-----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, KzOf/WH6X/zo+at2POd/w29Mm7O0R/esRmF6JE7CZZ+II+02IOjnp9rlEAeHI7pD PZpcCULxdV2zkDr0O5MYmw== 0000071023-03-000015.txt : 20030630 0000071023-03-000015.hdr.sgml : 20030630 20030630165854 ACCESSION NUMBER: 0000071023-03-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NELSON THOMAS INC CENTRAL INDEX KEY: 0000071023 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 620679364 STATE OF INCORPORATION: TN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13788 FILM NUMBER: 03765109 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 mar200310k.txt FORM 10-K FOR PERIOD ENDED 3/31/03 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, 2003 Commission file number 1-13788 THOMAS NELSON, INC. (Exact name of Registrant as specified in its charter) Tennessee 62-0679364 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 501 Nelson Place, Nashville, Tennessee 37214-1000 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (615) 889-9000 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. ( X ) YES ( ) 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. ( X ) Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12B-2 of the Exchange Act). Yes ( X ) No ( ) As of June 23, 2003, the Registrant had outstanding 13,359,097 shares of Common stock and 1,024,795 shares 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 $91.2 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 23, 2003, as reported on The New York Stock Exchange. DOCUMENTS INCORPORATED BY REFERENCE Documents from which portions Part of Form 10-K are incorporated by reference - ------------------------------- ------------------------------ PART II Item 5 - Market for Company's Common Page 45 of Annual Report to Equity and Related Shareholder Shareholders for year ended Matters March 31, 2003 (market price and dividend information only) Item 6 - Selected Financial Data Page 17 of Annual Report to Shareholders for year ended March 31, 2003 Item 7 - Management's Discussion and Pages 18 to 25 of Annual Report Analysis of Financial Condition to Shareholders for year ended and Results of Operations March 31, 2003 Item 7A - Quantitative and Qualitative Page 25 of Annual Report to Disclosures about Market Risk Shareholders for year ended March 31, 2003 Item 8 - Financial Statements and Pages 26 to 42 of Annual Supplementary Data Report to Shareholders for year ended March 31, 2003 PART III Item 10 - Directors and Executive Officers To be included in Company's Proxy of the Company Statement for the Annual Meeting of Shareholders to be held August 21, 2003, 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 21, 2003, 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 Certain To be included in Company's Proxy Beneficial Owners and Management Statement for the Annual Meeting of Shareholders to be held August 21, 2003, 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 21, 2003, 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"), incorporated in 1961, 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 believes it is the largest publisher of Christian and inspirational Bibles and books in the United States.The Company also hosts inspirational conferences. The financial performance of our publishing and conference segments is reflected in Note T to our consolidated financial statements. 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), W Publishing(TM), J. Countryman(R), Tommy Nelson(R), Rutledge Hill Press(R) and Cool Springs Press(TM), 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, churches, and ministries. In fiscal 2003, 2002 and 2001, the Company released 523, 699 and 635 new book titles, respectively. The Company publishes and distributes some of the best known communicators in Christian and inspirational publishing, including Carolyn Arends, Henry Blackaby, Kenneth Boa, Dr. Don Colbert, Ted Dekker, Lewis Drummond, John Eldredge, Billy Graham, Franklin Graham, John Hagee, Hank Hanegraaf, Jack Hayford, Benny Hinn, Angela Hunt, Barbara Johnson, Thomas Kinkade, Anne Graham Lotz, Max Lucado, John C. Maxwell, John MacArthur, Frank Peretti, Pat Robertson, Dr. Charles Stanley, Charles Swindoll, Tommy Tenney, and Bruce Wilkinson. In addition, the Company maintains a backlist of approximately 1,000 titles, which provides a stable base of recurring revenues as many popular titles continue to generate significant sales from year to year. Backlist titles accounted for approximately 52% of the book division's net revenues in fiscal 2003. Authors and titles are supported through 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 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 one of the largest commercial publishers 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 2003 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(TM) (NKJV)(R) 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(R) in 1982. 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, Max Lucado 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 1,000 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 additional 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. CONFERENCES Women of Faith(R), 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. The Company benefits through seminar attendance fees and the sale of Christian products at seminars. In fiscal year 2003, Women of Faith hosted 28 conferences throughout the United States, which attracted over 400,000 participants. Womenoffaith.com is an on-line community of women who gather to build relationships with one another. Founded in June 1999, Womenoffaith.com created a place where Christian women from all over the world come to share their life experiences and faith with one another. The events and the Internet site both provide opportunities to market and sell inspirational products. 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(R) and Borders(R); mass merchandisers such as Target(R), WalMart(R) and Sam's(R) 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. As of March 31, 2003, the Company employed a sales force of approximately 112 people and maintained 24-hour-a-day telemarketing capability. These employees service over 32,000 retail accounts and 28,000 church related accounts. Customer orders are usually shipped through a variety of common carriers, as well as by UPS(R), FedEx(R) and parcel post. No single customer accounted for more than 10% of net revenues during fiscal 2003. The Company contracts with a number of foreign publishers to translate the Company's English titles into foreign languages. The Company typically retains publishing rights to the titles translated. The Company distributes its products internationally in South America, Europe, Australia, New Zealand, Africa, the Far East, Mexico and Canada. In fiscal 2003, 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. The Company's net revenues fluctuate seasonally, with revenues in the first fiscal quarter historically being less than the remaining quarters of the year. Seasonality is 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. COPYRIGHTS AND ROYALTY AGREEMENTS The Company customarily secures copyright registrations 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. COMPETITION The Company believes that it is the largest publisher of Christian and inspirational Bibles and books in the United States. The Company competes with numerous other companies that publish and distribute Christian and inspirational books, 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 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 and distribution experience and its management expertise give it a competitive advantage in signing and maintaining contracts with top Christian and inspirational authors. EMPLOYEES As of March 31, 2003, the Company employed approximately 560 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. AVAILABLE INFORMATION The Company files reports with the Securities and Exchange Commission (the "Commission"), including annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports from time-to-time. The Company is an electronic filer and the Commission maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information filed electronically. The Company's website address is www.thomasnelson.com. Please note that the Company's website address is provided as an inactive textual reference only. The Company makes available free of charge through the Company's website, the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Commission. The information provided on the Company's website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report. 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 73 Chairman of the Board, Chief Executive Officer, President and Director Joe L. Powers 57 Executive Vice President and Secretary Lee Gessner 50 Executive Vice President, Thomas Nelson Sales and Conference Group Vance Lawson 44 Senior Vice President, Finance and Operations Group Michael S. Hyatt 48 Executive Vice President and Publisher, Thomas Nelson Book Group Philip Stoner 43 Executive Vice President and Publisher, Thomas Nelson Bible & Reference Group
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. 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 Thomas Nelson Sales and Conferencing Group in February 2003. Previously, Mr. Gessner served as Executive Vice President of the Thomas Nelson Publishing and Sales Group, 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. 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. Michael S. Hyatt has been with the Company since February 1998. In February 2003, he was appointed Executive Vice President and Publisher of the Thomas Nelson Book Group. Previously, Mr. Hyatt served as Executive Vice President and Group Publisher for Nelson Book, Tommy Nelson, Rutledge Hill Press, Cool Springs Press and the Nelson Multi Media divisions; Executive Vice President and Publisher of Nelson Books; Senior Vice President and Publisher of Nelson Books and Senior Vice President and Associate Publisher of Nelson Books. Mr. Hyatt was previously a partner with Wolgemuth & Hyatt, a literary agency, from 1992 to 1998. Philip Stoner has been with the Company since May 1990. He was appointed Executive Vice President and Publisher of the Thomas Nelson Bible, Reference and Spanish Group in February 2003. Previously, Mr. Stoner served as Executive Vice President and Publisher for all Bible, Reference, Electronic and Spanish Publishing; Executive Vice President and Publisher of Reference, Electronic and Spanish Publishing; Senior Vice President and Publisher of Reference Product; Vice President of Reference and Specialty Publishing; Vice President of Reference and Mass Market and Director of Reference Publishing and Director of Reference Books and Nelson's Communication Division. 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, 2003 of approximately $600,000. The Company's major warehouse facilities, which are owned by the Company for its publishing division, are located in a building containing approximately 275,000 square feet adjacent to its corporate headquarters in Nashville, Tennessee. This includes a 95,000 square foot building, which was completed in fiscal 1976, and additions to the warehouse and distribution center of approximately 120,000 and 60,000 square feet, which were completed during fiscal 1993 and 2003, respectively. The Company's significant leased properties are described below:
Square Annual Lease Location Use/Segment Feet Rent Expiration - -------------- ------------------------- ------ --------- ---------- Nashville, TN Sales office/publishing 38,000 $725,000 11/2005 Nashville, TN Warehousing 84,700 $245,000 12/2003 Plano, TX Office/Women of Faith 23,931 $313,000 10/2010
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 Plano, Texas 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 and office 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 The Company is subject to various legal proceedings, claims and liabilities that 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, 2003. 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, 2003 (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, 2003 and 2002. 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 21, 2003 (the "Proxy Statement"), to be filed within 120 days of March 31, 2003 with the Commission pursuant to Regulation 14A under the Exchange Act. Information regarding the Company's executive officers is contained in Part I, Item 1 herein. Item 11. Executive Compensation Incorporated by reference to the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management Information about security ownership of certain beneficial owners is incorporated by reference to the Proxy Statement. The Company does not maintain any equity compensation plans under which stock may be issued except those approved by the Company's shareholders. The table set forth below provides certain information as of March 31, 2003 with repect to the Company's equity compensation plans: EQUITY COMPENSATION PLAN INFORMATION
