-----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, HF+BSNrff/FXKfvNXSQ0/Pq7854ECPlise9gbDR7yMNO5SL8tJ5x+QQYeQORZ8Q8 pp6syMViuFThH3fZaLZdug== 0000071023-04-000023.txt : 20040614 0000071023-04-000023.hdr.sgml : 20040611 20040614162608 ACCESSION NUMBER: 0000071023-04-000023 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THOMAS NELSON 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: 04861733 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: NELSON THOMAS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ROYAL PUBLISHERS INC DATE OF NAME CHANGE: 19721019 10-K 1 mar2004k.txt FORM 10-K FOR PERIOD ENDED MARCH 31, 2004 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, 2004 Commission file number 1-13788 THOMAS NELSON, INC. (Exact name of Registrant as specified in its charter) Tennessee 62-0679364 (State or other jurisdiction of (I.R.S. employer identification number) incorporation or organization) 501 Nelson Place, Nashville, Tennessee 37214-1000 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (615) 889-9000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock, Par Value $1.00 per share New York Stock Exchange Class B Common Stock, Par Value $1.00 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [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 September 30, 2003, the Registrant had outstanding 13,373,396 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 $199 million. The market value calculation was determined using the closing sale price of the Registrant's common stock and Class B common stock on September 30, 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 40 of Annual Report to Equity, Related Shareholder Shareholders for year ended Matters, and Issuer Purchases March 31, 2004 (market price of Equity SEcurities and dividend information only) Item 6 - Selected Financial Data Page 12 of Annual Report to Shareholders for year ended March 31, 2004 Item 7 - Management's Discussion and Pages 18 to 22 of Annual Report Analysis of Financial Condition to Shareholders for year ended and Results of Operations March 31, 2004 Item 7A - Quantitative and Qualitative Page 17 of Annual Report to Disclosures about Market Risk Shareholders for year ended March 31, 2004 Item 8 - Financial Statements and Pages 19 to 37 of Annual Supplementary Data Report to Shareholders for year ended March 31, 2004 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 19, 2004, 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 19, 2004, 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 19, 2004, 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 19, 2004, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Item 14 - Principal Accountant Fees To be included in Company's Proxy and Services Statement for the Annual Meeting of Shareholders to be held August 19, 2004, 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 V 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), Cool Springs Press(TM), WestBow Press, Caribe-Betania Editores, Nelson Electronic and Reference, WND Books, and World Publishing, and consist generally of inspirational, trade, gift, children's and reference books emphasizing Christian and family values themes. The Company distributes books primarily through Christian bookstores, general bookstores, mass merchandisers and direct sales to consumers, churches, and ministries. In fiscal 2004, 2003 and 2002, the Company released 480, 523 and 699 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 over 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 49% of the book division's net revenues in fiscal 2004. 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 the largest commercial publisher of English translations of the Bible. The Bible is based on ancient manuscripts, which are the surviving reproductions of the original writings. These manuscripts, written in Hebrew, Aramaic or Greek, have been translated into English and other modern languages by biblical scholars and theologians, generally under the auspices of a major Bible society or translation organization. Each of the many English translations available differs in some degree from the others, primarily because of different translation guidelines and principles used as the basis for each translation. The distinctiveness of each translation is also, in part, a result of the evolution of the meaning and use of words within the English language. Virtually all Bibles and Bible products currently published in the United States are based on one of fourteen major translations. Of these fourteen translations, thirteen 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 nine of the fourteen 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 46% of the Company's net revenues from Bible publishing in fiscal 2004 were generated through sales of its proprietary Bible products. The following table sets forth the nine 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 Standard Bible (NASB) 1960 No Revised Standard Version, Catholic Edition (RSVCE) 1965 No New American Bible (NAB) 1970 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 and Reference 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 believes it 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 approximately 2,000 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 to audio and video products. 