gibson Sale (collectively, the "Asset Sales"), (i) Nelson shall apply 97% of the net cash proceeds of the Remuda Ranch Sale to reduce amounts outstanding under the Revolving Credit Notes, and the Revolving Loan Commitment shall be permanently reduced by an amount equal to 100% of the net cash proceeds of the Remuda Ranch Sale, and (ii) Nelson shall apply 86% of the net cash proceeds of the Gibson Sale to reduce amounts outstanding under the Revolving Credit Notes and the Revolving Loan Commitment shall be permanently reduced by an amount equal to 80% of the net cash proceeds of the Gibson Sale. Nelson and Lenders acknowledge that, as to the Remuda Ranch Sale and the Gibson Sale, the requirements set forth herein are a replacement of, and not in addition to, the requirements set forth in Section 2.06 of the Credit Agreement. Nelson and Lenders agree and acknowledge that 3% of the net cash proceeds of the Asset Sales shall be used to reduce amounts outstanding under that certain Amended and Restated Revolving Credit Promissory Note dated June 9, 1999, as amended, between Nelson and SunTrust Bank. 5. Springing Lien. On or before December 31, 2001, Nelson shall have entered into a Binding Purchase Agreement for both the Remuda Ranch Sale and the Gibson Sale. As used herein, the term "Binding Purchase Agreement" shall mean a binding contract by and between Nelson and a purchaser at a price equal to or greater than as is required pursuant to Sections 2 and 3 of this Sixth Amendment for which no conditions remain that would result, upon the failure of such condition to be satisfied, in either Nelson or such purchaser being released from its obligation to perform under such contract and which requires a closing on or before January 15, 2002. In the event Nelson has not entered into a Binding Purchase Agreement for both the Remuda Ranch Sale and the Gibson Sale on or before December 31, 2001, Nelson hereby grants to Lenders a first priority security interest in all of its property, both real and personal, including any and all property owned by any Subsidiary of Nelson (the "Property"). In such event, Nelson (i) agrees to execute and return to Agent within five (5) days of receipt from Agent such security agreements, mortgages, deeds of trust and other documents as may be reasonably required by Agent to reflect the pledge by Nelson to Lenders of a security interest in the Property (including any UCC-1 financing statements filed by Lenders, and as such may be amended, the "Security Documents"), (ii) consents to the filing by Agent on behalf of Lenders of any and all UCC-1 financing statements or other Security Documents as may be required to perfect Lenders' security interest in the Property, and (iii) agrees to pay any and all costs related to the preparation and filing of the Security Documents, including without limitation reasonable attorneys' fees, indebtedness tax and filing fees. In addition, if such Binding Purchase Agreement is not entered into before December 31, 2001, Nelson shall cause to be executed and returned within five (5) days of receipt from Agent guaranty agreements of all Subsidiaries of Nelson guaranteeing payment of the Revolving Loans and Revolving Credit Notes. 6. Future Transactions. Nelson and Lenders hereby agree that the waivers and modifications set forth herein shall apply only to the Remuda Ranch Sale and the Gibson Sale and shall not extend to any future asset sales without the express written consent of Lenders. 7. Definition of Applicable LIBOR Rate Margin. Nelson and Lenders hereby agree that the definition of "Applicable LIBOR Rate Margin" as set forth in Article I of the Credit Agreement shall be deleted in its entirety and the following language shall be substituted in lieu of such definition: "Applicable LIBOR Rate Margin" shall mean, with respect to all outstanding Borrowings consisting of LIBOR Advances hereunder, the following: commencing on March 31, 2001 and continuing until full payment of the Revolving Credit Notes and termination of the Revolving Loan Commitment, 3.0%. 8. Funded Debt to Consolidated EBITDA Covenant. Nelson and Lenders agree that a new Section 9.08(d) shall be added to the Credit Agreement as follows: (d) Funded Debt to Consolidated EBITDA Ratio. Cause the Consolidated Companies to maintain on a consolidated basis as of the last day of each fiscal quarter, a maximum ratio of Funded Debt to Consolidated EBITDA, calculated quarterly for the immediately preceding four fiscal quarters, as shown below for each fiscal quarter indicated:
Fiscal Quarter Maximum Ratio -------------- ------------- March 31, 2002 3.5 to 1.0 June 30, 2002 3.25 to 1.0 September 30, 2002 and thereafter 3.0 to 1.0
9. Definition of Commitment Percentage. Nelson and Lenders hereby agree that the definition of "Commitment Percentage" as set forth in Article I of the Credit Agreement shall be deleted in its entirety and the following language shall be substituted in lieu of such definition: "Commitment Percentage" shall mean, as of the Effective Date of the Sixth Amendment, 37.5 basis points (.375%). If Funded Debt to Consolidated EBITDA is greater than 2.50 to 1.00, as determined based on the fiscal quarter of Nelson ending December 31, 2001, the Commitment Percentage from January 1, 2002 until full payment of the Revolving Credit Note and termination of the Revolving Loan Commitment shall be 50.0 basis points (.500%). 10. Definition of Consolidated EBITDA. Nelson and Lenders hereby agree that the following definition of Consolidated EBITDA shall be added to Article I of the Credit Agreement: "Consolidated EBITDA" shall mean, for the immediately preceding four fiscal quarters of Nelson, an amount equal to (a) the sum for such fiscal period of its Consolidated Net Income (Loss) plus, to the extent subtracted in determining such Consolidated Net Income (Loss), provisions for (i) taxes based on income, (ii) Consolidated Interest Expense, (iii) charges taken in conformity with FASB-106, (iv) depreciation and (v) amortization, minus (b) any items of gain (or plus any items of loss) that were (i) not realized in the ordinary course of business, and (ii) the result of the sale of assets. 11. Definition of Consolidated EBIT. Nelson and Lenders hereby agree that the definition of "Consolidated EBIT" as set forth in Article I of the Credit Agreement shall be amended by adding the following sentence at the end of such definition: For purposes of computing "Consolidated EBIT," interest expense attributable to any discontinued operations of any of the Consolidated Companies shall be included in the definition of "Consolidated Interest Expense" and also shall be included in computing any items of loss that were (A) not realized in the ordinary course of business, and (B) the result of any sale of assets. 12. Definition of Consolidated Interest Expense. Nelson and Lenders hereby agree that the definition of "Consolidated Interest Expense" as set forth in Article I of the Credit Agreement shall be deleted in its entirety and the following language shall be substituted in-lieu of such definition: "Consolidated Interest Expense" shall mean, for any fiscal period of Nelson, total interest expense of the Consolidated Companies (including, without limitation, interest expense attributable to capitalized leases) determined on a consolidated basis in accordance with GAAP, including any interest expense either allocated to or attributable to discontinued operations. 13. Definition of Final Maturity Date. Nelson and Lenders hereby agree that the definition of "Final Maturity Date" as set forth in Article I of the Credit Agreement shall be deleted in its entirety and the following language shall be substituted in lieu of such definition: "Final Maturity Date" shall mean the earlier of (a) April 1, 2003, and (b) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable pursuant to the provisions of Article XII. 14. Section 9.08(a). Nelson and Lenders hereby agree that Section 9.08(a) of the Credit Agreement shall be deleted in its entirety and substituted by the following: (a) Interest Coverage Ratio. Maintain as of the last day of each fiscal quarter, commencing with the quarter ended March 31, 2001, a minimum Interest Coverage Ratio, calculated for the immediately preceding four fiscal quarters, as shown below for each fiscal quarter indicated:
Fiscal Quarter Minimum Ratio -------------- ------------- Through December 31, 2001 2.00 to 1.00 Thereafter 2.50 to 1.00
15. Fee to Lender. Lenders and Nelson hereby agree that simultaneously with the execution of this Sixth Amendment, Nelson shall pay to Lenders a fee in the amount of Two Hundred Thousand and No/100 Dollars ($200,000.00) in consideration of Lenders' execution of this Sixth Amendment and the agreements set forth herein. For purposes of this paragraph only, "Lenders" shall include only those Lenders which vote in favor of this Sixth Amendment. Such fee shall be divided pro rata among the Lenders based on each Lender's share of the Revolving Loan Commitment. 16. Monthly Borrowing Base. By the fifteenth day of each month, Nelson shall provide to the Agent a monthly borrowing base certificate, submitted and completed by its chief financial officer, in the form of Exhibit A attached hereto. 17. Dividends. Nelson and the Lenders acknowledge and agree that dividends for the first quarter of fiscal year 2001 have been approved by Nelson's board of directors and are scheduled to be paid in August 2001. Nelson and Lenders acknowledge and agree that senior management of Nelson will recommend to the board of directors that no additional dividends will be paid by Nelson to its shareholders unless and until Gibson is sold. 18. Governing Law. This Sixth Amendment shall be governed by and construed in accordance with the laws of the State of Tennessee. 19. Full Force and Effect. Except as specifically amended by this Sixth Amendment, all other terms and provisions of the Credit Agreement shall remain in full force and effect. 