A B C -------------------- ------------------- -------------------- Number of securities to be issued upon Number of securities exercise of Weighted-average available for future outstanding options, exercise price issurance under equity warrants and rights of outstanding compensation plans -------------------- options, warrants (excluding securities Plan Category Common Class B and rights reflected in Column A) ------------- --------- --------- ------------------- --------------------- Equity compensation Common or plans approved 1,378,834 5,000 $10.09 653,825 Class B by security Common holders - -------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions Incorporated by reference to the Proxy Statement. Item 14. Controls and Procedures Within the past 90 days, the Chief Executive Officer and the Executive Vice President and Secretary (Principal Financial and Accounting Officer) have conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on and as of the date of that that evaluation, the Chief Executive Officer and Executive Vice President and Secretary (Principal Financial and Accounting Officer) concludedthat the disclosure controls and procedures are effective in ensuring that material information required to be disclosed in the Company's reports that it files or submits to the SEC under the Securities Exchange Act of 1934 has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Executive Vice President and Secretary (Principal Financial and Accounting Officer) completed their evaluation. PART IV Item 15. 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: Consolidated statements of operations -- years ended March 31, 2003, 2002 and 2001 Consolidated balance sheets -- March 31, 2003 and 2002 Consolidated statements of shareholders' equity and comprehensive income -- years ended March 31, 2003, 2002 and 2001 Consolidated statements of cash flow -- years ended March 31, 2003, 2002 and 2001 Notes to consolidated financial statements Report of KPMG LLP, Independent Public Accountants Copy of Report of Arthur Andersen LLP, Independent Public Accountants RISK RELATING TO ARTHUR ANDERSEN LLP'S LACK OF CONSENT Arthur Andersen LLP were the independent accountants for the Company until May 10, 2002. Representatives of Arthur Andersen LLP are not available to provide the consent required for the incorporation by reference of their report on the financial statements of the Company appearing in this Form 10-K, and we have dispensed with the requirements to file their consent in reliance upon rule 437a under the Securities Act of 1933. Because Arthur Andersen LLP have not consented to the incorporation by reference of their report, investors will not be able to recover against Arthur Andersen LLP under Section 11 of the Securities Act of 1933 for any untrue statements of a material fact contained in the financial statements audited by Arthur Andersen LLP that are included in this report or any omissions to state a material fact required to be stated therein. 2. Financial Statement Schedules The following consolidated financial statement schedules are included herein: Page ---- Report of KPMG LLP, Independent Public Accountants 17 Copy of report of Arthur Andersen LLP, former Independent Public Accounts 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 as of May 1, 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 as of May 1, 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 dated as of May 1, 1990, from the Company to A. Stuart Campbell, as Trustee. (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 -- Note Purchase Agreement dated January 3, 1996, among the Company, The Prudential Insurance Company of America 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) 4.5 -- Letter Amendment No. 1 dated June 28, 1996, to Note Purchase Agreement dated January 3, 1996, among the Company, The Prudential Insurance Company of America 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) 4.6 -- Assumption and Amendment Agreement dated as of May 30, 1996, and as amended June 28, 1996, between the Company, The C.R. Gibson Company, The Prudential Insurance Company of America 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) 4.7 -- Revolving Credit Agreement dated as of June 28, 2002, among the Company, several banks and other financial institutions from time to time party hereto, and SunTrust Bank, Nashville, in its capacity as Administrative Agent (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the year ended March 31, 2002 and incorporated herein by reference) 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 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 -- 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)* 10.6 -- 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 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)* 10.8 -- 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)* 10.9 -- 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)* 10.10 -- Amended and Restated Asset Purchase Agreement, dated October 31, 2001 by and between the Company, The C.R. Gibson Company, and C.R. Gibson Sales Company, Inc. and CRG Acquisition Corp., as Buyer. Schedules to the Amended and Restated Asset Purchase Agreement have been omitted. The Company agrees to furnish supplementally a copy of any Schedule to the Commission upon request. (filed as Exhibit 2.1 to the Company's Form 10-Q for the quarter period ended September 30, 2001 and incorporated herein by reference) 10.11 -- Transition Services Agreement, dated November 7, 2001, effective as of October 31, 2001 by and between the Company and CRG Acquisition Corp. (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter period ended September 30, 2001 and incorporated herein by reference) 10.12 -- Lease Agreement, dated November 7, 2001, effective as of October 31, 2001 by and between the Company, as Tenant, and CRG Acquisition Corp., as Landlord. (filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter period ended September 30, 2001 and incorporated herein by reference) 10.13 -- Employment Agreement dated as of November 11, 2000, between the Company and Lee Gessner (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended March 31, 2002 and incorporated herein by reference)*. 10.14 -- Employment Agreement dated as of July, 7, 2000, between the Company and Mike Hyatt (filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended March 31, 2002 and incorporated herein by reference)* 10.15 -- Employment Agreement dated July 8, 1998, between the Company and Phil Stoner (filed as Exhibit 10.19 to the Company's Annual Report Form 10-K for the year ended March 31, 2002 and incorporated herein by reference)* 10.16 -- Amendment to Thomas Nelson, Inc. Amended and Restated 1992 Employee Stock Incentive Plan* 11 -- Statement re Computation of Per Share Earnings 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 2003 (to the extent of portions specifically incorporated by reference) 21 -- Subsidiaries of the Company 23 -- Independent Auditors' Report on Schedult and Consent 99.1 -- Certification of the President and Chief Executive Officer relating to Form 10-K for period ending March 31, 2003 99.2 -- Certification of the Executive Vice President and Secretary (Principal Financial and Acocunting Officer) relating to Form 10-K for period ending March 31, 2003 - ------------------------ *Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K The Company filed a current report on Form 8-K on February 4, 2003, as amended by Form 8-K/A on February 6, 2003, to announce the date and time of its earnings release and conference call for the third quarter of FY 2003. The Company filed a current report on Form 8-K on February 10, 2003 to announce its earnings results for the third quarter of FY 2003. The Company filed a current report on Form 8-K on May 7, 2003 to announce its earnings results for the fourth quarter and year-end for FY 2003. 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 Officerand President Date: June 27, 2003 Pursuant to the requirements of Section 13 or 15(d) 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 27, 2003 - ---------------------------- Directors, Chief Executive Sam Moore Officer and President (Principal Executive Officer) /s/ Joe L. Powers Executive Vice President and June 27, 2003 - ---------------------------- Secretary (Principal Financial Joe L. Powers and Accounting Officer) /s/ Jesse T. Correll Director June 27, 2003 - ----------------------------- Jesse T. Correll /s/ Brownlee O. Currey, Jr. Director June 27, 2003 - ----------------------------- Brownlee O. Currey, Jr. /s/ W. Lipscomb Davis, Jr. Director June 27, 2003 - ----------------------------- W. Lipscomb Davis, Jr. /s/ S. Joseph Moore Director June 27, 2003 - ----------------------------- S. Joseph Moore /s/ Robert J. Niebel, Sr. Director June 27, 2003 - ----------------------------- Robert J. Niebel, Sr. /s/ Millard V. Oakley Director June 27, 2003 - ----------------------------- Millard V. Oakley CERTIFICATIONS I, Sam Moore, certify that: 1. I have reviewed this annual report on Form 10-K of Thomas Nelson, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 27, 2003 By: /s/ Sam Moore ----------------------- Sam Moore Chairman, Chief Executive Officer and President CERTIFICATIONS I, Joe L. Powers, certify that: 1. I have reviewed this annual report on Form 10-K of Thomas Nelson, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 27, 2003 By: /s/ Joe L. Powers ------------------------ Joe L. Powers Executive Vice President and Secretary INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT The Board of Directors Thomas Nelson, Inc.: The audit referred to in our report dated May 7, 2003, included the related consolidated financial statement schedule as of March 31, 2003, and for the year then ended included in the annual report on Form 10-K. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audit. The consolidated financial statement schedules for each of the years ended March 31, 2002 and 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statement schedules. In our opinion, such financial statement schedule as of March 31, 2003 and for the year then ended, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the incorporation by reference in this Form 10-K of our report included in Thomas Nelson, Inc.'s annual report to shareholders. In addition, we consent to the incorporation of our reports incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements (No.'s 33-80086 and 333-4503) on Form S-8. Our report refers to our audit of the Company's adjustments to restate its reportable segment disclosures for 2002 and 2001 in order to conform such disclosures to the 2003 composition of reportable segments, as more fully described in Note T to the consolidated financial statements. However, we were not engaged to audit, review, or apply any procedures to the 2002 and 2001 consolidated financial statements other than with respect to such disclosures. Our report also refers to a change in the method of accounting for goodwill and other intangible assets. /s/ KPMG LLP Nashville, Tennessee May 7, 2003 COPY OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors 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 10, 2002. 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 10, 2002 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
March 31, March 31, March 31, 2003 2002 2001 ---------- ----------- ----------- Reserve for Sales Returns: - ------------------------- Balance at beginning of period $ 4,984,000 $ 4,637,000 $ 4,564,000 Additions: 1. Charged to costs and expenses 38,728,000 36,423,000 36,662,000 Deductions: charge-offs 37,666,000 36,076,000 36,589,000 ----------- ----------- ----------- Balance at end of period $ 6,046,000 $ 4,984,000 $ 4,637,000 =========== =========== =========== Reserve for Doubtful Accounts: - ----------------------------- Balance at beginning of period $ 1,435,000 $ 1,538,000 $ 1,407,000 Additions: 1. Charged to costs and expenses 1,463,000 4,535,000 999,000 2. Charged to other accounts - 1,365,000 - Deductions: charge-offs 1,633,000 6,003,000 868,000 ---------- ----------- ----------- Balance at end of period $ 1,265,000 $ 1,435,000 $ 1,538,000 =========== =========== =========== Discontinued Operations: - ----------------------- Balance at beginning of period $ 6,313,000 $ 2,032,000 $ 2,424,000 Additions: 1. Charged to costs and expenses 137,000 6,313,000 - Deductions: 1. Charge-offs 6,322,000 1,265,000 392,000 2. Charge to other accounts - 767,000 - ---------- ----------- ----------- Balance at end of period $ 128,000 $ 6,313,000 $ 2,032,000 =========== =========== ===========
INDEX TO EXHIBITS Exhibit Page Number Description Number - ------ ----------- ------ 10.18 -- Amendment to Thomas Nelson, Inc. Amended and Restated 1992 Employee Stock Incentive Plan..............................21 11 -- Statement re Computation of Per Share Earnings..................22 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 2003 (to the extent of portions specifically Incorporated by reference).............27 21 -- Subsidiaries of the Company.....................................23 23 -- Independent Auditors' Report on Schedule and Consent............24 99.1 -- Certification of President and Chief Executive Officer relating to Form 10-K for period ending March 31, 2003..........25 99.2 -- Certification of Chief Financial Officer relating to Form 10-K for period ending March 31, 2003..........26 EX-10 4 ex1010k32003.txt EXHIBIT 10.18 OF FORM 10-K FOR PERIOD ENDED 3/31/03 EXHIBIT 10.18 AMENDMENT TO THOMAS NELSON, INC. AMENDED AND RESTATED 1992 EMPLOYEE STOCK INCENTIVE PLAN This Amendment (this "Amendment") to the Thomas Nelson, Inc. Amended and Restated 1992 Employee Stock Incentive Plan (the "Plan") is effective as of April 2, 1998. 1. The last sentence of paragraph 1 of Section 4 is deleted in its entirety and replaced with the following: "No officer or key employee shall receive awards relative to shares of Stock which exceed 1,000,000 shares during any consecutive three year period." 2. Section 5(e) is deleted in its entirety and replaced with the following: "(e) Transferability of Options. Options may be transferred in whole or in part by the optionee only to a trust or foundation created by the optionee or to an immediate family member of the optionee or by will or by the laws of descent and distribution. Except to the extent set forth in Section 5(e), no Stock Option shall be transferable." 3. Except as expressly stated herein, all other portions of the Plan remain in full force and effect. This Amendment was adopted by the Board of Directors of Thomas Nelson, Inc. and became effective as of March 2, 1998. EX-11 5 ex1110k32003.txt EXHIBIT 11 OF FORM 10-K FOR PERIOD ENDED 3/31/03 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (in thousands, except per share data)