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) hosts inspirational conferences and has an Internet portal, womenoffaith.com. Both are designed to foster a community setting for Christian women and to introduce women to a lifestyle of God's Grace. The Company benefits through conference attendance fees and the sale of Christian products at the conferences. In fiscal year 2004, Women of Faith hosted 29 conferences throughout North America, 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 conferences 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 include national chains and stores owned independently; general bookstores, including national chains such as Barnes & Noble(R) and Borders(R); mass merchandisers such as Costco(R), Target(R), Wal-Mart(R) and Sam's(R) Wholesale Club and directly to consumers through direct mail, telemarketing, inspirational conferences 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, 2004, the Company employed a sales force of approximately 120 people and maintained 24-hour-a-day telemarketing capability. These employees service over 30,000 retail accounts and 25,000 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 2004. 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 2004, 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. 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, 2004, the Company employed approximately 600 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 74 Chairman of the Board, Chief Executive Officer and Director Michael S. Hyatt 48 President and Chief Operating Officer Joe L. Powers 58 Executive Vice President and Secretary Vance Lawson 45 Senior Vice President, Finance and Operations Group Philip Stoner 44 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 principal occupation for more than the past five years. Sam Moore has been Chairman of the Board, Chief Executive Officer, and a Director of the Company since its founding in 1961. He was also President until January 2004. Michael S. Hyatt was appointed President and Chief Operating Officer of the Company in January 2004. He 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 Books, 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. Joe L. Powers was appointed Executive Vice President and Secretary (principal financial and accounting officer) of the Company in 1995. Previously, Mr. Powers served as a Vice President of the Company since 1980. 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. 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. The Company's major warehouse facilities, which are owned by the Company 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 $745,000 11/2005 Plano, TX Office/Women of Faith 23,931 $340,000 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 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 near capacity. The warehouse currently operates two daily shifts and could run three daily shifts, if necessary. Additional personnel are employed as required. Item 3. Legal Proceedings On February 3, 2004, the Company received a letter from one of its former customers that has filed for Chapter 11 bankruptcy. It indicated that the Company may have received preference transfers, in the form of cash and returned books, totaling approximately $1.7 million. We are evaluating the notice and intend to vigorously defend the matter. While resolution of this matter is not expected to materially affect the Company's liquidity, if all or a portion of these amounts were to be repaid, it would reduce the Company's net income in the amount of the repayment, net of tax. The Company is subject to various other 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, 2004. PART II Item 5. Market for the Company's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities Incorporated by reference to the Annual Report to Shareholders for the year ended March 31, 2004 (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, 2004 and 2003. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to its management, including its Chairman and Chief Executive Officer (principal executive officer) and Executive Vice President and Secretary (principal financial and accounting officer), as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chairman and Chief Executive Officer and its Executive Vice President and Secretary, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, the Chairman and Chief Executive Officer and the Executive Vice President and Secretary concluded that the Company's disclosure controls and procedures were effective. There were no changes in the Company's internal controls over financial reporting during the Corporation's fiscal quarter ended March 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the sytem are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. 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 19, 2004 (the "Proxy Statement"), to be filed within 120 days of March 31, 2004 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, 2004 with respect 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 1,552,143 305,000 $10.86 700,000 Class B by security Common holders - -------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions Incorporated by reference to the Proxy Statement. Item 14. Principal Accountant Fees and Services Incorporated by reference to the Proxy Statement. 