20. No Other Waiver. Except as expressly stated herein, no other waiver of any term or provision of the Credit Agreement shall be inferred or implied. IN WITNESS WHEREOF, the parties have caused this Sixth Amendment to be duly executed as of the Effective Date. THOMAS NELSON, INC. By: /s/ Joe L. Powers -------------------------- Title: Executive Vice President -------------------------- ACCEPTED AND AGREED TO: SUNTRUST BANK, as Agent By: /s/ Allen K. Oakley --------------------------- Title: Managing Director ------------------------ Acceptance Date: June 29, 2001 --------------- SUNTRUST BANK (Revolving Credit Amount: $26,000,000) By: /s/ Allen K. Oakley --------------------------- Title: Managing Director ------------------------ Acceptance Date: June 29, 2001 --------------- BANK OF AMERICA, N.A., a national banking association, successor-in-interest to Nationsbank, N.A. (Revolving Credit Amount: $20,000,000) By: /s/ Fred Wyatt --------------------------- Title: Senior Vice President ------------------------ Acceptance Date: June 29, 2001 --------------- CREDITANSTALT CORPORATE FINANCE, INC. (Revolving Credit Amount: $17,000,000) By: /s/Sheila Maher --------------------------- Title: Vice President ------------------------ Acceptance Date: June 29, 2001 -------------- NATIONAL CITY BANK, KENTUCKY (Revolving Credit Amount: $17,000,000) By: /s/ Kelly Moyer --------------------------- Title: Vice President ------------------------ Acceptance Date: June 29, 2001 --------------- AMSOUTH BANK, an Alabama state bank, successor-in-interest to First American National Bank (Revolving Credit Amount: $20,000,000) By: /s/ E.T. Hutton II --------------------------- Title: Vice President ------------------------ Acceptance Date: June 29, 2001 --------------- The undersigned join in the execution of this Sixth Amendment in order to acknowledge their consent to the terms and provisions of this Sixth Amendment and to confirm that the execution of this Sixth Amendment by the parties hereto in no way affects the undersigneds' respective obligations under the Amended and Restated Guaranty Agreement executed as of December 13, 1995 by Word, Incorporated, a corporation organized and existing under the laws of the State of Delaware, PPC, Inc., a corporation organized and existing under the laws of the State of North Carolina, Editorial Caribe, Inc., a corporation organized and existing under the laws of the State of Florida, Morningstar Radio Network, Inc., a corporation organized and existing under the laws of the State of Texas, Nelson Word Ltd., a corporation organized and existing under the laws of the United Kingdom, Word Communications, Ltd., a corporation organized and existing under the laws of British Columbia, Canada, Word Direct, Inc., a corporation organized and existing under the laws of the State of Texas, Word Direct Partners, L.P., a limited partnership organized and existing under the laws of the State of Texas, The C.R. Gibson Company, a corporation organized and existing under the laws of the State of Delaware, 855673 Ontario Limited, a corporation organized and existing under the laws of Ontario, Canada, in favor of SunTrust Bank, a Georgia state bank, successor-in-interest to SunTrust Bank, Nashville, N.A., in its capacity as agent for banks and other lending institutions parties to the Credit Agreement and each assignee thereof becoming a "Lender" as provided therein. Each person executing this Amendment on behalf of each of the undersigned is duly authorized to so execute and deliver this Amendment on behalf of each of the undersigned entities. WORTHY, INC. (f/k/a WORD, INCORPORATED) By: /s/ Joe L. Powers ---------------------- Title: Executive Vice President ---------------------- EDITORIAL CARIBE, INC. By: /s/ Joe L. Powers ---------------------- Title: Executive Vice President ---------------------- NELSON DIRECT MARKETING SERVICES, INC. By: /s/ Joe L. Powers ---------------------- Title: Treasurer and Secretary ---------------------- THE C. R. GIBSON COMPANY By: /s/ Joe L. Powers ---------------------- Title: Treasurer and Secretary ---------------------- 855763 ONTARIO LIMITED (d/b/a DAWN DISTRIBUTORS) By: /s/ Joe L. Powers ---------------------- Title: Secretary ---------------------- EX-11 3 ex11301k.txt EXHIBIT 11 FOR 3/31/2001 FORM 10-K
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (Dollars and Shares in thousands, except per share data) March 31, 2001 March 31, 2000 March 31, 1999 -------------- -------------- -------------- BASIC EARNINGS PER SHARE: Weighted average shares outstanding 14,299 14,242 15,279 ============== ============== ============== Income from continuing operations 5,762 10,929 8,855 Total discontinued operations ( 8,596) ( 988) - -------------- -------------- -------------- Net income (loss) $( 2,834) $ 9,941 $ 8,855 ============== ============== ============== Income from continuing operations $ 0.40 $ 0.77 $ 0.58 Income (loss) from discontinued operations $( 0.60) $( 0.07) - -------------- -------------- -------------- Net income (loss) per share $( 0.20) $ 0.70 $ 0.58 ============== ============== ============== DILUTED EARNINGS PER SHARE: Basic weighted average shares outstanding 14,299 14,242 15,279 Convertible notes - - 2,598 Dilutive stock options - based on treasury stock method using the average market price 236 2 52 -------------- -------------- -------------- Total shares 14,535 14,244 17,929 ============== ============== ============== Income from continuing operations 5,762 10,929 10,620 Total discontinued operations ( 8,596) ( 988) - -------------- -------------- -------------- Net income (loss) $( 2,834) $ 9,941 $10,620 (1) ============== ============== ============== Income from continuing operations $ 0.40 $ 0.77 $ 0.58 Income (loss) from discontinued operations $( 0.60) $( 0.07) - -------------- -------------- -------------- Net income per share $( 0.20) $ 0.70 $ 0.58 (2) ============== ============== ============== (1) Adjusted for interest on convertible debt (2) Anti-dilutive; use basic earnings per share on Consolidated Statements of Income
EX-13 4 ex13301k.txt EXHIBIT 13 FOR 3/31/2001 FORM 10-K EXHIBIT 13 SELECTED FINANCIAL DATA
YEARS ENDED March 31, (Dollars in thousands, except per share data) 2001 2000 1999 1998 1997 - - ------------------------------------------------------------------------------- OPERATING RESULTS (a): Net revenues (b) $297,965 $265,468 $270,571 $261,422 $253,419 ==================================================== Operating income $ 14,751 $ 20,753 $ 20,089 $ 24,390 $ 22,268 ==================================================== Income from continuing operations $ 5,762 $ 10,929 $ 8,855 $ 12,673 $ 9,522 Income (loss) from discontinued operations (c) ( 8,596) ( 988) -- -- 16,555 ---------------------------------------------------- Net income (loss) $( 2,834) $ 9,941 $ 8,855 $ 12,673 $ 26,077 ==================================================== EBITDA from continuing operations $ 21,095 $ 26,957 $ 27,064 $ 33,771 $ 31,074 ==================================================== - - ------------------------------------------------------------------------------ FINANCIAL POSITION: Total assets $295,529 $296,982 $255,330 $287,442 $301,571 Working capital 141,937 146,718 118,794 141,342 131,852 Total debt 111,800 107,941 84,307 83,209 86,141 Shareholders' equity 127,437 131,732 125,649 156,396 146,812 Long-term debt to total capitalization 46.7% 45.0% 40.5% 35.3% 37.8% - - ------------------------------------------------------------------------------ PER SHARE DATA (a): Income per share from continuing operations $ 0.40 $ 0.77 $ 0.58 $ 0.74 $ 0.56 Income (loss) per share from discontinued operations (c) ( 0.60) ( 0.07) -- -- 0.96 ---------------------------------------------------- Net income (loss) per share $( 0.20) $ 0.70 $ 0.58 $ 0.74 $ 1.52 ==================================================== Dividends declared per share $ 0.16 $ 0.16 $ 0.16 $ 0.16 $ 0.16 Book value per share 8.88 9.26 8.73 9.14 8.58 Weighted average number of shares outstanding (in thousands) (d) 14,299 14,242 15,279 17,113 17,119 - - ------------------------------------------------------------------------------ (a) For fiscal years 2000 and 1997, operating results and per share data have been restated for discontinued operations and, for fiscal 1999, include pre-tax restructuring and other related charges of $4.7 million pertaining primarily to severance and reserves for inventory to be liquidated. (b) For fiscal years 2000, 1999, 1998 and 1997, net revenues have been restated to reflect reclassifications of freight billed to customers from selling, general and administrative expenses to net revenues, as required by newly issued accounting standards. The increase in net revenues during fiscal 2001 was primarily attributable to the full year of operations of fiscal 2000 acquisitions. (c) In December 2000, the Company discontinued its Ceres Candle subsidiary, and the expected loss on disposal and results of operations for this discontinued operation are included herein. On January 6, 1997, the Company consummated a transaction to sell certain assets of the music division, net of certain liabilities assumed, and the gain on disposal and results of operations for this discontinued operation are included herein. (d) Represents basic weighted average number of shares outstanding in accordance with SFAS 128. (/TABLE> MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's net revenues have grown in recent years as a result of increased sales in existing product lines, through the development of new product lines and through acquisitions in fiscal 2000. On April 23, 2001, the Company announced that it is actively exploring various strategic alternatives, including the possible merger, sale or recapitalization of its wholly owned subsidiary, The C.R. Gibson Company ("Gibson"). This division represents the Company's gift product segment. In December 2000, the Company discontinued its Ceres Candles and Gifts, Inc. ("Ceres") subsidiary and has reported the results from that unit as a discontinued operation. Ceres designs and manufactures high quality candles, primarily under private labels, for the specialty and department store markets. It was determined that the full integration of this newly acquired division was too much of a distraction from the current focus of improving the gift division's long-term profitability. The consolidated financial statements for fiscal years 2001 and 2000 reflect the results of Ceres as a discontinued operation. For fiscal year 2001, the loss from discontinued operations (net of tax), including estimated loss on disposal, was $8.6 million, compared to an operating loss of $1.0 million for fiscal 2000. The Company expects to dispose of Ceres by December 31, 2001. During fiscal 2000, the Company completed three business acquisitions. On June 24, 1999, the Company acquired substantially all of the assets of Ceres LLC ("Ceres") for approximately $6.2 million, which included the assumption of certain liabilities. Ceres is headquartered in Hayward, California. On December 30, 1999, the Company acquired substantially all of the assets of Rutledge Hill Press, Inc. for approximately $4.5 million including the assumption of certain liabilities. Rutledge Hill Press is a Nashville, Tennessee-based publisher that specializes in cooking, quilting, regional interest and Civil War titles. On January 28, 2000, the Company acquired approximately 70% of the outstanding shares of New Life Treatment Centers, Inc. ("NLTC") from a group of investors for approximately $15.4 million in cash. NLTC, headquartered in Plano, Texas, operates two primary businesses. One, Women of Faith, hosts inspirational conferences for women at venues throughout the United States, and the other, Remuda Ranch Center for Anorexia and Bulimia, Inc. ("Remuda Ranch"), operates therapeutic centers in Arizona for women with eating disorders. At the NLTC acquisition date, Remuda Ranch was identified as an asset held for sale. During fiscal 2001, the Company paid approximately $0.8 million in cash and issued approximately 108,000 shares of the Company's common stock to acquire an additional 10% of the outstanding shares of NLTC, and, as of March 31, 2001, accepted additional shares of NLTC in lieu of debt payments from a third party affiliate. At March 31, 2001, the Company owned approximately 95% of the outstanding shares of NLTC. In fiscal 1999, the Company decided to phase out Gibson's manufacturing operations and recorded a pre-tax charge for restructuring and other related costs of $4.7 million pertaining primarily to severance and reserves for inventory to be liquidated. The following table sets forth, for the periods indicated, certain selected statement of operations data of the Company expressed as a percentage of net revenues and the percentage change in dollars of such data from the prior fiscal year.