March 31, March 31, March 31, 2003 2002 2001 ----------- ----------- ----------- BASIC EARNINGS PER SHARE: - ------------------------ Weighted average shares outstanding 14,368 14,348 14,299 =========== =========== =========== Income from continuing operations $10,184 $ 7,821 $ 8,977 Loss from discontinued operations - ( 16,862) ( 11,811) Cumulate effect of accounting change - ( 40,433) - ----------- ----------- ----------- Net income (loss) $10,184 ($49,474) ($ 2,834) =========== =========== =========== Income per share from continuing operations $ 0.71 $ 0.55 $ 0.63 Loss per share from discontinued operations - ( 1.18) ( 0.83) Cumulative effect of accounting change - ( 2.82) - ----------- ----------- ----------- Net income (loss) per share $ 0.71 ($ 3.45) ($ 0.20) =========== =========== =========== DILUTED EARNINGS PER SHARE: - -------------------------- Basic weighted average shares outstanding 14,368 14,348 14,299 Convertible notes - - - Dilutive stock options - based on treasury stock method using the average market price 228 140 236 ----------- ----------- ----------- Total shares 14,596 14,488 14,535 Income from continuing operations $10,184 $ 7,821 $ 8,977 Loss from discontinued operations - ( 16,862) ( 11,811) Cumulative effect of accounting change - ( 40,433) - ----------- ----------- ----------- Net income (loss) $10,184 ($49,474) ($ 2,834) =========== =========== =========== Income per share from continuing operations $ 0.70 $ 0.54 $ 0.62 Loss per share from discontinued operations - ( 1.16) ( 0.82) Cumulative effect of accounting change - ( 2.79) - ----------- ----------- ----------- Net income per share $ 0.70 ($ 3.41) ($ 0.20) =========== =========== ===========
EX-13 6 ex1310k32003.txt EXHIBIT 13 OF FORM 10-K FOR PERIOD ENDED 3/31/03 EXHIBIT 13 Selected Financial Data (in thousands, except per share data)
YEARS ENDED March 31, 2003 2002 2001 2000 1999 - ----------------------------------------------------------------------------- OPERATING RESULTS (a): Net revenues (b) $217,217 $215,552 $214,147 $182,001 $173,903 ======== ======== ======== ======== ======== Operating income $ 18,926 $ 16,563 $ 17,785 $ 18,560 $ 17,970 ======== ======== ======== ======== ======== Income from continuing operations $ 10,184 $ 7,821 $ 8,977 $ 10,657 $ 8,615 Income (loss) from discontinued operations (c) -- ( 16,862) ( 11,811)( 716) 240 Cumulative effect of a change in accounting principle (d) -- ( 40,433) -- -- -- -------- -------- -------- -------- -------- Net income (loss) $ 10,184 ($ 49,474) ($ 2,834) $ 9,941 $ 8,855 ======== ======== ======== ======== ======== Cash flow: Net cash provided by continuing operating activities $ 34,439 $ 23,199 $ 348 $ 8,781 $ 1,485 Net cash provided by (used in) discontinued operating activities 1,660 ( 3,092) 57 ( 12,692)( 1,215) Net cash provided by (used in) investing activities ( 4,569) 34,705 ( 666)( 15,299) 1,093 Net cash provided by (used in) financing activities ( 30,358)( 56,411) 1,574 19,757 ( 39,734) EBITDA(e): Income from continuing operations $ 10,184 $ 7,821 $ 8,977 $ 10,657 $ 8,615 Interest expense 3,026 4,295 3,738 3,549 4,452 Provision for income taxes 5,878 4,495 5,160 4,407 4,962 Depreciation and amortization 2,061 2,649 2,841 2,475 3,345 -------- -------- -------- -------- -------- EBITDA from continuing operations 21,149 19,260 20,716 21,088 21,374 -------- ------- -------- -------- -------- Changes in working capital and other 13,290 3,939 ( 20,368)( 12,307)( 19,889) -------- -------- -------- -------- -------- Net cash provided by continuing operatiing activities $ 34,439 $ 23,199 $ 348 $ 8,781 $ 1,485 ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------- FINANCIAL POSITION: Total assets $163,055 $185,389 $287,238 $286,595 $242,499 Working capital 60,994 84,262 140,466 145,897 117,841 Total debt 25,952 56,374 111,800 107,941 84,307 Shareholders' equity 87,824 77,576 127,437 131,732 125,649 Long-term debt to total capitalization 22.8% 42.1% 46.7% 45.0% 40.2% - ----------------------------------------------------------------------------- DILUTED PER SHARE DATA (a): Income per share from continuing operations $ 0.70 $ 0.54 $ 0.62 $ 0.75 $ 0.48 Income (loss) per share from discontinued operations (c) -- ( 1.16) ( 0.82)( 0.05) 0.01 Cumulative effect of a change in accounting principle (d) -- ( 2.79) -- -- -- -------- -------- -------- -------- -------- Net income (loss) per share $ 0.70 ($ 3.41) ($ 0.20) $ 0.70 $ 0.49 ======== ======== ======== ======== ======== Dividends declared per share $ -- $ 0.04 $ 0.16 $ 0.16 $ 0.16 EBITDA per share (e) 1.45 1.33 1.43 1.48 1.19 Book value per share 6.11 5.40 8.88 9.26 8.73 Weighted average number of shares outstanding (in thousands) (f) 14,596 14,488 14,535 14,244 17,929
- ----------------------------------------------------------------------------- (a) For all periods presented, operating results and per share data have been restated for discontinued operations. (b) The increase in net revenues during fiscal 2001 was primarily attributable to the full year of operations of fiscal 2000 acquisitions. (c) Discontinued operations include Ceres Candles and Gifts, Remuda Ranch Center for Anorexia and Bulimia, Inc. and The C.R. Gibson Company. (d) The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", as of April 1, 2001. The adoption of SFAS No. 142 resulted in a $40.4 million cumulative effect of a change in accounting principle charge to write-off goodwill associated with the Company's gift division, which was discontinued and sold during fiscal 2002. (e) We believe EBITDA (earnings from continuing operations before interest, taxes, depreciation and amortization) provides a useful measure of cash flows from operations for our investors because EBITDA is an industry comparative measure of cash flows generated by our operations prior to the payment of interest and taxes and because it is a financial measure used by management to assess the performance of our Company. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America and should not be considered in isolation or construed as a substitute for net income or other operations data or cash flow data prepared in accordance with accounting principles generally accepted in the United States of America for purposes of analyzing our profitability or liquidity. In addition, not all funds depicted by EBITDA are available for management's discretionary use. For example, a portion of such funds are subject to contractual restrictions and functional requirements to pay debt service, fund necessary capital expenditures and meet other commitments from time to time as described in more detail in this Annual Report and on Form 10-K. EBITDA, as calculated, may not be comparable to similarly titled measures reported by other companies. (f) Represents diluted weighted average number of shares outstanding in accordance with SFAS No. 128. Management's Discussion & Analysis of Financial Condition and Results of Operations OVERVIEW Thomas Nelson, Inc. (a Tennessee corporation) and subsidiaries (the "Company"), is a publisher, producer and distributor of Bibles, books, videos and CD-ROM products emphasizing Christian, inspirational and family value themes; the Company also hosts inspirational conferences. The principal markets for the Company's products are Christian bookstores, general bookstores, mass merchandisers and direct marketing to consumers in English-speaking countries. CRITICAL ACCOUNTING POLICIES The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. These policies are common with industry practice and are applied consistently from period to period. Revenue Recognition: The Company has four primary revenue sources: sales of publishing product, attendance fees and product sales from its conferences, royalty income from licensing copyrighted material to third parties and billed freight. Revenue from the sale of publishing product is recognized upon shipment to the customer. In accordance with Securities and Exchange Commission's Staff Accounting Bulletin No. 101 regarding revenue recognition, we recognize revenue only when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable; and collectibility is reasonably expected. An allowance for sales returns is recorded where return privileges exist. The returns allowance is determined by using a 12-month rolling average return rate, multiplied by gross sales occurring over the previous four-month period by market sales channel. Historical experience reflects that product is generally returned from and credited to customers' accounts within the first 120 days of the original sale. The Company's analysis indicated that its experience changed during fiscal 2002 from 90 days to 120 days, which resulted in an increase in the returns allowance for the period. This change in accounting estimate effectively reduced reported sales by $1.9 million for the fourth quarter and fiscal year 2002. The 120-day analysis was used consistently for all periods during fiscal 2003. The full amount of the returns allowance, net of inventory and royalty costs (based on current gross margin rates), is shown as a reduction of accounts receivable in the accompanying consolidated financial statements. Returns of publishing products from customers are accepted in accordance with standard industry practice. Generally, products that are designated as out-of-print are not returnable 90 days after notice of out-of-print status is given to the customer. Also, certain high discount sales are not returnable. Revenue from seminars is recognized as the seminars take place. Cash received in advance of seminars is included in the accompanying financial statements as deferred revenue. Royalty income from licensing the Company's publishing rights is recorded as revenue when earned under the terms of the applicable license, net of amounts due to authors. Billed freight consists of shipping charges billed to customers and is recorded as revenue upon shipment of product. Allowance for Doubtful Accounts: The Company records an allowance for doubtful accounts as a reduction to accounts receivable in the accompanying consolidated financial statements. The valuation allowance has a specific component related to accounts with known collection risks and a component which is calculated using a 5-year rolling bad debt history applied as a percentage of the accounts receivable balance, less the specific component of the allowance. In fiscal 2003, the Company changed from a 10-year rolling bad debt history to a 5-year history to compute the allowance in order to better reflect the current economic environment. This change did not have a material impact on the allowance balance. Our credit department identifies specific allowances for each customer who is deemed to be a collection risk, may have filed for bankruptcy protection or may have disputed amounts with the Company. Inventories: Inventories are stated at the lower of cost or market value using the first-in, first-out (FIFO) valuation method. The FIFO method of accounting for inventory was selected to value our inventory at the lower of market value or current cost because the Company continuously introduces new products, eliminates existing products and redesigns products. Therefore, inflation does not have a material effect on the valuation of inventory. Costs of producing publishing products are included in inventory and charged to operations when product is sold or otherwise disposed. These costs include paper, printing, binding, outside editorial and design, typesetting, artwork, international freight and duty costs, when applicable. The Company policy is to expense all internal editorial, production, warehousing and domestic freight-in costs as incurred, except for certain indexing, stickering, typesetting and assembly costs, which are capitalized into inventory. Costs of abandoned publishing projects are charged to operations when identified. The Company also maintains an allowance for excess and obsolete inventory as a reduction to inventory in the accompanying consolidated financial statements. This allowance is based on historical liquidation recovery rates applied to inventory quantities identified in excess of a twenty-four month supply on hand for each category of product. Royalty Advances/Pre-Production Costs: Royalty advances are typically paid to authors, as is standard in the publishing industry. These advances are either recorded as prepaid assets or other (long-term) assets in the accompanying consolidated financial statements, depending on the expected publication date (availability for shipment) of the product. Author advances for trade books are generally amortized over five months beginning when the product is first sold into the market. The Company's historical experience is that typically 80% of book product sales occur within the first five months after release into the market. Reference and video royalty advances are generally amortized over a twelve-month period beginning with the first sale date of the product, as these products typically have a longer sales cycle than books. Royalty advances for significant new Bible products are amortized on a straight-line basis for a period not to exceed five years (as determined by management). When royalty advances are earned through product sales at a faster pace than the amortization period, the amortization expense is accelerated to match the royalty earnings. Unamortized advances are reviewed monthly for abandoned projects or titles that appear to have unrecoverable advances. All abandoned projects and advances that management does not expect to fully recover are charged to operations when identified. For authors with multiple book/product contracts, the advance is amortized over a period that encompasses the publication of all products, generally not to exceed 24 months or the actual recovery period, whichever is shorter. Advances to our most important authors are typically expensed as they are recovered through sales. These authors generally have multiple year and multiple book contracts, as well as strong sales history of backlist titles (products published during preceding fiscal years) that can be used to recover advances over long periods of time. Many Bible, reference and video products require significant development costs prior to the actual printing or production of the saleable product. These products also typically have a longer life cycle. All video pre-production costs are amortized over 12 months on a straight-line basis. Pre-production costs for significant Bible and reference products are recorded as deferred charges in the accompanying consolidated financial statements and are amortized on a straight-line basis, for a period not to exceed five years (as determined by management). Goodwill and Intangible Assets: In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill no longer be amortized, but tested for impairment by comparing net book carrying values to fair market values upon adoption and periodically thereafter. The Company has adopted the provisions of SFAS No. 142 as of April 1, 2001. The adoption of SFAS No. 142 resulted in a $40.4 million cumulative effect of a change in accounting principle charge to write-off goodwill associated with the Company's gift division, which was discontinued and sold during fiscal 2002. The adoption of this new pronouncement had a favorable impact on continuing operations by eliminating amortization of remaining goodwill attributable to continuing operations, which amounted to a pre-tax impact of $1 million. In accordance with SFAS No. 142, goodwill was tested for impairment by the Company's reporting units: Publishing and Conferences. The fair value for the assets of the Publishing and Conferences reporting units was evaluated using discounted expected cash flows and current market multiples, and it was determined that no impairment existed during fiscal 2003. RESULTS OF OPERATIONS 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) ------------------------ ------------------------- 2003 2002 2001 2002 to 2003 2001 to 2002 ------ ------ ------ ------------ ------------ Net Revenues: Publishing 86.4 87.3 89.4 (0.4) (1.6) Conferences 13.6 12.7 10.6 8.6 20.0 ------ ------ ------ ------ ------ Total net revenues 100.0 100.0 100.0 0.8 0.7 Costs and expenses: Cost of goods sold 59.6 60.2 60.3 (0.2) 0.5 Selling, general and administrative 30.8 30.9 30.1 0.3 3.5 Depreciation and amortization 0.9 1.2 1.3 (22.2) (6.8) ------ ------ ------ ------ ------ Total costs and expenses 91.3 92.3 91.7 (0.4) 1.3 ------ ------ ------ ------ ------ Operating income 8.7 7.7 8.3 14.3 (6.9) ------ ------ ------ ------ ------ Interest expense 1.4 2.0 1.7 (29.5) 14.9 ------ ------ ------ ------ ------ Income from continuing operations 4.7 3.6 4.2 30.2 (12.9) ------ ------ ------ ------ ------ Loss from discontinued operations - (7.8) (5.5) ------ ------ ------ Cumulative effect of change in accounting principle - (18.8) - ------ ------ ------ Net income (loss) 4.7 (23.0) (1.3) ====== ====== ======