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, 2004, 2003 and 2002 Consolidated balance sheets -- March 31, 2004 and 2003 Consolidated statements of shareholders' equity and comprehensive income -- years ended March 31, 2004, 2003 and 2002 Consolidated statements of cash flow -- years ended March 31, 2004, 2003 and 2002 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. THE REPORT OF ARTHUR ANDERSEN LLP INCLUDED HEREWITH IS A COPY OF THE LATEST SIGNED AND DATED REPORT ISSUED BY ANDERSEN AND SUCH REPORT HAS NOT BEEN REISSUED BY ANDERSEN. 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 51 Copy of Report of Arthur Andersen LLP, Former Independent Public Accountants 51 Schedule II -- Valuation and Qualifying Accounts and Allowances 56 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 (filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended March 31, 2003 and incorporated herein by referece)* 10.17 -- Thomas Nelson, Inc. 2003 Stock Incentive Plan, as adopted on August 21, 2003 (filed as Appendix B to the Company's Proxy Statement dated July 11, 2003, for the Annual Meeting of Shreholders held on August 21, 2003, and incorporated herein by reference)* 10.18 -- Employment Agreement dated May 25, 2004 between the Company and Michael S. Hyatt* 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 2004 (to the extent of portions specifically incorporated herein by reference) 14 -- Code of Business Conduct and Ethics 21 -- Subsidiaries of the Company 23 -- Reports on Schedule and Consents of Independent Registered Accounting Firms 31.1 -- Certification of Sam Moore, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 -- Certification of Joe L. Powers, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 -- Certification of Sam Moore, pursuant to 18 U.S.C. Section 1350 - the Sarbanes-Oxley Act of 2002. 32.2 -- Certification of Joe L. Powers, pursuant to 18 U.S.C. Section 1350 - the Sarbanes-Oxley Act of 2002. - ------------------------ *Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K - On February 12, 2004, the Company furnished a current report on Form 8-K to announce the results and financial condition for the third quarter of fiscal 2004. - On February 19, 2004, the Company furnished a current report on Form 8-K to announce that the Board of Directors had declared a cash dividend. - On May 19, 2004, the Company furnished a current report on Form 8-K to announce the results and financial condition for the fourth quarter of fiscal 2004. The information contained in this Annual Report on Form 10-K includes statements that are forward-looking as defined in Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statemetns. Information concerning factors that could cause actual results to differ materially from those in the forward- looking statements is contained in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Company's 2004 Annual Report to Shareholders, portions of which are incorporated by reference in this Annual Report on Form 10-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THOMAS NELSON, INC. By: /s/ Sam Moore ----------------------- Sam Moore Chief Executive Officer Date: June 14, 2004 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 14, 2004 - ---------------------------- Directors and Chief Sam Moore Executive Officer (Principal Executive Officer) /s/ Joe L. Powers Executive Vice President and June 14, 2004 - ---------------------------- Secretary (Principal Financial Joe L. Powers and Accounting Officer) /s/ Ronald W. Blue Director June 14, 2004 - ----------------------------- Ronald W. Blue /s/ Jesse T. Correll Director June 14, 2004 - ----------------------------- Jesse T. Correll /s/ Brownlee O. Currey, Jr. Director June 14, 2004 - ----------------------------- Brownlee O. Currey, Jr. /s/ W. Lipscomb Davis, Jr. Director June 14, 2004 - ----------------------------- W. Lipscomb Davis, Jr. /s/ S. Joseph Moore Director June 14, 2004 - ----------------------------- S. Joseph Moore /s/ Millard V. Oakley Director June 14, 2004 - ----------------------------- Millard V. Oakley SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
March 31, March 31, March 31, 2004 2003 2002 ---------- ----------- ----------- Allowance for Sales Returns: - --------------------------- Balance at beginning of period $ 6,046,000 $ 4,984,000 $ 4,637,000 Additions: 1. Charged to costs and expenses 40,058,000 38,728,000 36,423,000 Deductions: 1. Charge-offs 39,312,000 37,666,000 36,076,000 ----------- ----------- ----------- Balance at end of period $ 6,792,000 $ 6,046,000 $ 4,984,000 =========== =========== =========== Allowance for Doubtful Accounts: - ------------------------------- Balance at beginning of period $ 1,265,000 $ 1,435,000 $ 1,538,000 Additions: 1. Charged to costs and expenses 1,262,000 1,463,000 4,535,000 2. Charged to other accounts - - 1,365,000 Deductions: 1. Charge-offs 1,368,000 1,633,000 6,003,000 ----------- ----------- ----------- Balance at end of period $ 1,159,000 $ 1,265,000 $ 1,435,000 =========== =========== =========== Discontinued Operations: - ----------------------- Balance at beginning of period $ 128,000 $ 6,313,000 $ 2,032,000 Additions: 1. Charged to costs and expenses 208,000 - 6,313,000 Deductions: 1. Charge-offs 178,000 6,185,000 1,265,000 2. Charge to other accounts - - 767,000 ---------- ----------- ----------- Balance at end of period $ 158,000 $ 128,000 $ 6,313,000 =========== =========== ===========