Fiscal Year-to-Year Years Ended March 31, Increase (Decrease) ---------------------------------------------------------- 2001 2000 1999 2000 to 2001 1999 to 2000 ---------------------------------------------------------- (%) (%) (%) (%) (%) Net revenues: Publishing 71.9 68.6 64.3 17.7 4.7 Gift 28.1 31.4 35.7 0.4 (13.7) ---------------------------------------------------------- Total net revenues 100.0 100.0 100.0 12.2 ( 1.9) Expenses: Cost of goods sold 61.9 59.4 57.9 16.9 0.5 Selling, general and administrative expenses 31.0 30.6 31.4 13.8 ( 4.5) Depreciation and amortization 2.2 2.2 2.6 10.6 (13.6) Restructuring charges -- -- 0.7 -- -- ---------------------------------------------------------- Total expenses 95.1 92.2 92.6 15.7 ( 2.3) ---------------------------------------------------------- Operating income 5.0 7.8 7.4 ( 28.9) 3.3 ========================================================== Net income from continuing operations 1.9 4.1 3.3 ( 47.3) 23.4 ========================================================== Net loss from discontinued operations (2.9) (0.4) -- -- -- ========================================================== Net income (loss) (1.0) 3.7 3.3 (128.5) 12.3 ==========================================================
The Company's net revenues fluctuate seasonally, with revenues in the first quarter historically being less than the remaining quarters of the year. Seasonality is also the result of increased consumer purchases of the Company's products during the traditional calendar year-end holidays. Due to this seasonality, the Company has historically incurred a loss or recognized only a small profit during the first quarter of each fiscal year. In addition, the Company's quarterly operating results may fluctuate significantly due to new product introductions, the timing of selling and marketing expenses and changes in sales and product mixes. In fiscal 2001 and 2000, timing of new product releases and acquisitions caused an atypical pattern of revenue results by quarter, which is not expected to be repeated in the foreseeable future. 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 by the operating divisions, the level of margins achievable in the marketplace, the ability to minimize operating expenses and the ability of the Company to dispose of its Ceres operations and other assets held for sale on favorable terms and in a timely manner. Future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its business strategy during the 2002 fiscal year. The Company disclaims any intent or obligation to update forward-looking statements. RESULTS OF OPERATIONS Fiscal 2001 compared to Fiscal 2000. Net revenues in fiscal 2001 increased $32.5 million, or 12.2%, over fiscal 2000. Net revenues from publishing products increased from fiscal 2000 to fiscal 2001 by $32.1 million, or 17.7%, primarily due to the full year of operations of fiscal 2000 acquisitions, Women of Faith and Rutledge Hill Press, which accounted for approximately $25 million of the increase, as well as modest growth in core book and Bible product lines. Net revenues for fiscal 2001 from gift products were essentially flat compared to fiscal 2000, as declines in revenues from independent specialty stores were offset by increased revenues from national accounts and mass market customers. Price increases did not have a material effect on net revenues of either division. The Company's cost of goods sold for fiscal 2001 increased $26.7 million, or 16.9%, and, as a percentage of net revenues, increased from 59.4% to 61.9%. The increase in cost of goods sold as a percentage of net revenues resulted primarily from poor recoveries from excess and obsolete inventories that were sold by the gift division and issues related to royalty advance recovery from certain publishing products. Gift inventory increased significantly in the first quarter. This, coupled with warehouse capacity limitations, led to the decision to aggressively liquidate significant quantities of gift inventory, which resulted in an adverse impact on margins. Selling, general and administrative expenses for fiscal 2001 increased $11.2 million, or 13.8%, over the comparable period in fiscal 2000, primarily due to payroll and conference related expenses from a full year's operations of fiscal 2000 acquisitions. These expenses, expressed as a percentage of net revenues, were comparable from fiscal 2000 to fiscal 2001. Depreciation and amortization for fiscal 2001 increased $0.3 million, or 5.6%, from fiscal 2000. This increase is directly attributable to amortization of goodwill and other intangible assets that resulted from fiscal 2000 acquisitions. Interest expense increased $0.3 million, or 6%, for fiscal 2001. The increase in interest expense is related to incremental debt incurred as a result of fiscal 2000 acquisitions, partially offset by the effect of reductions in interest rates. The Company's effective tax rate in fiscal 2001 was 36.5%, compared to 32.5% in fiscal 2000. The favorable tax rate in fiscal 2000 resulted from a permanent tax benefit relating to the closure of a foreign subsidiary in the fourth quarter of fiscal 2000, with no corresponding tax benefit available in 2001. The Company earned income from continuing operations of $5.8 million for fiscal 2001, compared to $10.9 million for fiscal 2000. The decline in income from continuing operations from the previous year is primarily due to the poor performance of the gift division. Results reflected a net loss of $2.8 million for fiscal 2001, resulting from a loss of $8.6 million from Ceres discontinued operations. Fiscal 2000 compared to Fiscal 1999. Net revenues in fiscal 2000 decreased $5.1 million, or 1.9%, over fiscal 1999. Net revenues from publishing products increased from fiscal 1999 to fiscal 2000 by $8.1 million, or 4.7%, primarily due to favorable acceptance of new product offerings and the effect of fiscal 2000 acquisitions, offset partially by an increased level of product returns. Net revenues from gift products decreased by $13.2 million, or 13.7%, primarily due to the restructuring of the division. Price increases did not have a material effect on net revenues. The Company's cost of goods sold for fiscal 2000 increased $0.8 million, or 0.5%, and, as a percentage of net revenues, increased from 57.9% to 59.4%. The increase in cost of goods sold as a percentage of net revenues resulted primarily from an aggressive attempt to sell returned books and increased competitive activity in certain markets, as well as additional one-time costs relating to outsourcing gift product manufacturing. Selling, general and administrative expenses for fiscal 2000 decreased $3.8 million, or 4.5%, over the comparable period in fiscal 1999. These expenses, expressed as a percentage of net revenues, decreased from 31.4% for fiscal 1999 to 30.6% for fiscal 2000, primarily as a result of the gift division restructuring. Depreciation and amortization for fiscal 2000 decreased by $0.9 million, or 13.6% from fiscal 1999. This decrease is directly attributable to the discontinuance of recording depreciation expense on assets held for sale as a result of the gift division restructuring, partially offset by amortization of goodwill related to fiscal 2000 acquisitions. Interest expense decreased by $0.7 million, or 11.4%, for fiscal 2000. The reduction in interest expense compared to the prior year was primarily related to the Company incurring approximately $0.3 million in premium charges in the prior fiscal year relating to the redemption of $39.9 million of Convertible Subordinated Notes. The Company's effective tax rate in fiscal 2000 was 32.5% compared to 36.5% for fiscal 1999. This decrease is due to a permanent tax benefit received in the fourth quarter relating to the closure of a foreign subsidiary. The Company earned income from continuing operations of $10.9 million for fiscal 2000, compared to $8.9 million for fiscal 1999. Net income for fiscal 2000 was $9.9 million, net of a $1.0 million loss from Ceres discontinued operations. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, the Company had $2.1 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 March 31, 2001, the Company had working capital of $141.9 million. Under its two bank credit facilities, at March 31, 2001, the Company had $93.1 million of borrowings outstanding, and $16.9 million available for borrowing, compared to $84.5 million in borrowings outstanding and $25.5 million available for borrowing at March 31, 2000. Net cash used in operating activities was $5.3 million, $0.1 million and $0.5 million in fiscal 2001, 2000 and 1999, respectively. The cash used in operations during fiscal 2001 was principally attributable to a decline in income from continuing operations, an increase in core Bible inventory and cash used in discontinued operations. The cash used in operations during fiscal 2000 was principally attributable to cash used in discontinued operations and approximately a $4 million increase in gift inventories to allow for longer lead times resulting from outsourcing the manufacturing operations. The cash used in operating activities during fiscal 1999 was primarily attributable to an increase in accounts receivable. Accounts receivable increased by $11.9 million during fiscal 1999, due, in part, to a shift from selling directly to one major mass merchandiser account to distributors with longer payment terms, who service the account. During fiscal 2001, capital expenditures totaled approximately $2.7 million. The capital expenditures were primarily for computer and warehousing equipment. In fiscal 2002, the Company anticipates capital expenditures of approximately $2.1 million, consisting primarily of additional computer and warehousing equipment. During fiscal 2000, the Company paid approximately $23.8 million in cash, primarily funded from existing credit agreements, and assumed certain liabilities to acquire three businesses. During fiscal 2001, the Company paid approximately $0.8 million in cash and issued approximately 108,000 shares of common stock to acquire additional minority shares of a majority-owned subsidiary. 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, the London Interbank Offered Rate ("LIBOR") plus a percentage, subject to adjustment based on certain financial ratios. The $100 million credit facility was amended on November 30, 1998, to increase the aggregate amount available for borrowing from $75 million to $100 million and to extend the maturity from December 13, 2002 to December 13, 2005. On June 29, 2001, the $100 million Credit Facility was amended to approve certain asset sales, amend certain financial covenants, adjust the interest rate structure and to change the maturity date to April 1, 2003. 