The Company's net revenues fluctuate seasonally, with revenues in the first fiscal quarter historically being less than the remaining quarters of the year. Seasonality is 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, marketing and other operating expenses and changes in sales and product mixes. The following discussion includes certain forward-looking statements. Actual results could differ materially from those in the forward-looking statements, and a number of factors may affect future results, liquidity and capital resources. These factors include, but are not limited to, softness in the general retail environment, the timing and acceptance of products being introduced to the market, the level of product returns experienced, the level of margins achievable in the marketplace, the recoupment of royalty advances, the effects of acquisitions or dispositions, the financial condition of our customers and suppliers, the realization of inventory values at carrying amounts, our access to capital and realization of income tax (including the outcome of any future Internal Revenue Service audits) and intangible assets. Future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its business strategy during the 2004 fiscal year. The Company disclaims any intent or obligation to update forward-looking statements. Fiscal 2003 Compared to Fiscal 2002 - ----------------------------------- Net revenues in fiscal 2003 increased $1.7 million, or 0.8%, over fiscal 2002. Net revenues from publishing products decreased $0.7 million, or 0.4%, primarily due to the weak retail environment. Management believes that, even with the slight decline in net revenues, the Company's publishing business has increased its market share for Christian publishing product, particularly in the CBA market. Net revenues from conferences increased $2.3 million, or 8.6%, primarily due to the number and timing of conferences and stronger attendance per conference in the current year, partially offset by the elimination of the children's holiday events that were held in the previous fiscal year. In fiscal 2003, the Company hosted 28 conferences, compared to 26 in fiscal 2002. Management expects to host a comparable number of events in fiscal 2004. Price increases did not have a material effect on net revenues. The Company's cost of goods sold decreased $0.3 million, or 0.2%, from fiscal 2002 and, as a percentage of net revenues, decreased to 59.6% from 60.2% in the prior fiscal year, with improved margins in both the publishing and conference segments. With a strong showing in the fourth quarter of fiscal 2003, the publishing segment demonstrated improved margins due to the economies of scale on a few significant titles, partially offset by higher obsolescence charges from liquidated inventory produced under the imprint with the "Word" name, as the licensing agreement for using the "Word" name expired during fiscal 2003. The "Word" name was licensed for use in fiscal 1998 in conjunction with the sale of the Company's former Word Music division. The improvement in cost of sales as a percentage of net revenues for conferences is related to improved attendance and the elimination of unprofitable holiday events for children that were held in fiscal 2002. Selling, general and administrative expenses, excluding depreciation and amortization, increased by $0.2 million, or 0.3%, from fiscal 2002. These expenses, expressed as a percentage of net revenues, decreased to 30.8% from 30.9%. Reduced bad debt expenses and reductions of overhead in the conference segment were offset by higher employment costs and increased advertising expenditures in the publishing segment. The higher employment costs relate to accrued severance costs, increased health insurance costs and higher achieved bonus and ESOP accruals based on the Company's performance. The Company is taking steps intended to improve or at least hold selling, general and administrative expenses in line as a percentage of net revenues during the next fiscal year. Depreciation and amortization for fiscal 2003 decreased $0.6 million from fiscal 2002, primarily due to fiscal 2002 including $0.3 million of expense associated with the disposal of conference internet software that was abandoned after disparate systems were consolidated. Interest expense for fiscal 2003 decreased $1.3 million from fiscal 2002 due to lower debt levels and interest rates. The provision for income taxes remains consistent with the prior year at an effective rate of 36.5%. The net loss from discontinued operations for fiscal 2002 was related to the decision to sell the Company's gift division, along with the sale of the net assets of Remuda Ranch and Ceres Candles. The Company also recognized a $40.4 million cumulative effect of a change in accounting principle charge to write off goodwill associated with the adoption of SFAS No. 142 (see Note A to Consolidated Financial Statements). Fiscal 2002 Compared to Fiscal 2001 - ----------------------------------- Net revenues from continuing operations in fiscal 2002 increased $1.4 million, or 0.7%, over fiscal 2001. The increase in net revenues related primarily to an increase in Women of Faith conference revenue due to an increase in the number of events, somewhat offset by declines in product sales through our ministry and direct mail sales channels and increases in reserves for returns, as previously discussed. The decline in sales through these channels is due to an adverse impact from the events of September 11th. Our ministry customers received fewer donations in fiscal 2002 due to a significant shift in charitable giving to disaster relief funds. Although we increased prices on several of our product lines this year, price increases did not have a material effect on net revenues. The Company's cost of goods sold from continuing operations for fiscal 2002 increased by $0.6 million, or 0.5%, and, as a percentage of net revenues, remained essentially the same. Selling, general and administrative expenses from continuing operations for fiscal 2002 increased by $2.2 million, or 3.5%, over the comparable period in fiscal 2001, and, as a percentage of net revenues, increased from 30.1% to 30.9%. This increase is primarily attributable to the net impact of $3 million from the Kmart bankruptcy. Depreciation and amortization from continuing operations was essentially the same as the prior year in dollars and as a percentage of net sales. The Company ceased amortizing goodwill during fiscal 2002 in conjunction with adopting SFAS No. 142. This was partially offset by a change in the estimated useful life of certain computer equipment and software and the disposal of conference internet software that was abandoned after disparate systems were consolidated. Interest expense attributable to continuing operations increased by $0.6 million over fiscal 2001 primarily due to increased amortization of deferred loan costs. The net loss from discontinued operations for fiscal 2001 was related to the decision to sell the Company's Ceres Candles division and includes the operations of the Company's gift division. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2003, the Company had $1.7 million in cash and cash equivalents. The primary sources of liquidity to meet the Company's future obligations and working capital needs are cash generated from operations and borrowings available under bank credit facilities. At March 31, 2003, the Company had working capital of $61 million. Under its bank credit facilities, at March 31, 2003, the Company had $17 million in borrowings outstanding, and $48 million available for borrowing, compared to $44.1 million in borrowings outstanding and $34.1 million available for borrowing at March 31, 2002. Net cash provided by operating activities was $36.1 million, $20.1 million and $0.4 million in fiscal 2003, 2002 and 2001, respectively. The cash generated by operations during fiscal 2003 was principally attributable to reductions in inventories, receivables and prepaid expenses, and income from continuing operations. The cash provided by operations during fiscal 2002 was principally attributable to income from continuing operations and reductions in inventories. The cash provided by operations during fiscal 2001 was principally attributable to income from continuing operations, partially offset by an increase in Bible inventory. During fiscal 2003, capital expenditures totaled approximately $4.6 million. The capital expenditures were primarily for an addition to the primary warehouse facility and office renovations at the corporate headquarters. In fiscal 2004, the Company anticipates capital expenditures of approximately $4 million, consisting primarily of office renovations, computer equipment, computer software and warehousing equipment. In April 2003, the Company received a tax refund of $18.7 million. This tax refund was related to the disposal of the Company's C.R. Gibson gift division and was used to pay down debt. Until such time that we conclude that the position taken on our income tax returns will ultimately be sustained by the taxing authorities, the refund will be recorded as a non-current tax liability. When sustained, the Company will record the refund as income from discontinued operations. The Company received net proceeds from the sale of discontinued operations during fiscal 2002 in the amount of $37.8 million. All of these proceeds were used to pay down the Company's debt under its credit facility. 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 Live Event Management, Inc. ("LEM"), formerly New Life Treatment Centers, Inc. The Company's bank credit facility is a $65 million Senior Unsecured Revolving Credit Facility ("Credit Facility"). The Credit Facility bears interest at either the lenders' base rate or, at the Company's option, the LIBOR plus a percentage, based on certain financial ratios. The average interest rate for the Credit Facility was approximately 3.5% at March 31, 2003. The Company has agreed to maintain certain financial ratios and tangible net worth, as well as to limit the payment of cash dividends. The Credit Facility has a term of three years and matures on June 28, 2005. At March 31, 2003, the Company had $17 million outstanding under the Credit Facility and $48 million available for borrowing. At March 31, 2003, the Company was in compliance with all covenants of the Credit Facility. The Company has outstanding $8.4 million in secured Senior Notes, which bear interest at rates from 6.68% to 8.31% and mature on dates 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. At March 31, 2003, the Company was in compliance with all covenants of the Senior Notes. The Company has outstanding $0.6 million in Industrial Revenue Bonds, which bear interest at 7.5% and mature on dates through 2005. The Company has given notice to the bond holders of its intent to prepay the notes in full; thus, the entire amount of outstanding bonds have been classified as current. At March 31, 2003, the Industrial Revenue Bonds were secured by property, plant and equipment with a net book value of approximately $1.9 million. Management believes cash generated by operations, the tax refund received in the first quarter of fiscal 2004, and borrowings available under the Credit Facility will be sufficient to fund anticipated working capital and capital expenditure requirements for existing operations in fiscal 2004. The Company's current cash commitments include current maturities of debt and operating lease obligations that are disclosed in the Company's Annual Report on Form 10-K for the year ended March 31, 2003. The Company also has current inventory purchase and royalty advance commitments in the ordinary course of business that require cash payments as vendors and authors fulfill their requirements to the Company in the form of delivering satisfactory product orders and manuscripts, respectively. The following table sets forth these commitments. The Company has no off-balance sheet commitments or transactions with any variable interest entities (VIE's). Management also is not aware of any undisclosed material related party transactions or relationships with management, officers or directors.
Payments Due by Fiscal Year Contractual ----------------------------------------------------- commitments 2008 and (in 000's) 2004 2005 2006 2007 thereafter Total - --------------------- ------- ------- ------- ------- ---------- ------- Long-term debt $ 3,622 $ 3,022 $19,308 $ - $ - $25,952 Inventory purchases 8,750 7,813 5,000 5,000 8,333 34,896 Operating leases 1,903 1,314 898 400 1,303 5,818 Royalty advances 5,226 1,292 430 721 75 7,745 ------- ------- ------- ------- ------- ------- Total obligations $19,501 $13,441 $25,636 $6,121 $ 9,711 $74,410 ======= ======= ======= ======= ======= =======
The Company declared and paid a dividend of four cents per share every quarter during fiscal 2001 and during the first quarter of fiscal 2002. The Board of Directors, at its quarterly meetings, approves and declares the amount and timing of the dividends, if any. On August 23, 2001, the Company's Board of Directors adopted management's recommendation to suspend the payment of dividends on the Company's Common and Class B Common stock. ACCOUNTING PRONOUNCEMENTS In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Correction." SFAS No. 145 amends existing guidance on reporting gains and losses on the extinguishment of debt to prohibit the classification of the gain or loss as extraordinary, as the use of such extinguishments have become part of the risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. The provisions of the Statement related to the rescission of Statement No. 4 is applied in fiscal years beginning after May 15, 2002. Earlier application of these provisions is encouraged. The provisions of the Statement related to Statement No. 13 were effective for transactions occurring after May 15, 2002, with early application encouraged. The adoption of SFAS No. 145 did not have a material effect on the Company's consolidated financial statements. During July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activities. Previous accounting guidance was provided by EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS No. 146 replaces EITF Issue No. 94-3. The new standard is effective for exit or restructuring activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material effect on the Company's consolidated financial statements. During November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and did not have a material effect on the Company's consolidated financial statements. The disclosure requirements in this Interpretation have been adopted with no material impact. During December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123." The standard provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this standard amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Certain disclosure modifications are required for fiscal years ending after December 15, 2002and are included in the notes to these consolidated financial statements. In the event that accounting rules associated with stock options were to change to require all entities to use the fair value based method of accounting prescribed by SFAS No. 123, or were we to voluntarily elect to apply such methods, our consolidated statement of earnings would be impacted. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, and Interpretation of ARB No. 51." This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created or obtained after January 31, 2003. For public enterprises with a variable interest in a variable interest entity created before February 1, 2003, the Interpretation applies to that enterprise no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The application of this Interpretation is not expected to have a material effect on the Company's consolidated financial statements. The Interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that the Company will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equities." SFAS No. 150 requires issuers to classify as liabilities (or assets, in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, SFAS No. 150 is effective for financial instruments entered or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company is currently assessing the impact of the adoption of SFAS No. 150. 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 Facility. In the event that interest rates associated with the Credit Facility were to increase 100 basis points, the impact would be to reduce future cash flows by approximately $0.1 million per year, assuming March 31, 2003 debt levels are maintained. THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Years Ended March 31, -------------------------------- 2003 2002 2001 -------- -------- -------- NET REVENUES $217,217 $215,552 $214,147 COSTS AND EXPENSES: Cost of goods sold 129,378 129,691 129,095 Selling, general and administrative 66,852 66,649 64,426 Depreciation and amortization 2,061 2,649 2,841 -------- -------- -------- Total costs and expenses 198,291 198,989 196,362 -------- -------- -------- OPERATING INCOME 18,926 16,563 17,785 Other income 205 48 90 Interest expense 3,026 4,295 3,738 -------- -------- -------- Income from continuing operations before income taxes 16,105 12,316 14,137 Provision for income taxes 5,878 4,495 5,160 Minority interest 43 - - -------- -------- -------- Income from continuing operations 10,184 7,821 8,977 Discontinued operations: Operating loss, net of applicable tax benefit of $395 and $2,719, respectively - ( 766) ( 4,547) Loss on disposal, net of applicable tax benefit of $8,359 and $4,175, respectively - ( 16,096) ( 7,264) -------- -------- -------- Total loss from discontinued operations - ( 16,862) ( 11,811) Income (loss) before cumulative effect of a change in accounting principle 10,184 ( 9,041) ( 2,834) Cumulative effect of change in accounting principle - ( 40,433) - -------- -------- -------- Net income (loss) $ 10,184 ($ 49,474) ($ 2,834) ======== ======== ======== Weighted average number of shares outstanding: Basic 14,368 14,348 14,299 ======== ======== ======== Diluted 14,596 14,488 14,535 ======== ======== ======== NET INCOME (LOSS) PER SHARE: Basic: Income from continuing operations $ 0.71 $ 0.55 $ 0.63 Loss from discontinued operations - ( 1.18) ( 0.83) Cumulative effect of a change in accounting principle - ( 2.82) - -------- -------- -------- Net income (loss) per share $ 0.71 ($ 3.45) ($ 0.20) ======== ======== ======== Diluted: Income from continuing operations $ 0.70 $ 0.54 $ 0.62 Loss from discontinued operations - ( 1.16) ( 0.82) Cumulative effect of a change in accounting principle - ( 2.79) - -------- -------- -------- Net income (loss) per share $ 0.70 ($ 3.41) ($ 0.20) ======== ======== ======== See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, -------------------- 2003 2002 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 1,707 $ 535 Accounts receivable, less allowances of $7,311 and $6,419, respectively 56,806 61,600 Inventories 33,637 39,195 Prepaid expenses 13,521 17,571 Assets held for sale 1,785 2,500 Refundable income taxes - 7,800 Deferred tax assets 5,085 7,966 -------- -------- Total current assets 112,541 137,167 Property, plant and equipment, net 11,630 9,242 Other assets 7,358 7,490 Deferred charges 1,695 2,135 Intangible assets 527 51 Goodwill, less accumulated amortization of $4,131 at 2003 and 2002 29,304 29,304 -------- -------- TOTAL ASSETS $163,055 $185,389 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 20,218 $ 22,258 Accrued expenses 13,835 15,603 Deferred revenue 11,493 11,222 Income taxes currently payable 2,379 500 Current portion of long-term debt 3,622 3,322 -------- -------- Total current liabilities 51,547 52,905 Long-term debt, less current portion 22,330 53,052 Deferred tax liabilities 721 792 Other liabilities 590 1,064 Minority interest 43 - Commitments and contingencies - - Shareholders' equity: Preferred stock, $1.00 par value, authorized 1,000,000 shares; none issued - - Common stock, $1.00 par value, authorized 20,000,000 shares; issued 13,350,431 and 13,329,759 shares, respectively 13,350 13,330 Class B common stock, $1.00 par value, authorized 5,000,000 shares; issued 1,024,795 and 1,036,801 shares, respectively 1,025 1,037 Additional paid-in capital 44,064 44,008 Retained earnings 29,385 19,201 -------- -------- Total shareholders' equity 87,824 77,576 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $163,055 $185,389 ======== ======== See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (in thousands, except per share data)
Class B Additional Common Common Paid-In Retained Stock Stock Capital Earnings Total -------- -------- --------- -------- -------- Balance at April 1, 2000 $13,145 $1,086 $43,126 $74,375 $131,732 ======== ======== ========= ======== ======== Net and comprehensive 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 ======== ======== ========= ======== ======== Net and comprehensive loss ( 49,474)( 49,474) Class B stock converted to common 24 ( 24) - Common stock issued: Option plans -- 23,999 common shares 24 163 187 Dividends declared - $0.04 per share ( 574)( 574) -------- -------- --------- -------- -------- Balance at March 31, 2002 $13,330 $1,037 $44,008 $19,201 $77,576 ======== ======== ========= ======== ======== Net and comprehensive income 10,184 10,184 Class B stock converted to common 12 ( 12) - Common stock issued: Option plans -- 8,466 common shares 8 56 64 -------- -------- --------- -------- -------- Balance at March 31, 2003 $13,350 $1,025 $44,064 $29,385 $ 87,824 ======== ======== ========= ======== ======== See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years ended March 31, ------------------------------------ 2003 2002 2001 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $10,184 $ 7,821 $ 8,977 Adjustments to reconcile income to net cash provided by continuing operations: Depreciation and amortization 2,061 2,649 2,841 Amortization of deferred charges 378 376 158 Deferred income taxes 2,810 4,470 ( 4,571) Gain on sale of fixed assets and assets held for sale 36 ( 41) ( 9) Minority interest 43 - - Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net 4,794 ( 3,751) ( 1,279) Inventories 5,558 12,213 ( 6,408) Prepaid expenses 4,050 ( 329) ( 1,817) Accounts payable and accrued expenses 2,590 1,304 2,465 Deferred revenue 271 166 2,258 Income taxes currently payable 1,879 ( 504) ( 2,107) Change in other assets and liabilities ( 215) ( 1,175) ( 160) ---------- ---------- ---------- Net cash provided by continuing operations 34,439 23,199 348 ---------- ---------- ---------- Discontinued operations: Loss from discontinued operations - ( 766) ( 4,547) Loss on disposal - ( 16,096) ( 7,264) Changes in discontinued net assets 1,660 13,770 11,868 ---------- ---------- ---------- Net cash provided by (used in) discontinued operations 1,660 ( 3,092) 57 ---------- ---------- ---------- Net cash provided by operating activities 36,099 20,107 405 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 4,596) ( 1,139) ( 2,796) Net proceeds from sales of property, plant and equipment and assets held for sale 27 37,844 8,876 Purchase of net assets of acquired companies - net of cash received - - ( 760) Changes in other assets and deferred charges - ( 2,000) ( 5,986) ---------- ---------- ---------- Net cash provided by (used in) investing activities ( 4,569) 34,705 ( 666) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (payments) under revolving credit facility ( 27,100) ( 51,550) 8,560 Payments on long-term debt ( 3,322) ( 3,876) ( 4,701) Dividends paid - ( 1,148) ( 2,287) Proceeds from issuance of Common stock 64 163 2 ---------- ---------- ---------- Net cash provided by (used in) financing activities ( 30,358) ( 56,411) 1,574 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,172 ( 1,599) 1,313 Cash and cash equivalents at beginning of year 535 2,134 821 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 1,707 $ 535 $ 2,134 ========== ========== ========== Supplemental disclosures of noncash investing and financing activities: Dividends accrued and unpaid $ - $ - $ 574 Acquisition of additional minority interest of consolidated subsidiary $ - $ - $ 760 Note receivable received in connection with sale of Remuda Ranch $ - $ 2,000 $ - 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, books, videos and CD-ROM products emphasizing Christian, inspirational and family value themes; the Company also hosts inspirational conferences. The principal markets for the Company's products are Christian bookstores, general bookstores, mass merchandisers and direct marketing to consumers in English-speaking countries. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements consist of the accounts of the Company including its subsidiaries: Worthy, Incorporated; The Norwalk Company ("Norwalk"), formerly The C.R. Gibson Company; and Live Event Management, Inc. ("LEM"), formerly New Life Treatment Centers, Inc. All intercompany transactions and balances have been eliminated in consolidation. LEM has minority shareholders that own approximately 0.8% of the outstanding equity shares of LEM at March 31, 2003. Minority interest is presented as an element 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, LEM had a net deficit in shareholders' equity, and post-acquisition operations, excluding Remuda Ranch (see Note B), were approximately breakeven for fiscal 2002 and 2001. OPERATING SEGMENTS: In accordance with SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," the Company reports information about its operating segments. The Company is organized and managed based upon its products and services. Subsequent to the sale of the Company's gift division during fiscal year 2002, the Company reassessed its segment reporting and identified two reportable business segments: publishing and conferences. The publishing segment primarily creates and markets Bibles, inspirational books and videos. The conference segment hosts inspirational and motivational conferenc across North America. REVENUE RECOGNITION: The Company has four primary revenue sources: sales of publishing product, attendance fees and product sales from its conferences, royalty income from licensing copyrighted material to third parties, and billed freight. Revenue from the sale of publishing product is recognized upon shipment to the customer. In accordance with Securities and Exchange Commission's Staff Accounting Bulletin No. 101 regarding revenue recognition, we recognize revenue only when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or determinable, and collectibility is reasonably assured. An allowance for sales returns is recorded where return privileges exist. The returns allowance is determined by using a 12-month rolling average return rate, multiplied by gross sales occurring over the previous four-month period by market sales channel. Historical experience reflects that product is generally returned from and credited to customers' accounts within the first 120 days of the original sale. The Company's analysis indicated that its experience changed during fiscal 2002 from 90 days to 