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, 2002. Due to the seasonality of the Company's business, borrowings under the Credit Agreements typically peak during the third quarter of each fiscal year. The Company has outstanding $14.4 million of senior notes ("Senior Notes"), which are unsecured. The Senior Notes bear interest at rates from 6.68% to 8.31% and are due through fiscal 2006. Under the terms of the Credit Agreements and 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 March 31, 2001, the Company was in compliance with all covenants of these debt agreements. The Company expects to be in compliance with all of its covenants for each quarter of fiscal 2002, although no assurance can be given that such compliance will be maintained. Management believes cash generated by operations and borrowings available under the Credit Agreements will be sufficient to fund anticipated working capital and capital expenditure requirements for existing operations through fiscal 2002. Management expects to generate cash from the sale of Remuda Ranch assets held for sale during fiscal 2002. The net proceeds from this sale are expected to be used to pay down existing debt. 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. At March 31, 2001 the Company had repurchased approximately 2.9 million shares of common stock at an aggregate cost to the Company of $39.2 million. The Company has declared and paid a discretionary dividend of four cents per share every quarter during fiscal 2001, 2000 and 1999. The Board of Directors, at its quarterly meetings, approves and declares the amount and timing of the discretionary dividends, if any. The Company gives no assurances as to whether a transaction may occur with respect to its analysis of strategic alternatives relating to its gift operations, including the possible sale, merger or spin-off of Gibson. If a transaction were to occur, it could have a significant impact on the Company's liquidity and capital structure. However, the Company believes that, if such a transaction were to occur, it would not have a material adverse effect on the Company or its ability to continue normal operations. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk from exposure to changes in interest rates based on its financing, investing and cash management activities. The exposure relates primarily to the Credit Agreements. In the event that interest rates associated with these Credit Agreements were to increase 100 basis points, the impact would be to reduce future cash flows by approximately $0.9 million, assuming current debt levels are maintained. THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
Years Ended March 31, --------------------------------------- 2001 2000 1999 --------------------------------------- NET REVENUES $297,965 $265,468 $270,571 COSTS AND EXPENSES: Cost of goods sold 184,336 157,623 156,784 Selling, general and administrative 92,570 81,118 84,916 Depreciation and amortization 6,308 5,974 6,916 Restructuring charge -- -- 1,866 --------------------------------------- Total costs and expenses 283,214 244,715 250,482 --------------------------------------- OPERATING INCOME 14,751 20,753 20,089 Other income 36 230 59 Interest expense (5,818) (5,490) (6,193) --------------------------------------- Income from continuing operations before income taxes 8,969 15,493 13,955 Provision for income taxes 3,207 4,564 5,100 --------------------------------------- Income from continuing operations 5,762 10,929 8,855 Discontinued operations: Operating loss, net of applicable tax benefit of $766 and expense of $221, respectively (1,332) (988) -- Loss on disposal, net of applicable tax benefit of $4,175 (7,264) -- -- --------------------------------------- Total discontinued operations (8,596) (988) -- --------------------------------------- Net income (loss) $ (2,834) $ 9,941 $ 8,855 ======================================= Weighted average number of shares outstanding: Basic 14,299 14,242 15,279 ======================================= Diluted 14,535 14,244 17,929 ======================================= NET INCOME (LOSS) PER SHARE: Basic: Income from continuing operations $ 0.40 $ 0.77 $ 0.58 Loss from discontinued operations $ (0.60) $ (0.07) -- --------------------------------------- Net income (loss) per share $ (0.20) $ 0.70 $ 0.58 ======================================= Diluted: Income from continuing operations $ 0.40 $ 0.77 $ 0.58 Loss from discontinued operations $ (0.60) $ (0.07) -- --------------------------------------- Net income (loss) per share $ (0.20) $ 0.70 $ 0.58 ======================================= See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
March 31, ----------------------------- 2001 2000 ----------------------------- ASSETS Current assets: Cash and cash equivalents $ 2,141 $ 803 Accounts receivable, less allowances of $6,663 and $6,795, respectively 80,576 78,132 Inventories 78,751 72,972 Prepaid expenses 15,271 13,532 Assets held for sale 10,000 22,168 Deferred tax assets 13,510 9,679 Net assets of discontinued operations -- 10,247 ----------------------------- Total current assets 200,249 207,533 Property, plant and equipment, net 17,966 16,023 Other assets 7,790 8,912 Deferred charges 973 959 Goodwill, less accumulated amortization of $9,898 and $7,888, respectively 68,551 63,555 ----------------------------- TOTAL ASSETS $295,529 $296,982 ============================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 26,437 $ 26,786 Accrued expenses 13,844 15,468 Deferred revenue 9,084 6,553 Dividends payable 574 569 Income taxes currently payable 3,171 3,851 Current portion of long-term debt 5,202 7,588 ----------------------------- Total current liabilities 58,312 60,815 Long-term debt 106,598 100,353 Deferred tax liabilities 1,866 2,606 Other liabilities 1,316 1,476 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 13,282,327 and 13,144,776 shares, respectively 13,282 13,145 Class B common stock, $1.00 par value, authorized 5,000,000 shares; issued 1,060,901 and 1,085,819 shares, respectively 1,061 1,086 Additional paid-in capital 43,845 43,126 Retained earnings 69,249 74,375 ----------------------------- Total shareholders' equity 127,437 131,732 ----------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $295,529 $296,982 ============================= See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except per share data)
Class B Additional Common Common Paid-In Retained Stock Stock Capital Earnings Total ------------------------------------------------------ Balance at April 1, 1998 $16,003 $1,112 $79,057 $60,224 $156,396 Net income 8,855 8,855 Class B stock converted to common 8 (8) -- Common stock issued: Option plans -- 14,449 common shares 15 239 254 Convertible notes converted -- 1,470 common shares 1 24 25 Common stock repurchased -- 2,741,911 common shares (2,742) (34,803) (37,545) Dividends declared -- $0.16 per share (2,358) (2,358) Incentive plan stock awards -- 1,635 common shares 2 20 22 ------------------------------------------------------ Balance at March 31, 1999 $13,287 $1,104 $44,537 $66,721 $125,649 ====================================================== Net income 9,941 9,941 Class B stock converted to common 18 (18) -- Common stock issued: Option plans -- 3,132 common shares 3 57 60 Common stock repurchased -- 165,400 common shares (165) (1,483) (1,648) Dividends declared -- $0.16 per share (2,287) (2,287) Incentive plan stock awards -- 1,635 common shares 2 15 17 ------------------------------------------------------ Balance at March 31, 2000 $13,145 $1,086 $43,126 $74,375 $131,732 ====================================================== Net loss (2,834) (2,834) Class B stock converted to common 25 (25) -- Common stock issued: Acquisition of additional minority interest of consolidated subsidiary 108 652 760 Option plans -- 2,424 common shares 2 58 60 Dividends declared -- $0.16 per share (2,292) (2,292) Incentive plan stock awards -- 1,635 common shares 2 9 11 ------------------------------------------------------ Balance at March 31, 2001 $13,282 $1,061 $43,845 $69,249 $127,437 ====================================================== See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Years ended March 31, -------------------------------- 2001 2000 1999 -------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $ 5,762 $ 10,929 $ 8,855 Adjustments to reconcile income to net cash provided by (used in) operating activities: Depreciation and amortization 6,308 5,974 6,916 Deferred income taxes (4,571) (1,803) (2,371) Gain on sale of fixed assets and assets held for sale -- (240) -- Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net (2,444) 1,026 (11,883) Inventories (5,779) (4,578) 4,785 Prepaid expenses (1,739) (588) (4,479) Accounts payable and accrued expenses (1,973) 2,810 1,684 Deferred revenue 2,531 (3,820) -- Income taxes currently payable (680) 1,058 (1,493) -------------------------------- Net cash provided by (used in) continuing operations (2,585) 10,768 2,014 -------------------------------- Net cash used in discontinued operations (2,725) (10,871) (2,492) -------------------------------- Net cash provided by (used in) operating activities (5,310) (103) (478) -------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,721) (2,517) (4,173) Proceeds from sales of property, plant and equipment and assets held for sale 8,876 1,857 5,346 Purchase of net assets of acquired companies - net of cash received (760) (18,215) -- Changes in other assets and deferred charges (161) (585) (65) -------------------------------- Net cash provided by (used in) investing activities 5,234 (19,460) 1,108 -------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under credit agreements 8,560 33,084 59,800 Payments under capital lease obligations -- (80) (246) Payments on long-term debt (4,701) (9,440) (58,702) Dividends paid (2,287) (2,279) (2,467) Changes in other liabilities (160) 43 (853) Proceeds from issuance of common stock 2 77 279 Common stock purchased and retired -- (1,648) (37,545) -------------------------------- Net cash provided by (used in) financing activities 1,414 19,757 (39,734) -------------------------------- Net increase (decrease) in cash and cash equivalents 1,338 194 (39,104) Cash and cash equivalents at beginning of year 803 609 39,713 -------------------------------- Cash and cash equivalents at end of year $2,141 $ 803 $ 609 ================================ Supplemental disclosures of noncash investing and financing activities: Dividends accrued and unpaid $ 574 $ 569 $ 576 Acquisition of additional minority interest of consolidated subsidiary $ 760 $ -- $ -- See Notes to Consolidated Financial Statements