120 days, which resulted in an increase in the returns allowance for the period. This change in accounting estimate effectively reduced reported sales by $1.9 million for the fourth quarter and the fiscal year 2002. The 120-day analysis was used consistently for all periods during fiscal 2003. The full amount of the returns allowance, net of inventory and royalty costs (based on current gross margin rates), is shown as a reduction of accounts receivable in the accompanying consolidated financial statements. Returns of publishing products from customers are accepted in accordance with standard industry practice. Generally, products that are designated as out-of-print are not returnable 90 days after notice of out-of-print status is given to the customer. Also, certain high discount sales are not returnable. Revenue from seminars is recognized as the seminars take place. Cash received in advance of seminars is included in the accompanying financial statements as deferred revenue. Royalty income from licensing the Company's publishing rights is recorded as revenue when earned under the terms of the applicable license, net of amounts due to authors. Billed freight consists of shipping charges billed to customers and is recorded as revenue upon shipment of product. ALLOWANCE FOR DOUBTFUL ACCOUNTS: The Company records an allowance for bad debts as a reduction to accounts receivable in the accompanying consolidated financial statements. The valuation allowance has a component related to accounts with known collection risks and a component which is calculated using a 5-year rolling bad debt history applied as a percentage of the accounts receivable balance, less the specific component of the allowance. In fiscal 2003, the Company changed from a 10-year rolling bad debt history to a 5-year history to compute the allowance in order to better reflect the current economic environment. This change did not have a material impact on the allowance balance. Our credit department identifies specific allowances for each customer who is deemed to be a collection risk or may have filed for bankruptcy protection or may have disputed amounts with the Company. INVENTORIES: Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) valuation method. The FIFO method of accounting for inventory was selected to value our inventory at the lower of market or current cost because the Company continuously introduces new products, eliminates existing products and redesigns products. Therefore, inflation does not have a material effect on the valuation of inventory. Costs of producing publishing products are included in inventory and charged to operations when product is sold or otherwise disposed. These costs include paper, printing, binding, outside editorial and design, typesetting, artwork, international freight and duty costs, when applicable. The Company policy is to expense all internal editorial, production, warehousing and domestic freight-in costs as incurred, except for certain indexing, stickering, typesetting and assembly costs, which are capitalized into inventory. Costs of abandoned publishing projects are charged to operations when identified. The Company also maintains an allowance for excess and obsolete inventory as a reduction to inventory in the accompanying consolidated financial statements. This allowance is based on historical liquidation recovery rates applied to inventory quantities identified in excess of a twenty-four month supply on hand for each category of product. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation and amortization are provided for, principally on the straight-line method over the estimated useful lives of the individual assets: 30 years for buildings and 3 to 10 years for furniture, fixtures and equipment. GOODWILL: In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill no longer be amortized, but tested for impairment by comparing net book carrying values to fair market values upon adoption and periodically thereafter. The Company has adopted the provisions of SFAS No. 142 as of April 1, 2001. The adoption of SFAS No. 142 resulted in a $40.4 million cumulative effect of a change in accounting principle charge to write-off goodwill associated with the Company's gift division, which was discontinued and sold during fiscal 2002. The adoption of this new pronouncement had a favorable impact on continuing operations by eliminating amortization of remaining goodwill attributable to continuing operations, which amounted to a pre-tax impact of approximately $1 million. In accordance with SFAS No. 142, goodwill was tested for impairment by the Company's reporting units: Publishing and Conferences. The fair value for the assets of the Publishing and Conferences reporting units was evaluated using discounted expected cash flows and current market multiples, and it was determined that no impairment occurred during fiscal 2003. Goodwill amortization was $749,000 for fiscal 2001. There was no goodwill amortization during fiscal 2002 and 2003. Goodwill is tested for impairment annually in the fourth quarter of each fiscal year or sooner if management becomes aware of any indications that could reflect potential impairment. IMPAIRMENT OF LONG-LIVED ASSETS: SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 also changes the criteria for classifying an asset as held for sale; broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations; and changes the timing of recognizing losses on such operations. The Company adopted SFAS No. 144 on April 1, 2002. The adoption of SFAS No. 144 did not affect the Company's consolidated financial statements. In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value, less costs to sell and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet. Goodwill and intangible assets not subject to amortization are tested annually for impairment, and more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value. Prior to the adoption of SFAS No. 144, the Company accounted for long-lived assets in accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." PREPAID EXPENSES: Prepaid expenses consist primarily of royalty advances. Royalty advances are typically paid to authors, as is standard in the publishing industry. These advances are either recorded as prepaid assets or other (long-term) assets in the accompanying consolidated financial statements, depending on the expected publication date (availability for shipment) of the product. Author advances for trade books are generally amortized over five months, beginning when the product is first sold into the market. The Company's historical experience is that typically 80% of book product sales occur within the first five months after release into the market. Reference and video royalty advances are generally amortized over a twelve-month period, beginning with the first sale date of the product, as these products typically have a longer sales cycle than books. Royalty advances for significant new Bible products are amortized on a straight-line basis for a period not to exceed five years (as determined by management). When royalty advances are earned through product sales at a faster pace than the amortization period, the amortization expense is accelerated to match the royalty earnings. Unamortized advances are reviewed monthly for abandoned projects or titles that appear to have unrecoverable advances. All abandoned projects and advances that management does not expect to fully recover are charged to operations when identified. For authors with multiple book/product contracts, the advance is amortized over a period that encompasses the publication of all products, generally not to exceed 24 months or the actual recovery period, whichever is shorter. Advances to our most important authors are typically expensed as they are recovered through sales. These authors generally have multiple year and multiple book contracts, as well as strong sales history of backlist titles (products published during preceding fiscal years) that can be used to recover advances over long periods of time. Certain costs related to the Women of Faith conferences are paid in advance. Charges such as deposits for venues, postage and printing costs for mailings, etc., are often incurred in advance and are classified as prepaid expenses until the conferences take place, at which time they are recognized as costs of goods sold in the consolidated statements of operations. DEFERRED CHARGES: Deferred charges consist primarily of loan issuance costs that are being amortized over the average life of the related debt, publication costs that are expected to be of significant benefit to future periods. Many Bible, reference and video products require significant development costs prior to the actual printing or production of the saleable product. These products also typically have a longer life cycle. All video pre-production costs are amortized over 12 months on a straight-line basis. Pre-production costs for significant Bible and reference products are recorded as deferred charges in the accompanying consolidated financial statements and are amortized on a straight-line basis for a period not to exceed five years (as determined by management).Amortization for deferred charges was $0.4, $0.4 and $0.2 million for fiscal 2003, 2002 and 2001, respectively. OTHER ASSETS: Other assets includes prepaid royalty costs for works and projects that are not expected to be released within the next fiscal year. STOCK-BASED COMPENSATION: The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, including FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25," issued in March 2000, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation," established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above and has adopted only the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards in each period.
2003 2002 2001 -------- -------- -------- Net income (loss) (in thousands): As reported $10,184 ($49,474) ($2,834) ======== ======== ======== Less: additional stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 1,346 335 235 ======== ======== ======== Pro forma $ 8,838 ($49,839) ($3,069) ======== ======== ======== Net income (loss) per share: Basic -- As reported $ 0.71 ($ 3.45) ($ 0.20) ======== ======== ======== Pro forma $ 0.62 ($ 3.47) ($ 0.21) ======== ======== ======== Diluted -- As reported $ 0.70 ($ 3.41) ($ 0.20) ======== ======== ======== Pro forma $ 0.61 ($ 3.44) ($ 0.21) ======== ======== ========
The fair value of each option on its date of grant has been estimated for pro forma purposes using the Black-Scholes option pricing model using the following weighted average assumptions:
2003 2002 2001 -------- -------- -------- Expected future dividend payment $ - $ - $ 0.16 Expected stock price volatility 39.90% 35.40% 34.45% Risk free interest rate 5.01% 5.38% 6.27% Expected life of options 9 years 9 years 9 years
INCOME TAXES: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 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. COMPREHENSIVE INCOME (LOSS): Comprehensive income (loss) generally includes all changes to equity during a period, excluding those resulting from investments by stockholders and distributions to stockholders. Comprehensive income (loss) was the same as net income (loss) for the periods presented. STATEMENT OF CASH FLOWS: For purposes of the consolidated 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 accounting principles generally accepted in the United States 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. ACCOUNTING PRONOUNCEMENTS: In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Correction." SFAS No. 145 amends existing guidance on reporting gains and losses on the extinguishment of debt to prohibit the classification of the gain or loss as extraordinary, as the use of such extinguishments have become part of the risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. The provisions of the Statement related to the rescission of Statement No. 4 is applied in fiscal years beginning after May 15, 2002. Earlier application of these provisions is encouraged. The provisions of the Statement related to Statement No. 13 were effective for transactions occurring after May 15, 2002, with early application encouraged. The adoption of SFAS No. 145 did not have a material effect on the Company's consolidated financial statements. During July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activities. Previous accounting guidance was provided by EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS No. 146 replaces EITF Issue No. 94-3. The new standard is effective for exit or restructuring activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material effect on the Company's consolidated financial statements. During November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and did not have a material effect on the Company's consolidated financial statements. The disclosure requirements in this Interpretation have been adopted with no material impact. During December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123." The standard provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this standard amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements. In the event that accounting rules associated with stock options were to change to require all entities to use the fair value based method of accounting prescribed by SFAS No. 123, or were we to voluntarily elect to apply such methods, our consolidated statement of earnings would be impacted. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, and Interpretation of ARB No. 51." This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created or obtained after January 31, 2003. For public enterprises with a variable interest in a variable interest entity created before February 1, 2003, the Interpretation applies to that enterprise no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The application of this Interpretation is not expected to have a material effect on the Company's consolidated financial statements. The Interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that the Company will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equities." SFAS No. 150 requires issuers to classify as liabilities (or assets, in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, SFAS No. 150 is effective for financial instruments entered or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company is currently assessing the impact of the adoption of SFAS No. 150. RECLASSIFICATIONS: Certain reclassifications of prior period amounts have been made to conform to the current year's presentation. NOTE B - DISCONTINUED OPERATIONS On November 7, 2001, effective October 31, 2001, the Company completed the sale of the Company's gift business, including substantially all of the assets and certain liabilities of the Company's wholly-owned subsidiary, The C.R. Gibson Company ("Gibson"). Gibson is a designer, marketer and distributor of stationery and memory albums (the Company's former gift product segment). The purchase was consummated at a purchase price of $30.5 million, subject to certain purchase price adjustments, if any (see Note R). This sale resulted in a loss on disposal of $15.3 million. The Company also recognized a $40.4 million cumulative effect of a change in accounting principle charge to write-off goodwill associated with Gibson in accordance with SFAS No. 142. Gibson generated an operating loss from discontinued operations of $(0.8) million and $(3.2) million and net revenues of $45.7 million and $83.8 million in fiscal years 2002 and 2001, respectively. Interest expense allocations to the gift discontinued operations were based on percentage of net assets employed and totaled $1.4 million and $2.3 million for fiscal years ended 2002 and 2001, respectively. The Company utilized net proceeds from the sale to pay down existing debt. The accompanying consolidated financial statements reflect the gift business segment as discontinued operations for all periods presented. During fiscal 2003, the Company recorded a loss on disposal of $87,000 to record additional allowances for the disposal of Gibson, primarily the write-down of assets held for sale to its estimated fair value, less costs to sell (see note R). During December 2000, the Company determined it would dispose of its Ceres Candles operation, a former division of its gift segment. Ceres manufactured and marketed candles, primarily under private labels for the specialty and department store markets, and was headquartered in Hayward, California. This sale was completed in August 2001 for approximately $1.5 million. This sale resulted in a loss on disposal of $(0.5) million in fiscal 2002 and $(7.3) million in fiscal 2001. Ceres generated an operating loss from discontinued operations of $(1.3) million in fiscal year 2001. Through the date of sale, Ceres generated net revenues of $2.5 million and $7.1 million during fiscal years 2002 and 2001, respectively. Interest expense allocations to Ceres totaled $0.4 million and $0.9 million for fiscal years 2002 and 2001, respectively. During fiscal 2003, the Company recorded income on disposal of $33,000 related to a change in estimate for certain unutilized allowances for the disposal of Ceres. Effective April 1, 2001, Remuda Ranch was reclassified as a discontinued operation. Remuda Ranch Center for Anorexia and Bulimia, Inc. ("Remuda Ranch") operates therapeutic centers in Arizona for women with eating disorders. For periods prior to April 1, 2001, Remuda Ranch net assets are reflected as assets held for sale in accordance with Emerging Issues Task Force Issue No. 87-11, "Allocation of Purchase Price to Assets to Be Sold." Remuda Ranch was part of the LEM acquisition during fiscal 2000 and was considered as assets held for sale from the acquisition date through March 31, 2001. The Company closed the sale of the Remuda Ranch net assets in July 2001 for approximately $7.2 million in cash and a $2 million note receivable. This sale resulted in a loss on disposal of $(0.3) million during fiscal 2002. Interest expense allocations to Remuda Ranch totaled $0.2 million in fiscal 2002. The fiscal 2002 operations of Remuda Ranch have been accounted for as discontinued operations and accordingly, their assets, liabilities and results of operations are segregated in the accompanying consolidated statements of operations and cash flows. Remuda Ranch net assets for periods prior to April 1, 2001 are classified as assets held for sale. During fiscal 2003, the Company recorded income on disposal of $54,000 related to a change in estimate for certain unutilized allowances for the disposal of Remuda Ranch. NOTE C - INVENTORIES Inventories consisted of the following at March 31 (in thousands):
2003 2002 -------- -------- Finished goods $31,298 $36,736 Work in process and raw materials 2,339 2,459 -------- -------- $33,637 $39,195 ======== ========
NOTE D - PREPAID EXPENSES Prepaid expenses consisted of the following at March 31 (in thousands):
2003 2002 -------- -------- Royalties $ 8,394 $12,089 Prepaid conference expenses 2,823 2,406 Prepaid production costs 1,198 2,135 Other 1,106 941 -------- -------- $13,521 $17,571 ======== ========
NOTE E - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at March 31 (in thousands):
2003 2002 -------- -------- Land $ 291 $ 291 Buildings 11,382 8,870 Machinery and equipment 11,775 12,504 Furniture and fixtures 4,341 4,020 Other 1,330 1,825 -------- -------- 29,119 27,510 Less accumulated depreciation and amortization ( 17,489) ( 18,268) -------- -------- $11,630 $ 9,242 ======== ========
Depreciation expense was $2.0 million, $2.6 million and $1.8 million for fiscal years 2003, 2002 and 2001, respectively. NOTE F - OTHER ASSETS Other assets consisted of the following at March 31 (in thousands):
2003 2002 -------- -------- Prepaid royalties $2,858 $3,061 Notes receivable 2,258 2,185 Cash surrender value of life insurance policies 1,821 1,730 Other 421 514 -------- -------- $7,358 $7,490 ======== ========
NOTE G - GOODWILL AND INTANGIBLE ASSETS
Weighted Gross Average Net Carrying Amortization Accumulated Carrying Amount Period Amortization Amount -------- ------------ ------------ --------- Goodwill $33,435 n/a $4,131 $29,304 ======== ============ ========= Intangible assets - ----------------- Amortizable intangible assets: Publishing rights and copyrights 2,523 5 2,496 27 Non-amortizable intangible assets: Publishing rights 500 n/a - 500 -------- ------------ --------- Total intangible assets $3,023 $2,496 $ 527 ======== ============ =========
Amortization expense for intangible assets was $31,000, $25,000 and $281,000 for fiscal years 2003, 2002 and 2001, respectively. Estimated amortization expense for the next five years is $106,000 in 2004 and $75,000 in 2005, 2006, 2007 and 2008, respectively. NOTE H - ACCRUED EXPENSES Accrued expenses consisted of the following at March 31 (in thousands):
2003 2002 -------- -------- Accrued royalties $ 6,374 $ 4,862 Accrued compensation 4,001 2,198 Accrued commissions 352 295 Accrued group insurance 687 565 Accrued interest 311 346 Accrued sales and property tax 365 342 Net liability of discontinued operations 128 6,313 Accrued conference expenses 633 - Other 984 682 -------- -------- $13,835 $15,603 ======== ========
Cash payments for interest were $3.1 million in 2003, $6.6 million in 2002, and $7.9 million in 2001. NOTE I - LONG-TERM DEBT Long-term debt consisted of the following at March 31 (in thousands):
2003 2002 -------- -------- Credit facility $17,000 $44,100 Senior notes 8,352 11,374 Industrial revenue bonds 600 900 -------- -------- 25,952 56,374 Less current portion ( 3,622) ( 3,322) ------- ------- $22,330 $53,052 ======= =======
The Company's bank credit facility is a $65 million Senior Unsecured Revolving Credit Facility (the "Credit Facility"). The Credit Facility bears interest at either the lenders' base rate or, at the Company's option, the LIBOR plus a percentage based on certain financial ratios. The average interest rate for the revolving credit facility was approximately 3.5% at March 31, 2003. The Company has agreed to maintain certain financial ratios and tangible net worth, as well as to limit the payment of cash dividends. The Credit Facility has a term of three years and matures on June 28, 2005. At March 31, 2003, the Company had $17 million outstanding under the Credit Facility and $48 million available for borrowing. Due to the seasonality of the Company's business, borrowings under the Credit Facility typically peak during the third quarter of the fiscal year. At March 31, 2003, the Company was in compliance with all covenants of the Credit Facility. The Company has outstanding $8.4 million in secured Senior Notes, which bear interest at rates from 6.68% to 8.31% and mature on dates 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. At March 31, 2003, the Company was in compliance with all covenants of the Senior Notes. The Company has outstanding $0.6 million in Industrial Revenue Bonds, whichbear interest at rates from 7.35% to 8.1% and mature on dates through 2005. The Company has given notice to the bond holders of its intent to prepay the notes in full; thus, the entire amount of outstanding bonds have been classified as current. At March 31, 2003, the Industrial Revenue Bonds were secured by property, plant and equipment with a net book value of approximately $1.9 million. Maturities of long-term debt for the years ending March 31 are as follows (in thousands):
2004 $ 3,622 2005 3,022 2006 19,308 ------- $25,952 =======
NOTE J - LEASES Total rental expense for operating leases associated with continuing operations, including short-term leases of less than a year, amounted to approximately $2.7 million in 2003, $3.2 million in 2002 and $3.0 million in 2001. 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):
2004 $1,903 2005 1,314 2006 898 2007 400 2008 and thereafter 1,303 ------- Total minimum lease payments $5,818 =======
NOTE K - 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. The Plan, as amended, authorizes grants of options to purchase up to 2,140,000 shares of authorized but unissued common or Class B common stock. 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 typically vest at a rate of 33 1/3% on the first through third anniversaries of the date of grant, subject to certain performance goals, and vest in full if the executive is employed on the third anniversary of the date of grant, regardless of whether such goals are met.
Remaining Outstanding Options Weighted Weighted Shares ------------------- Average Average Reserved Common Class B Exercise/Grant Fair For Grant Stock Stock Price Value ---------- --------- --------- -------------- ------- April 1, 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 ========== ========= ========= Options canceled 413,334 ( 324,000) ( 90,000) 10.86 Options granted ( 573,500) 573,500 - 7.10 $4.05 ---------- --------- --------- March 31, 2002 774,825 941,500 330,000 9.52 ========== ========= ========= Options canceled 335,000 ( 10,000) ( 325,000) 12.82 Options exercised - ( 8,666) - 7.30 Options granted ( 456,000) 456,000 - 13.62 $7.77 ---------- --------- --------- March 31, 2003 653,825 1,378,834 5,000 10.09 ========== ========= =========
At March 31, 2003, there were exercisable options outstanding to purchase 337,167 shares of common stock and 5,000 shares of Class B common stock with a weighted average exercise price of $10.09. As of March 31, 2002, there were exercisable options outstanding to purchase 226,167 shares of common stock and 330,000 shares of Class B common stock with a weighted average exercise price of $10.35. At March 31, 2003, the range of exercise prices and weighted average remaining contractual life of outstanding options was $7.00 to $18.375 and 7.7 years, respectively. STOCK-BASED COMPENSATION PLANS: The Company accounts for options issued to employees and directors under APB Opinion No. 25 and related interpretations. 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. 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 2003, 2002 and 2001, compensation expense in relation to the Deferred Compensation Plan was recorded in the amounts of approximately $0.1 million, $0.3 million and $0.1 million, respectively. NOTE L - RETIREMENT PLANS The Company administers the Thomas Nelson, Inc. Savings and Investment Plan ("Company Plan"), which includes employer discretionary ESOP contributions to a stock bonus feature and a 401(k) salary deferral feature. The Company 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 Company Plan qualifies as a "safe harbor" 401(k) plan under applicable Internal Revenue Code Sections. The Company's contribution expense under this plan, including matching contributions and discretionary ESOP contributions, totaled $1.0 million, $0.7 million and $1.2 million during fiscal 2003, 2002 and 2001, respectively. LEM 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 LEM. LEM's contribution to the plan for any year is discretionary. During fiscal 2003 and 2002, LEM matched 20% of all employee contributions, up to 15% of eligible compensation. The Company's matching contributions under this plan totaled $17,000, $24,000 and $176,000 during fiscal 2003, 2002 and 2001, respectively. NOTE M - COMMON STOCK The Company declared and paid a dividend of four cents per share every quarter during fiscal 2001 and for the first quarter of fiscal 2002. The Board of Directors, at its quarterly meetings, approves and declares the amount and timing of the dividends, if any. On August 23, 2001, the Company's Board of Directors adopted management's recommendation to suspend the payment of dividends on the Company's common and class B common stock. Class B common stock carries ten votes per share and is convertible to common stock on a one-to-one ratio at the election of the holder. NOTE N - INCOME TAXES The income tax provision (benefit) is comprised of the following for the fiscal years ended March 31, (in thousands):
2003 2002 2001 -------- -------- -------- Current: U.S. federal $2,900 ($7,800) $1,670 State 168 ( 929) 1,167 -------- -------- -------- Total current 3,068 ( 8,729) 2,837 Deferred 2,810 4,470 ( 4,571) -------- -------- -------- Total tax provision (benefit) $5,878 ($4,259) ($1,734) ======== ======== ======== Provision for income taxes from continuing operations $5,878 $4,495 $5,160 Provision (benefit) for income taxes from discontinued operations - ( 8,754) ( 6,894) -------- -------- -------- Total tax provision (benefit) $5,878 ( 4,259) ($1,734) ======== ======== ========
Deferred tax assets are recognized 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. The Company maintains a valuation allowance for certain deferred tax assets, which consists primarily of contribution carryforwards for which utilization is uncertain due to limited carryforward periods and cumulative tax losses in recent years. The net deferred tax asset is comprised of the following at March 31 (in thousands):
2003 2002 -------- -------- Deferred tax assets: Contributions $1,700 $2,909 Inventory obsolescence allowances 985 1,765 Bad debt and returns allowances 2,450 2,053 Inventory-unicap tax adjustment 793 1,017 Advances and prepaid expenses 68 123 Accrued liabilities 260 1,896 Deferred charges - ( 84) Valuation allowance ( 1,171) ( 1,713) -------- -------- 5,085 7,966 Deferred tax liabilities: Accelerated depreciation and amortization ( 721) ( 792) -------- -------- Net deferred taxes $4,364 $7,174 ======== ========
Reconciliation of income taxes from continuing operations computed at the U.S. federal statutory tax rate to the Company's effective tax rate is as follows for the fiscal years ended March 31:
2003 2002 2001 -------- -------- -------- U.S. federal statutory tax rate provision 35.0% 34.0% 34.0% State taxes on income, net of federal tax effect 1.5% 2.5% 2.5% -------- -------- -------- Effective tax rate 36.5% 36.5% 36.5% ======== ======== ========