Thomas Nelson, Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE A - DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS: Thomas Nelson, Inc. (a Tennessee corporation) and subsidiaries (the "Company"), is a publisher, producer and distributor of Bibles and books emphasizing Christian, inspirational and family value themes, as well as a host of inspirational seminars for women. The Company also designs and markets a broad line of gift and stationery products. The principal markets for the Company's products are Christian bookstores, general bookstores, mass merchandisers, gift stores and direct marketing to consumers in English-speakingcountries. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements consist of the accounts of the Company including its subsidiaries, Worthy, Incorporated (formerly Word, Incorporated), The C.R. Gibson Company ("Gibson") and New Life Treatment Centers, Inc. ("NLTC"). All intercompany transactions and balances have been eliminated. NLTC has minority shareholders that own approximately 5% of the outstanding equity shares of NLTC at March 31, 2001. Minority interest, where material, will be presented as a reduction of net income (loss) on the consolidated statements of operations and as a separate caption between liabilities and shareholders' equity on the consolidated balance sheets. At the time of acquisition, NLTC had a net deficit in shareholders' equity, and post-acquisition operations, excluding Remuda Ranch, were approximately breakeven for fiscal 2001 and 2000. REVENUE RECOGNITION: Revenue from publishing and gift product sales is recognized upon shipment to the customer. Provision is made for the estimated effect sales returns where return privileges exist. Returns of products from customers are accepted in accordance with standard industry practice. The full amount of the returns allowance (estimated returns to be received net of inventory and royalty costs) is shown, along with the allowance for doubtful accounts, as a reduction of accounts receivable in the accompanying consolidated financial statements. Revenue for seminars is recognized as the seminars take place. Deferred revenue relating to cash received in advance of seminars is included in the accompanying consolidated financial statements as deferred revenue. Effective October 1, 2000, the Company adopted the provisions of the Securities and Exchange Commission Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements", as amended, and certain related authoritative literature. SAB 101 summarizes certain of the Staff's views in applying generally accepted accounting principles to revenue recognition. Accordingly, the Company classified certain amounts as revenues that historically, in accordance with industry practice, were reported as a reduction to cost of sales. To comply with the new requirements, the Company reclassified $8.6 million and $6.3 million from cost of sales to revenues for the fiscal years ended March 31, 2000 and 1999, respectively. Effective January 1, 2001, the Emerging Issue Task Force of the Financial Accounting Standards Board ("FASB") issued Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs" ("EITF 00-10"). ETIF 00-10 addresses the income statement classification of shipping and handling fees both billed and incurred by entities. The Company adopted EITF 00-10 effective October 1, 2000. This pronouncement had no impact on the Company's operating income, but did require reclassifications of freight expense from selling, general and administrative expenses to net revenues for amounts billed to customers and to cost of goods sold for the cost of freight. To comply with the new requirements, the Company reclassified $5.0 million and $5.7 million from selling, general and administrative expenses to cost of goods sold, representing net freight expense, and $2.4 million and $2.6 million from cost of goods sold to net revenues, representing freight billed to customers, for fiscal years 2000 and 1999, respectively. INVENTORIES: Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) valuation method. Costs of the production and publication of products are included in inventory and charged to operations when sold or when otherwise disposed. Costs of abandoned publishing projects and appropriate provisions for inventory obsolescence and decreases in market value are charged to operations on a current basis. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Depreciation and amortization are provided for, principally on the straight-line method over the estimated useful lives of the individual assets. GOODWILL: Goodwill is being amortized on a straight-line basis over periods ranging from 25 to 40 years. Subsequent to acquisitions, the Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. In the evaluation of possible impairment, the Company uses the most appropriate method of evaluation given the circumstances surrounding the particular acquisition, which has generally been an estimate of the related business unit's undiscounted cash flows from operations before interest and taxes over the expected remaining life of the goodwill. PREPAID EXPENSES: Prepaid expenses consist primarily of royalty advances. These costs are expensed over the expected benefit periods. DEFERRED CHARGES: Deferred charges consist primarily of loan issuance costs which are being amortized over the average life of the related debt and publication costs that are expected to be of significant benefit to future periods and other deferred charges, all of which are amortized over periods not greater than 60 months. OTHER ASSETS: Other assets consist primarily of prepaid royalty costs for works and projects which are not expected to be released within the next fiscal year. STOCK-BASED COMPENSATION: Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for employee stock-based compensation using the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"), and related Interpretations. Under APB Opinion No. 25, no compensation cost related to employee stock options has been recognized because all options are issued with exercise prices equal to or greater than the fair market value at the date of grant. See Note L for further discussion. INCOME TAXES: Income taxes are accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes". Deferred income taxes are provided for temporary differences between the financial statement and income tax bases of assets and liabilities. COMPUTATION OF NET INCOME (LOSS) PER SHARE: Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common and Class B common shares outstanding during the year. Diluted earnings per share reflects the dilutive effect of stock options outstanding during the period and common shares contingently issuable upon conversion of convertible debt securities in periods in which such exercise would cause dilution and the effect on net income of converting the debt securities. These convertible debt securities were fully redeemed by March 1, 1999, and are excluded from all calculations from that date forward. STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less as cash equivalents. ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NEWLY ISSUED ACCOUNTING STANDARDS: In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", effective, as amended, for fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires all derivatives to be recognized in the statement of financial position and to be measured at fair value. The Company anticipates adopting the provisions of SFAS No. 133 effective April 1, 2001 and does not expect that it will have a material impact on the Company's financial statements. RECLASSIFICATIONS: Certain reclassifications of prior period amounts have been made to conform to the current year's presentation. NOTE B - ACQUISITIONS On June 24, 1999, the Company acquired substantially all of the assets of Ceres LLC ("Ceres") for approximately $6.2 million, which included the assumption of certain liabilities. Ceres manufactures and markets high quality candles, primarily under private labels for the specialty and department store markets, and is headquartered in Hayward, California. The purchase price was allocated to the net assets acquired based on their estimated fair values, including identified intangible assets related to trademarks and customer lists in the amount of approximately $1 million. After final purchase price allocations during fiscal 2001, the excess of the purchase price over the fair value of the net assets acquired (goodwill) was approximately $7.2 million and is being amortized on a straight-line basis over 40 years. Trademarks and customer lists are being amortized over 5 years. In December 2000, the Company discontinued Ceres and has reclassified its results as a discontinued operation. It was determined that the full integration of this newly acquired division was too much of a distraction from the current focus of improving the gift division's long-term profitability. The accompanying consolidated financial statements for fiscal years 2001 and 2000 reflect the results of Ceres as a discontinued operation. (See Note Q). On December 30, 1999, the Company acquired substantially all of the assets of Rutledge Hill Press, Inc. for approximately $4.5 million including the assumption of certain liabilities. Rutledge Hill Press is a Nashville, Tennessee-based publisher that specializes in cooking, quilting, regional interest and Civil War titles. The purchase price was allocated to the net assets acquired based on their estimated fair values, including identified intangible assets related to trademarks and customer lists in the amount of approximately $0.1 million. After final purchase price allocations during fiscal 2001, the excess of the purchase price over the fair value of the net assets acquired (goodwill) was approximately $0.9 million and is being amortized on a straight-line basis over 40 years. Trademarks and customer lists are being amortized over 5 years. On January 28, 2000, the Company acquired approximately 70% of the outstanding shares of NLTC from a group of investors for approximately $15.4 million in cash. NLTC, headquartered in Plano, Texas, operates two primary businesses. One, Women of Faith, hosts inspirational conferences for women at venues throughout the United States, and the other, Remuda Ranch Center for Anorexia and Bulimia, Inc. ("Remuda Ranch"), operates therapeutic centers in Arizona for women with eating disorders. During fiscal 2001, the Company paid approximately $0.8 million in cash and issued approximately 108,000 shares of the Company's common stock to acquire an additional 10% of the outstanding minority shares of NLTC, and, as of March 31, 2001, accepted additional minority shares of NLTC, representing 15% of the outstanding minority shares of NLTC, in lieu of notes receivable from a third party affiliate. At March 31, 2001, the Company owns approximately 95% of the outstanding shares of NLTC. The 2001 acquisition of the additional minority interest representing 25% of the outstanding shares of NLTC resulted in additional goodwill of approximately $3.7 million. At the date of acquisition, the Company declared its intent to sell Remuda Ranch. Accordingly, the accompanying consolidated financial statements reflect Remuda Ranch as an asset held for sale, and the Remuda Ranch operations have been excluded from the accompanying consolidated statements of operations (see Note F) in accordance with Emerging Issue Task Force Issue No. 87-11, "Allocation of Purchase Price to Assets to Be Sold," ("EITF 87-11"). The purchase price for NLTC was allocated to the net assets acquired based on their estimated fair values, including identified intangible assets related to trademarks and customer lists in the amount of $1 million. After final purchase price allocations during fiscal 2001, the excess of the purchase over the fair value of the net assets acquired (goodwill) was approximately $16.3 million and is being amortized on a straight-line basis over 25 years. Trademarks and customer lists are being amortized over 5 years. The fiscal 2000 acquisitions described above were accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of operations do not include any revenues or expenses related to these acquisitions prior to the respective closing dates. The cash portions of these acquisitions were financed through borrowings from the Company's Credit Agreements (See Note J). Following are the Company's unaudited pro forma results for fiscal years 2000 and 1999, assuming the acquisitions, other than Ceres (see Note Q), occurred on April 1, 1998 (in thousands):
2000 1999 -------- -------- Net Revenues $293,199 $298,528 Net Income 10,045 8,411 Earnings Per Share 0.71 0.55
These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations, which would have actually resulted had the combinations been in effect on April 1, 1998, or of future results of operations. NOTE C - RESTRUCTURING CHARGE During fiscal 1999, the Company recorded a restructuring charge, including related asset write-downs of $4.7 million ($3 million or $0.19 per basic share, after-tax). The restructuring initiatives involved the Company's gift manufacturing operations located in Connecticut and included two plant closings and reduction of certain administrative functions. During fiscal 1999, management decided to cease all manufacturing activities in Connecticut. The restructuring resulted in reductions of approximately 300 employees. The products formerly produced at these manufacturing facilities have continued to be designed and distributed by the Company, but are now being manufactured by outside vendors. This restructuring charge was recorded in the accompanying 1999 consolidated statements of operations as cost of goods sold ($2.8 million) and operating expenses ($1.9 million). The remaining liability as of March 31, 1999 ($3.1 million) was recorded in the accompanying consolidated balance sheets as accrued expenses. The restructuring liability was fully utilized during fiscal 2000, and the restructuring is now complete. The restructuring charge and its utilization are summarized as follows (in thousands):
1999 1999 Utilized 2000 Original ------------------ Balance Utilized Balance Accrual Cash Noncash at 1999 Cash 2001 ----------------------------------------------------------- Employee severance and termination $ 2,777 $ 727 $ -- $2,050 $(2,050) $ -- Gain on sale of long-lived assets (1,928) (1,928) -- -- -- -- Other facility shutdown costs 1,017 -- -- 1,017 (1,017) -- ----------------------------------------------------------- Operating expenses 1,866 (1,201) -- 3,067 (3,067) Inventory write-down 2,800 -- 2,800 -- -- -- ----------------------------------------------------------- Total charge $4,666 $(1,201) $2,800 $3,067 $(3,067) $ -- ===========================================================
For plants and buildings that were closed, the tangible assets have been recorded at the lesser of their net book value or their estimated fair value, less cost of disposal. The remaining assets relating to the restructuring are reflected as assets held for sale in the accompanying consolidated balance sheets at March 31, 2000 (see Note F). These assets were sold during fiscal 2001 for a nominal gain. NOTE D - INVENTORIES Inventories consisted of the following at March 31 (in thousands):
2001 2000 ------------------- Finished goods $73,110 $66,239 Work in process and raw materials 5,641 6,733 ------------------- $78,751 $72,972 ===================
NOTE E - PREPAID EXPENSES Prepaid expenses consisted of the following at March 31 (in thousands):
2001 2000 ------------------- Royalties $12,120 $10,042 Prepaid production costs 919 1,552 Other 2,232 1,938 ------------------- $15,271 $13,532 ===================
NOTE F - ASSETS HELD FOR SALE Assets held for sale at March 31, 2001 include Remuda Ranch (see Note B), which the Company expects to sell by July 31, 2001. In accordance with EITF No. 87-11, during 2001 (the "holding period"), cash flows from operations, interest on incremental debt and the estimated proceeds from the sale were considered in the allocation of the purchase price to the net assets of Remuda Ranch. Accordingly, during 2001, the Company reallocated approximately $3.0 million to goodwill from Remuda Ranch's original purchase price allocation, based on the current estimated sales proceeds. During 2001, Remuda Ranch had pre-tax income of $0.6 million, including interest allocations of $1.3 million, which have been excluded from the accompanying consolidated statements of operations. At March 31, 2001, the Company determined the holding period had expired, in accordance with EITF No. 87-11. As a result, the Company will apply the provisions of EITF No. 90-06, "Accounting for Certain Events not Addressed in Issue No. 87-11 Related to an Acquired Operating Unit to be Sold", until Remuda Ranch is sold. Accordingly, effective April 1, 2001, Remuda Ranch will be reflected as a discontinued operation in the Company's consolidated financial statements and any changes in the estimated net realizable value of Remuda Ranch's net assets or difference in carrying value and actual amounts received will be reported as a gain/loss from discontinued operations. Assets held for sale at March 31, 2000 included land and buildings previously used in the gift division manufacturing operations (see Note C), which were sold during 2001 for a nominal gain. NOTE G - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at March 31 (in thousands):
2001 2000 ------------------- Land $ 1,508 $ 1,358 Buildings 12,758 12,154 Machinery and equipment 17,225 18,756 Furniture and fixtures 7,151 6,044 Other 2,558 1,356 ------------------- 41,200 39,668 Less allowance for depreciation and amortization (23,234) (23,645) ------------------- $ 17,966 $ 16,023 ===================
NOTE H - OTHER ASSETS Other assets consisted of the following at March 31 (in thousands):
2001 2000 ------------------- Prepaid royalties $2,473 $3,313 Cash surrender value of life insurance policies 1,539 1,429 Intangible assets, net 1,086 1,950 Other 2,692 2,220 ------------------- $7,790 $8,912 ===================
NOTE I - ACCRUED EXPENSES Accrued expenses consisted of the following at March 31 (in thousands):
2001 2000 ------------------- Accrued royalties $ 5,848 $ 4,013 Accrued payroll 667 3,107 Accrued commissions 707 937 Accrued interest 1,118 1,039 Accrued sales and property tax 176 67 Net liability of music business discontinued operation 1,965 2,424 Accrued group insurance 651 631 Other 2,712 3,250 ------------------- $13,844 $15,468 ===================
Cash payments for interest were $7.9 million in 2001, $6.2 million in 2000 and $7.5 million in 1999. NOTE J - LONG-TERM DEBT Long-term debt consisted of the following at March 31 (in thousands):
2001 2000 ----------------------- Credit Agreements $ 93,050 $ 84,500 Industrial Revenue Bonds 1,126 1,325 Loan Agreement 333 1,000 Senior Notes 14,391 17,422 Other 2,900 3,694 ----------------------- 111,800 107,941 Less current portion ( 5,202) ( 7,588) ----------------------- $ 106,598 $100,353 =======================
The Company has Credit Agreements with borrowing limits totaling $110 million as of March 31, 2001. On November 30, 1998, the primary credit facility ("Credit Facility") was amended to increase the aggregate amount available for borrowing from $75 million to $100 million and to extend the maturity from December 13, 2002 to December 13, 2005. The Credit Facility bears interest at either the lender's prime rate or, at the Company's option, the LIBOR plus a percentage, based on certain financial ratios. The average interest rate for the Credit Facility was approximately 6.3% at March 31, 2001. The Credit Facility is guaranteed by all of the Company's material subsidiaries and the Company has agreed, among other things, to limit the payment of cumulative cash dividends and to maintain certain interest coverage and debt-to-total-capital ratios. The maximum dividends, which the Company may pay for fiscal 2002 are $16.3 million. Additionally, the Company has a $10 million credit facility, which matures July 31, 2002, and bears interest at LIBOR plus a percentage, for a total rate of 6.5% at March 31, 2001. At March 31, 2001, the Company was in compliance with all covenants of the Credit Agreements. At March 31, 2001, the Company had $16.9 million available for borrowing under its Credit Agreements. On June 29, 2001, the $100 million Credit Facility was amended to approve certain asset sales, amend certain financial covenants, adjust the interest rate structure and to change the maturity date to April 1, 2003. The Company has outstanding Industrial Revenue Bonds, which bear interest at rates from 7.35% to 8.1% and are due through 2005. At March 31, 2001, the Industrial Revenue Bonds were secured by property, plant and equipment with a net book value of approximately $1.3 million. The Company has outstanding $14.4 million of Senior Notes, which bear interest at rates from 6.68% to 8.31% and are due through fiscal 2006. Under the terms of the Senior Notes, the Company has agreed, among other things, to limit the payment of cash dividends and to maintain certain interest coverage and debt-to-total-capital ratios. The maximum dividends which the Company may pay for fiscal 2002 are $16.3 million. At March 31, 2001, the Company was in compliance with all covenants of the Senior Notes. On March 1, 1999, the Company redeemed the remaining outstanding $39.9 million of 5.75% Convertible Subordinated Notes due November 30, 1999. The Convertible Subordinated Notes were redeemed at $1,008.20 per $1,000 principal amount, together with accrued and unpaid interest. During the first nine months of fiscal 1999, the Company purchased $15.1 million in principal amount of the Convertible Subordinated Notes. Maturities of long-term debt for the years ending March 31 are as follows (in thousands):
2002 $ 5,202 2003 3,988 2004 96,982 2005 3,321 2006 and thereafter 2,307 --------- $111,800 =========
NOTE K - LEASES Total rental expense for all operating leases, including short-term leases of less than a year, amounted to approximately $5.3 million in 2001, $5.0 million in 2000 and $4.3 million in 1999. Generally, the leases provide that, among other things, the Company shall pay for utilities, insurance, maintenance and property taxes in excess of base year amounts. Minimum rental commitments under non-cancelable operating leases for the years ending March 31 are as follows (in thousands):
Operating Leases --------- 2002 $ 3,397 2003 2,560 2004 2,183 2005 2,147 2006 1,111 2007 and thereafter 281 --------- Total minimum lease payments $11,679 =========
NOTE L - STOCK PLANS 1992 EMPLOYEE STOCK INCENTIVE PLAN: The Company has adopted the 1992 Amended and Restated Employee Stock Incentive Plan (the "Stock Incentive Plan"), which is administered by the Company's Compensation Committee. Stock options, stock appreciation rights, restricted stock, deferred stock, stock purchase rights and other stock-based awards may be granted to employees under this plan. In addition, 140,000 shares of common stock have been authorized for issuance under this plan for annual stock option grants to each of the Company's outside directors for the purchase of 2,000 shares of common stock. Stock options have been granted under this plan as indicated in the table below. The options in the Stock Incentive Plan vest over one to three year periods beginning on the first or fourth anniversary date of the option grant, and at March 31, 2001, there were options to purchase 353,000 shares of common stock and 420,000 shares of Class B common stock exercisable. The weighted average life of the options outstanding in the Stock Incentive Plan at March 31, 2001, was four years.