Cash payments for income taxes were $1.8 million, $2.3 million and $5.2 million in 2003, 2002 and 2001, respectively. Subsequent to March 31, 2003, the Company received an income tax refund of $18.7 million. This refund arose from events surrounding the disposal of the C.R. Gibson operation in October 2001. This refund is not reflected in the tax accounts at March 31, 2003. The proceeds from this tax refund were used to pay down existing debt subsequent to March 31, 2003. The Company will not recognize the benefit of this tax deduction until such time that management concludes that it is probable that the position we have taken on our income tax return will be sustained by the taxing authorities. NOTE O - QUARTERLY RESULTS (UNAUDITED) Summarized results for each quarter in the fiscal years ended March 31, 2002 and 2001 are as follows (dollars in thousands, except per share data):
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 2003 - ---- Net revenues $41,171 $62,074 $53,774 $60,198 Operating income 1,509 7,032 4,698 5,687 Net income 324 4,100 2,486 3,274 Net income per share 0.02 0.29 0.17 0.23 2002 - ---- Net revenues $45,414 $58,710 $61,167 $50,261 Operating income 1,610 6,566 4,210 4,177 Income from continuing operations 540 3,294 1,875 2,112 Loss from discontinued operations ( 234) ( 15,239) - ( 1,389) Cumulative effect of a change in accounting principle ( 40,433) - - - Net income (loss) ( 40,127) ( 11,945) 1,875 723 Income per share from continuing operations 0.04 0.23 0.13 0.15 Loss per share from discontinued operations ( 0.02) ( 1.06) - ( 0.10) Loss per share from change in accounting principle ( 2.82) - - - Net income (loss) per share ( 2.80) ( 0.83) 0.13 0.05
The quarterly results for fiscal 2002 have been adjusted to reflect the cumulative effect of a change in accounting principle associated with the adoption of SFAS No. 142. The Company originally recorded the goodwill impairment of $40.4 million as a loss from discontinued operations in the second quarter. In accordance with SFAS No. 142, the Company has restated its results of operations to reflect the $40.4 million as a cumulative effect of a change in accounting principle in the first quarter. NOTE P - COMMITMENTS AND CONTINGENCIES The Company has commitments to provide advances to certain authors in connection with products being published by the Company. These commitments totaled approximately $7.7 million at March 31, 2003. 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. The Company also has certain inventory purchase commitments with vendors totaling approximately $34.9 million over the next six years. 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 Q - GUARANTEES As of March 31, 2003, the Company is listed as the primary tenant on several leases related to discontinued operations that were assumed by the buyers. No amount has been accrued for the Company's potential obligation under these lease agreements. The maximum amount of undiscounted payments the Company would have to make in the event that the new tenants fail to make the required lease payments is $2.8 million at March 31, 2003. NOTE R - RELATED PARTY TRANSACTIONS Effective October 31, 2001, the Company sold the assets of its gift division to CRG Acquisition Corp., now known as C. R. Gibson, Inc., for consideration of $30.5 million, subject to adjustment. At the date of the sale, S. Joseph Moore became the President of C. R. Gibson, Inc. Mr. Moore's employment with the Company terminated at the date of sale; however, he remains a member of the Company's Board of Directors. In connection with the sale transaction, the parties also entered into a Transition Services Agreement whereby the Company provided warehousing, accounting and other administrative services to C.R. Gibson, Inc. The Company received fees under this agreement totaling approximately $3.0 million in fiscal 2002 and approximately $2.3 million in fiscal 2003, until the agreement ended on July 31, 2002. These fees were approximately the same amount as the expenses incurred to provide the services and were recorded as a reduction to selling, general, and administrative expenses in the statements of operations. During the third quarter of fiscal 2003, the Company settled claims and working capital adjustments related to the sale of the gift assets for total consideration of $2.5 million in favor of C.R. Gibson, Inc., which had been fully accrued as a liability on the consolidated balance sheets. During the third quarter of fiscal 2003, the Company paid $2.5 million to C.R. Gibson, Inc. for the repurchase of its former distribution center under the terms of a "put option" from the Asset Purchase Agreement for the sale of the Company's former gift segment. The Company has engaged the services of a commercial real estate broker to list the property for sale. The Company is carrying this property on the consolidated balance sheet as an asset held for sale, valued at the estimated fair value less cost to sell, of $1.8 million at March 31, 2003. NOTE S - FINANCIAL INSTRUMENTS The following disclosure of estimated fair value of financial instruments as of March 31, 2003 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, 2003 and 2002, respectively. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market transaction (in thousands):
2003 2002 --------------------- --------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value --------- ---------- --------- ---------- CASH AND CASH EQUIVALENTS $ 1,707 $ 1,707 $ 535 $ 535 LONG-TERM DEBT: Credit facility $17,000 $17,000 $44,100 $44,100 Senior notes 8,352 8,616 11,374 11,491 Industrial revenue bonds 600 600 900 900
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 Facility 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 $1.0 million and $1.5 million as of March 31, 2003 and 2002, respectively. The letters of credit guarantee performance to third parties of various trade activities and Workers' Compensation claims. Fair value estimated on the basis of fees paid to obtain the obligations was not material at March 31, 2003 and 2002. Financial instruments that potentially subject the Company to credit risk consist primarily of trade receivables. Credit risk on trade receivables is minimized as a result of the diverse nature of the Company's customer base. NOTE T - OPERATING SEGMENTS Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column includes items related to discontinued operations. (in thousands)
2003 Publishing Conferences Other Total - ---- ---------- ----------- -------- ---------- Net revenues $187,599 $ 29,618 $ - $217,217 Operating income 14,684 4,242 - 18,926 Identifiable assets 135,786 23,484 3,785 163,055 Capital expenditures 4,493 103 - 4,596 Depreciation and amortization 1,808 253 - 2,061 2002 - ---- Net revenues 188,277 27,275 - 215,552 Operating income 16,045 518 - 16,563 Identifiable assets 149,825 23,264 12,300 185,389 Capital expenditures 898 241 - 1,139 Depreciation and amortization 1,959 690 - 2,649 2001 - ---- Net revenues 191,421 22,726 - 214,147 Operating income 16,939 846 - 17,785 Identifiable assets 165,400 23,861 97,977 287,238 Capital expenditures 2,256 540 - 2,796 Depreciation and amortization 2,125 716 - 2,841
No single customer accounted for as much as 10% of consolidated revenues in fiscal 2003, 2002 or 2001. Foreign revenues accounted for less than 10% of consolidated revenues in fiscal 2003, 2002 and 2001. Report of Independent Public Accountants The Board of Directors Thomas Nelson, Inc.: We have audited the accompanying consolidated balance sheet of Thomas Nelson, Inc. and subsidiaries (the Company) as of March 31, 2003 and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The Company's consolidated financial statements as of March 31, 2002 and for each of the years in the two-year period then ended, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statements, before the restatement related to reportable segment information in Note T to the consolidated financial statements, in their report dated May 10, 2002. Those auditors' report also included an explanatory paragraph with respect to the change in the method of accounting for goodwill and intangible assets (as discussed in Note A to the consolidated financial statements). We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audit provides a reasonable basis for our opinion. In our opinion, the 2003 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thomas Nelson, Inc. and subsidiaries as of March 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As explained in Note A to the consolidated financial statements, upon adoption of a new accounting pronouncement, effective April 1, 2001, the Company changed its method of accounting for goodwill and other intangible assets. As discussed above, the Company's 2002 and 2001 consolidated financial statements were audited by other auditors who have ceased operations. As described in Note T, the Company began disclosing two reportable segments in 2003, and the amounts in the 2002 and 2001 consolidated financial statements relating to reportable segments have been restated to conform to the 2003 composition of reportable segments. We audited the adjustments that were applied to restate the disclosures for reportable segments reflected in the 2002 and 2001 consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the Company's 2002 and 2001 consolidated financial statements other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2002 and 2001 consolidated financial statements taken as a whole. /s/ KPMG LLP Nashville, Tennessee May 7, 2003 The following is a copy of the audit report previously issued by Arthur Andersen LLP in connection with the Company's Annual Report for the year ended March 31, 2002. This audit report has not been reissued by Arthur Andersen LLP. 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, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 2002. 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, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2002, in conformity with accounting principles generally accepted in the United States. As explained in Note A to the consolidated financial statements, upon adoption of a new accounting pronouncement, effective April 1, 2001, the Company changed its method of accounting for goodwill and other intangible assets. /s/ Arthur Andersen LLP Nashville, Tennessee May 10, 2002 (except for Note I, as to which the date is June 28, 2002) 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 2003 - ----------- First Quarter $13.80 $10.29 $13.60 $11.00 $ - Second Quarter 13.57 8.80 13.51 11.00 - Third Quarter 10.46 5.24 13.00 7.00 - Fourth Quarter 11.29 8.45 13.95 12.40 - -------------- $ - ============== Fiscal 2002 - ----------- First Quarter $ 7.45 $ 6.35 $ 7.50 $ 6.60 $ .04 Second Quarter 8.50 6.80 8.50 6.75 .04 Third Quarter 11.13 8.09 11.00 8.60 - Fourth Quarter 12.40 9.98 12.25 10.65 - -------------- $ .08 ==============
As of June 23, 2003, there were 791 record holders of the Common stock and 522 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 Facility and Senior Notes limit the amount of cash dividends payable based on the Company's cumulative consolidated net income. On August 23, 2001, the Company's Board of Directors adopted management's recommendation to suspend the payment of dividends on the Company's Common and Class B Common stock. EX-21 7 ex2110k32003.txt EXHIBIT 21 OF FORM 10-K FOR PERIOD ENDED 3/31/03 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY
Percentage Jurisdiction of Ownership of Subsidiary Incorporation Capital Stock - ------------------------------------------------------------------------------- Worthy, Incorporated Delaware 100% Live Event Management, Inc. (formerly New Life Treatment Centers, Inc.) Delaware 99% Nelson Direct Marketing Services, Inc. Delaware 100% Editorial Caribe, Inc. Florida 100% Elm Hill Press, Inc. (dba Rutledge Hill Press, Inc.) Tennessee 100% Nelson Media, Inc. (dba Nelson Ministry Services) Tennessee 100% Nelson Enrichment, Inc. Delaware 100% Women of Faith, Inc. Delaware 99%
EX-23 8 ex2310k32003.txt EXHIBIT 23 OF FORM 10-K FOR PERIOD ENDED 3/31/03 EXHIBIT 23 INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT The Board of Directors Thomas Nelson, Inc.: The audit referred to in our report dated May 7, 2003, included the related consolidated financial statement schedule as of March 31, 2003, and for the year then ended included in the annual report on Form 10-K. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audit. The consolidated financial statement schedules for each of the years ended March 31, 2002 and 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statement schedules. In our opinion, such financial statement schedule as of March 31, 2003 and for the year then ended, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the incorporation by reference in this Form 10-K of our report included in Thomas Nelson, Inc.'s annual report to shareholders. In addition, we consent to the incorporation of our reports incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements (No.'s 33-80086 and 333-4503) on Form S-8. Our report refers to our audit of the Company's adjustments to restate its reportable segment disclosures for 2002 and 2001 in order to conform such disclosures to the 2003 composition of reportable segments, as more fully described in Note T to the consolidated financial statements. However, we were not engaged to audit, review, or apply any procedures to the 2002 and 2001 consolidated financial statements other than with respect to such disclosures. Our report also refers to a change in the method of accounting for goodwill and other intangible assets. /s/ KPMG LLP Nashville, Tennessee June 27, 2003 EX-24 9 ex99110k32003.txt EXHIBIT 99.1 OF FORM 10-K FOR PERIOD ENDED 3/31/03 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Thomas Nelson, Inc. (the "Company") on Form 10-K for the period ending March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sam Moore, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Sam Moore - ----------------------- Sam Moore President and Chief Executive Officer June 27, 2003 This certification shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to liability pursuant to that section. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-25 10 ex99210k32003.txt EXHIBIT 99.2 OF FORM 10-K FOR PERIOD ENDED 3/31/03 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Thomas Nelson, Inc. (the "Company") on Form 10-K for the period ending March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joe L. Powers, Executive Vice President and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joe L. Powers - ---------------------------------- Joe L. Powers Executive Vice President and Secretary June 27, 2003 This certification shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to liability pursuant to that section. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----