Weighted Remaining Outstanding Optioned Shares Average Weighted Shares --------------------------- Exercise Average Reserved Common Class B /Grant Fair For Grant Stock Stock Price Value ------------------------------------------------------------ April 1, 1998 62,396 556,500 1,440,000 $15.88 Options canceled 151,500 ( 91,500) ( 60,000) 15.55 Options granted ( 74,000) 49,000 25,000 14.29 $6.01 Options exercised -- ( 7,000) -- 11.25 Stock awards ( 1,635) -- -- 13.06 ----------------------------------------- March 31, 1999 138,261 507,000 1,405,000 15.86 Options canceled 90,500 ( 85,500) ( 5,000) 12.16 Options granted ( 12,000) 12,000 -- 10.00 $4.82 Stock awards ( 1,635) -- -- 9.94 ----------------------------------------- March 31, 2000 215,126 433,500 1,400,000 15.89 Options canceled 1,088,500 (108,500) ( 980,000) 17.76 Options granted ( 367,000) 367,000 -- 6.91 $3.10 Stock awards ( 1,635) -- -- 6.50 ----------------------------------------- March 31, 2001 934,991 692,000 420,000 11.16 =========================================
1989 NLTC STOCK INCENTIVE PLAN: NLTC has a stock option plan that provides for granting to officers and key employees non-qualified options to purchase its common stock. Options shall not be priced at less than 85% of the fair value at the date of grant or be granted for terms of greater than ten years. Options outstanding generally vest after four years of employment, or at 25% per year. At March 31, 2001 and 2000, there were options to purchase approximately 1.2 million and 1.4 million shares outstanding under this plan, of which approximately 1.0 million and 0.9 million were exercisable, respectively. At March 31, 2001, the weighted average exercise price on outstanding options and exercisable options was approximately $0.96 per share and the weighted average life was five years. At March 31, 2000, the weighted average exercise price on outstanding options and exercisable options was approximately $0.69 per share and $0.77 per share, respectively. STOCK-BASED COMPENSATION PLANS: The Company accounts for options issued to employees and directors under APB Opinion No. 25. All options are granted with exercise prices equal to or greater than market value of the Company's common stock on the date of grant. As a result, no compensation cost has been recognized. SFAS No. 123 established new financial accounting and reporting standards for stock-based compensation plans. The Company has adopted the disclosure-only provision of SFAS No. 123. As a result, no compensation cost has been recognized for the Company's employee stock option plans. Had compensation cost for the employee stock option plans been determined based on the fair value at the grant date for awards in fiscal 2001, 2000 and 1999 consistent with the provisions of SFAS No. 123, the Company's net income (loss) and net income (loss) per share would have been reduced (increased) to the following pro forma amounts for the 2001, 2000 and 1999 fiscal years:
2001 2000 1999 ---------------------------------- Net income (loss): As reported $(2,834) $9,941 $8,855 ================================== Pro forma $(2,987) $9,750 $6,445 ================================== Net income (loss) per share: Basic -- As reported $ (0.20) $ 0.70 $ 0.58 ================================== Pro forma $ (0.21) $ 0.68 $ 0.42 ================================== Diluted -- As reported $ (0.20) $ 0.70 $ 0.58 ================================== Pro forma $ (0.21) $ 0.68 $ 0.42 ==================================
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to April 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. 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:
2001 2000 1999 ---------------------------------- Expected dividend payment $ 0.16 $ 0.16 $ 0.16 Expected stock price volatility 34.45% 11.83% 33.17% Risk free interest rate 6.27% 5.45% 5.43% Expected life of options 9 years 9 years 7 years
1997 DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS: The Company adopted the 1997 Deferred Compensation Plan for Non-Employee Directors (the "Deferred Compensation Plan"), which is administered by the Compensation Committee. The Deferred Compensation Plan is a non-qualified plan that allows eligible non-employee members of the Company's Board of Directors to elect to defer receipt of all or any portion of annual base fees payable to them for services rendered to the Company as Directors. The participating Directors are awarded performance units of the Company's common stock at fair market value on the deferral dates and dividend payment dates. Distributions at age 65 or 70 are paid in cash, based on the value of the performance units at the time of distribution, payable in a lump sum or in installments. Compensation expense is recognized on deferral dates, dividend payment dates, and based on changes in the quoted price of the Company's common stock. During fiscal years 2001, 2000 and 1999, compensation expense, in relation to the Deferred Compensation Plan, was recorded in the amounts of approximately $0.1 million, $0.1 million and $0.1 million, respectively. 1990 DEFERRED COMPENSATION OPTION PLAN FOR OUTSIDE DIRECTORS: The Company adopted the 1990 Deferred Compensation Option Plan for Outside Directors (the "Outside Directors Plan"), which is administered by the Company's Compensation Committee. Options were awarded, on or prior to the annual meeting of shareholders or on initial election to the Board of Directors ("Board"), to each Director of the Company who filed with the Company an irrevocable election to receive options in lieu of not less than fifty percent (50%) of the retainer fees to be earned during each fiscal year. The option price was $1.00 per share with the number of shares being determined by dividing the amount of the annual retainer fee by the fair market value ("FMV") of the shares on the option date less $1.00 per share. The amount of annual retainer fee for options was expensed by the Company as earned. The options in the Outside Directors Plan vest on the first anniversary date of the option grant and, at March 31, 2001, there were no shares of common stock exercisable. The Outside Directors Plan terminated in August 1995 and all options outstanding have been exercised prior to their expiration in August of 2001. Options granted and outstanding under this plan are as follows:
Common Stock Weighted Outstanding Average Optioned Exercise Shares Price ------------------------- April 1, 1998 13,050 0.85 Exercised ( 6,450) 0.82 ------------ March 31, 1999 6,600 0.87 Exercised ( 4,176) 0.80 ------------ March 31, 2000 2,424 1.00 Exercised ( 2,424) 1.00 ------------ March 31, 2001 - 0 - ============
NOTE M - RETIREMENT PLANS The Company has adopted the Thomas Nelson, Inc. Employee Stock Ownership Plan ("Company ESOP"), which includes a 401(k) salary deferral feature. In addition, Gibson maintains The C.R. Gibson Company Employee Stock Ownership Plan ("Gibson ESOP") and The C.R. Gibson Company Savings and Investment Plan ("Gibson 401(k) Plan"). The Company ESOP covers all eligible officers and employees other than those employed by Gibson. The Company, at its discretion, matches each employee's 401(k) contribution annually and, in addition, may make retirement contributions to the ESOP at its discretion. The Gibson ESOP and Gibson 401(k) Plan benefit all eligible Gibson employees. Gibson matches, at its discretion, each Gibson employee's 401(k) contributions annually and contributes 4% of the first $6,600 of each participant's compensation in the Gibson 401(k) Plan. The Company's contributions to these retirement plans, including matching contributions, totaled $2.4 million and $2.7 million in 2000 and 1999, respectively. In fiscal 2001, the Gibson ESOP and Gibson 401(k) plans were merged into the Company ESOP. The surviving plan continued to allow employer discretionary contributions to a stock bonus feature and continued to have a 401(k) feature. The surviving plan allows all eligible employees to elect deferral contributions of between 1% and 15% of their eligible compensation. The Company will match 100% of each participant's salary deferral contributions up to 3% of eligible compensation and 50% of the next 2% of eligible compensation. The new 401(k) matching schedule was retroactive to January 1, 2000, in order for the surviving plan to qualify as a "safe harbor" 401(k) plan under applicable Internal Revenue Code Sections. The Company's contributions under this plan, including matching contributions, totaled $2.5 million during fiscal 2001. NLTC has adopted a profit sharing plan, which is qualified under section 401 of the Internal Revenue Code. Eligible employees over 21 years of age may participate in the plan after one year of credited service with NLTC. NLTC's contribution to the plan for any year is discretionary. During fiscal 2001 and 2000, NLTC matched 20% of all employee contributions, up to 15% of eligible compensation. The Company's matching contributions under this plan totaled $0.2 million during fiscal 2001. NOTE N - COMMON STOCK The Company has declared and paid a discretionary dividend of four cents per share every quarter during fiscal 2001, 2000 and 1999. The Board of Directors, at its quarterly meetings, approves and declares the amount and timing of the discretionary dividends, if any. 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 tansactions. As of March 31, 2001, the Company has repurchased approximately 2.9 million shares of common stock at an aggregate cost to the Company of $39.2 million. NOTE O - INCOME TAXES The income tax provision is comprised of the following at March 31 (in thousands):
2001 2000 1999 ---------------------------------- Current: U.S. federal $ 6,472 $ 5,148 $ 6,018 State 1,306 1,069 1,278 Foreign -- 150 175 ---------------------------------- Total current 7,778 6,367 7,471 Deferred (4,571) (1,803) (2,371) ---------------------------------- Total tax provision $ 3,207 $ 4,564 $ 5,100 ==================================
SFAS No. 109 permits the recognition of a deferred tax asset if it is more likely than not that the future tax benefit will be realized. The Company believes that, based on its history of profitable operations, the net deferred tax asset will be realized on future tax returns, primarily from the generation of future taxable income. During fiscal 2000, the Company acquired approximately $3.0 million of net deferred tax assets in connection with the NLTC business combination. The net deferred tax asset is comprised of the following at March 31 (in thousands):
2001 2000 ---------------------- Accelerated depreciation $( 878) $(1,898) Deferred charges ( 988) ( 779) Contributions 2,786 3,075 Inventory obsolescence reserve 2,705 2,963 Bad debt and returns reserves 3,490 1,795 Inventory-unicap tax adjustment 1,217 1,158 Advances and prepaid expenses -- 92 Accrued liabilities 5,921 4,507 Valuation allowance ( 2,609) (3,840) ---------------------- Net deferred tax asset $ 11,644 $ 7,073 ======================
Reconciliation of income taxes computed at the U.S. federal statutory tax rate to the Company's effective tax rate is as follows at March 31:
2001 2000 1999 ---------------------------------- U.S. federal statutory tax rate provision 34.0% 34.0% 34.0% State taxes on income, net of federal 2.5% 2.5% 2.5% Tax benefit of foreign translation adjustment charge-off -- ( 4.0%) -- ---------------------------------- Effective tax rate 36.5% 32.5% 36.5% ==================================
During the fourth quarter of fiscal year 2000, the Company closed a foreign subsidiary in the United Kingdom. This subsidiary distributed Gift products throughout Europe. The Company will continue to sell Gift products in Europe through third-party distributor arrangements. This closure is not expected to have a material impact on the Company's financial statements. While this foreign subsidiary produced only nominal revenues and operating income over the last several years, it did generate a substantial cumulative foreign currency translation loss over the course of its existence. Upon the closure of this foreign subsidiary, the Company realized a permanent tax benefit of approximately $0.6 million, related to the cumulative foreign currency translation loss. Cash payments for income taxes were $5.2 million, $6.7 million and $2.8 million in 2001, 2000 and 1999, respectively. NOTE P - QUARTERLY RESULTS (UNAUDITED) Summarized results for each quarter in the fiscal years ended March 31, 2001 and 2000 are as follows (dollars in thousands, except per share data):
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter ----------------------------------------- 2001 - - ---- Net revenue $ 67,302 $ 81,656 $ 72,719 $ 76,288 Operating income 3,720 7,297 2,084 1,650 Income from continuing operations 1,297 3,418 498 549 Loss from discontinued operations ( 462) ( 426) ( 5,654) ( 2,054) Net income (loss) 835 2,992 ( 5,156) ( 1,505) Income per share from continuing operations 0.09 0.24 0.03 0.04 Loss per share from discontinued operations ( 0.03) ( 0.03) ( 0.39) ( 0.15) Net income (loss) per share 0.06 0.21 ( 0.36) ( 0.11) 2000 - - ---- Net revenue $ 61,382 $ 69,419 $ 61,748 $ 72,919 Operating income 3,620 8,010 5,701 3,422 Income from continuing operations 1,380 4,428 2,675 2,446 Income (loss) from discontinued operations -- ( 176) 139 ( 951) Net income 1,380 4,252 2,814 1,495 Income per share from continuing operations 0.10 0.31 0.19 0.17 Income (loss) per share from discontinued operations -- ( 0.01) 0.01 ( 0.07) Net income per share 0.10 0.30 0.20 0.10
NOTE Q - DISCONTINUED OPERATIONS In December 2000, the Company discontinued its Ceres operation, a recently acquired division of its gift segment (See Note B). These operations have been reported as a discontinued operation. Accordingly, their assets, liabilities and results of operations are segregated in the accompanying consolidated statements of operations, balance sheets and cash flows, and all prior periods have been restated to reflect the discontinued operations. Operating results of the discontinued operations of Ceres are summarized below. The amounts include an allocation of interest from the Company's Credit Agreements based on actual cash funded for the acquisition and operations of Ceres. Interest expense allocations to Ceres totaled $0.9 million and $0.5 million for fiscal years 2001 and 2000, respectively. The results for fiscal 2001 reflect activity through December 31, 2000 (the "measurement date") and results for fiscal 2000 reflect activity for the full fiscal year from the acquisition date, June 24, 1999. Net losses incurred after the measurement date and expected losses on disposal have been reflected in the net assets of discontinued operations and included in the estimated loss on disposal. Any differences in the estimated disposal amounts and actual results will change the loss on disposal accordingly. The Company expects to dispose of Ceres by December 31, 2001.
Fiscal Years Ended ---------------------- 2001 2000 ---------------------- Net revenues $ 5,416 $ 7,396 Operating loss $(1,420) $( 232) Net loss from discontinued operations $(1,332) $( 988) Loss on disposal $(7,264) -- ---------------------- Total loss from discontinued operations $(8,596) $( 988) ======================
Assets and liabilities of Ceres are summarized below:
2001 2000 ---------------------- Receivables $ 1,244 $ 920 Inventories 1,622 1,837 Other current assets 29 120 ---------------------- Current assets of discontinued operations 2,895 2,877 Net property, plant and equipment 1,440 1,400 Other assets (including goodwill) 42 7,207 ---------------------- Total assets of discontinued operations 4,377 11,484 Less: Accounts payable and accrued expenses, including estimated disposed costs (4,377) ( 1,237) ---------------------- Net assets of discontinued operations $ -- $ 10,247 ======================
NOTE R - COMMITMENTS AND CONTINGENCIES The Company has commitments to provide advances to certain authors in connection with products being developed for the Company. These commitments totaled approximately $9.4 million at March 31, 2001. The timing of payments will be dependent upon the performance by the authors of conditions provided in the applicable contracts. It is anticipated that a substantial portion of the commitments will be completed within the next four years. Remuda Ranch (see Note F), has certain pending litigation and has received a subpoena from the Department of Defense, Office of the Inspector General, requesting information regarding patients who were covered by a certain third party insurance provider. At issue is whether Remuda Ranch was an authorized and participating provider and was precluded from billing the patients for the difference between the approved benefit and the full cost of the treatment received. Remuda Ranch has challenged whether it was, in fact, an authorized or participating provider at the time of these admissions and has denied that it is required to make any refunds. The Company believes that the results of the above noted litigation will not have a material adverse effect on the financial condition, results of operations or liquidity of the Company. The Company is subject to various other legal proceedings, claims and liabilities, which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the Company. NOTE S - FINANCIAL INSTRUMENTS The following disclosure of estimated fair value of financial instruments as of March 31, 2001 is made in accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments". The estimated fair value amounts have been determined by the Company using available market information as of March 31, 2001 and 2000, respectively. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market transaction (in thousands):
2001 2000 ------------------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------------------------------------------------- CASH AND CASH EQUIVALENTS $ 2,141 $ 2,141 $ 803 $ 803 LONG-TERM DEBT: Credit Agreements $93,050 $93,050 $84,500 $84,500 Industrial Revenue Bonds 1,126 1,126 1,325 1,325 Capital Lease Obligations -- -- -- -- Loan Agreement 333 333 1,000 1,000 Senior Notes 14,391 14,539 17,422 16,832 Other 2,900 2,900 3,694 3,694
The carrying values of the cash and cash equivalents approximate the fair value based on the short-term nature of the investment instruments. The fair values of the Senior Notes are based on the quoted prices from financial institutions. The carrying value of the Company's Credit Agreements and Loan Agreement approximate the fair value. Due to the variable rate nature of the instruments, the interest rate paid by the Company approximates the current market rate demanded by investors; therefore, the instruments are valued at par. The carrying value of the Industrial Revenue Bonds approximates the fair value. Outstanding letters of credit totaled $0.8 million and $2.0 million as of March 31, 2001 and 2000, respectively. The letters of credit guarantee performance to third parties of various trade activities. Fair value estimated on the basis of fees paid to obtain the obligations is not material at March 31, 2001 and 2000. Financial instruments which potentially subject the Company to credit risk consist primarily of trade receivables. Credit risk on trade receivables is minimized as a result of the large and diverse nature of the Company's customer base. NOTE T - OPERATING SEGMENTS The Company adopted SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," at March 31, 1999, which directs 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, videos and hosts inspirational seminars for women. The gift segment primarily designs and markets gift products, including stationery items, 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).
Publishing Gift(a) Other Total ------------------------------------------------- 2001 - - ---- Net revenues $214,147 $ 83,818 $ -- $297,965 Operating income (loss) 21,110 ( 6,359) -- 14,751 Identifiable assets 159,474 112,545 23,510 295,529 Capital expenditures 1,894 827 -- 2,721 Depreciation and amortization expense 3,211 3,097 -- 6,308 2000 - - ---- Net revenues $182,001 $ 83,467 $ -- $265,468 Operating income (loss) 21,529 ( 776) -- 20,753 Identifiable assets 136,275 118,613 42,094 296,982 Capital expenditures 876 1,641 -- 2,517 Depreciation and amortization expense 2,842 3,132 -- 5,974 1999 - - ---- Net revenues $173,904 $ 96,667 $ -- $270,571 Operating income 18,363 1,726 -- 20,089 Identifiable assets 139,959 108,656 6,715 255,330 Capital expenditures 2,139 2,034 -- 4,173 Depreciation and amortization expense 3,345 3,571 -- 6,916
(a) For fiscal 1999, reflects pre-tax restructuring and other related charges of $4.7 million pertaining primarily to severance and reserves for inventory to be liquidated. No single customer accounted for as much as 10% of consolidated revenues in fiscal 2001, 2000 or 1999. Foreign revenues accounted for less than 10% of consolidated revenues in fiscal 2001, 2000 and 1999. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Thomas Nelson, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Thomas Nelson, Inc. (a Tennessee corporation) and Subsidiaries as of March 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thomas Nelson, Inc. and Subsidiaries as of March 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Nashville, Tennessee May 18, 2001 (except for paragraph three of Note J, as to which the date is June 29, 2001) OTHER FINANCIAL INFORMATION (Unaudited) The common stock and the Class B common stock are traded on the NYSE under the symbols "TNM" and "TNMB," respectively. The following table sets forth, for the periods indicated, the high and low closing sales prices as reported on the NYSE composite tape:
Common Class B Stock Common Stock --------------------------------------- Dividends Paid High Low High Low Per Share ------------------------------------------------------ Fiscal 2001 - - ----------- First Quarter $ 9.6250 $6.2500 $11.2500 $7.5000 $.04 Second Quarter 9.1875 7.6250 10.5000 9.5000 .04 Third Quarter 8.3750 5.2500 9.0000 6.1250 .04 Fourth Quarter 7.7500 6.0000 7.6250 6.3125 .04 ------ $.16 ====== Fiscal 2000 - - ----------- First Quarter $11.2500 $9.6875 $11.2500 $9.2500 $.04 Second Quarter 11.6250 9.6875 11.2500 9.7500 .04 Third Quarter 10.3750 8.3750 10.0000 9.0000 .04 Fourth Quarter 9.5000 7.5625 9.5625 8.2500 .04 ------ $.16 ======
As of June 25, 2001, there were 906 record holders of the common stock and 592 record holders of the Class B common stock. Declaration of dividends is within the discretion of the Board of Directors of the Company. The Board considers the payment of dividends on a quarterly basis, taking into account the Company's earnings and capital requirements, as well as financial and other conditions existing at the time. Certain covenants of the Company's Credit Agreements and Senior Notes limit the amount of cash dividends payable based on the Company's cumulative consolidated net income. See Note J of Notes to Consolidated Financial Statements. On May 24, 2001, the Company declared a cash dividend of $0.04 per share on its common stock and Class B common stock to be paid on August 20, 2001 to shareholders of record on August 6, 2001. EX-21 5 ex21301k.txt EXHIBIT 21 FOR 3/31/2001 FORM 10-K
EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Percentage Jurisdiction of Ownership of Subsidiary Incorporation Capital Stock =============================================================================== Worthy, Incorporated Delaware 100% The C.R. Gibson Company Delaware 100% New Life Treatment Centers, Inc. Delaware 95% Nelson Direct Marketing Services, Inc. Delaware 100% C.R. Gibson Sales Company, Inc. Delaware 100% Ceres Candles and Gifts, Inc. Delaware 100% Editorial Caribe, Inc. Florida 100% Elm Hill Press, Inc. (dba Rutledge Hill Press, Inc.) Tennessee 100% Women of Faith, Inc. Delaware 100% Remuda Ranch Center, Inc. Delaware 100%
EX-23 6 ex23301k.txt EXHIBIT 23 FOR 3/31/2001 FORM 10-K EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our reports included in Thomas Nelson, Inc.'s annual report to its shareholders. In addition, we hereby consent to the incorporation of our reports incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File No. 33-80086 and File No. 333-4503). /s/ Arthur Andersen LLP ----------------------- Nashville, Tennessee June 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----