INDEX TO EXHIBITS Exhibit Page Number Description Number - ------ ----------- ------ 10.18 -- Employment Agreement dated May 25, 2004 between the Company and Michael S. Hyatt................................18 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 2004 (to the extent of portions specifically incorporated by reference)............. 14 -- Code of Business Conduct and Ethics.............................35 21 -- Subsidiaries of the Company.....................................50 23 -- Reports on Schedule and Consents of Independent Registered Accounting Firms.....................................51 31.1 -- Certification of Sam Moore, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002...............................52 31.2 -- Certification of Joe L. Powers, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002...............................53 32.1 -- Certification of Sam Moore, pursuant to 18 U.S.C. Section 1350 - the Sarbanes-Oxley Act of 2002.........54 32.2 -- Certification of Joe L. Powers, pursuant to 18 U.S.C. Section 1350 - the Sarbanes-Oxley Act of 2002.........55 EX-10.18 3 ex1018032004k.txt EXHIBIT 10.18 TO FORM 10-K FOR PERIOD ENDED MARCH 31, 2004 EXHIBIT 10.18 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made and entered into as of May 25, 2004, by and between Thomas Nelson, Inc., a Tennessee corporation (the "Company"), and Michael S. Hyatt ("Executive"). Executive is currently employed by the Company as President. Executive has served in a senior executive capacity with the Company for many years thereby acquiring an intimate knowledge of the business and affairs of the Company and has demonstrated his ability and has performed valuable services for the Company. The Company desires to incentivize the Executive to remain in its employ for the full term of this Agreement and to contractually protect the Company from the misuse of proprietary, confidential information and from the Executive competing with the Company. Accordingly, the Company hereby offers to enter into this Agreement with Executive. The Company's Board of Directors (the "Board") considers the establishment and continuity of competent management to be essential to protecting and enhancing the best interests of the Company and its shareholders. Thus, the Board has determined that it is appropriate to provide Executive with compensation and benefits arrangements upon a Change in Control (as defined below) which ensure that the compensation and benefits expectations of Executive will be satisfied and which are competitive with those of other corporations. Therefore, the Company wishes to secure the services of Executive for a period to and including March 31, 2005 on the terms and conditions set forth below, and Executive is willing to enter into this Agreement. In consideration of the premises hereof and of the mutual promises and agreements contained herein, the parties therefore agree as follows: A. TERM OF AGREEMENT 1. Original Term. This Agreement shall be effective as of the date first set forth above (the "Effective Date"). The Company shall employ Executive as President of the Company for a term (the "Employment Period") commencing on the Effective Date and continuing until March 31, 2005 unless sooner terminated pursuant to Section F or H hereof. 2. Renewals. The Employment Period shall automatically be extended for additional one-year periods unless written notice of non-extension is given in writing by either party no less than 60 days prior to the scheduled expiration date. B. POSITION AND DUTIES During the Employment Period, subject to the power of the Board of Directors to elect and remove officers, Executive shall serve as President of the Company. Executive shall have the authority, functions, duties, powers and responsibilities for Executive's corporate offices and positions which are set forth in the Company's bylaws from time to time in effect and such other authority, functions, duties, powers and responsibilities as the Board of Directors or Chairman of the Board of Directors of the Company may from time to time prescribe or delegate to Executive, in all cases to be consistent with Executive's corporate offices and positions. Executive agrees, subject to his election or appointment as such and without additional compensation, to serve during the Employment Period in such particular additional offices of comparable stature and responsibility to which he may be elected from time to time in the Company and its subsidiaries and to serve as a Director of any subsidiary of the Company. During the Employment Period, (i) Executive's services shall be rendered on a full-time, exclusive basis, (ii) he will apply on a full-time basis all of his skill and experience to the performance of his duties in such employment and shall report only to the Company's Chairman of the Board of Directors, (iii) he shall have no other employment and, without the prior written consent of the Compensation Committee of the Company's Board of Directors, no outside business activities which require the devotion of substantial amounts of Executive's time, and (iv) unless Executive otherwise consents in writing, the headquarters for the performance of his services shall be the principal executive offices of the Company in Nashville, Tennessee, subject to such reasonable travel as the performance of his duties in the business of the Company may require. Notwithstanding the foregoing sentence, Executive may devote a reasonable amount of his time to civic, community, charitable, or passive investment activities and to serve as a director and/or officer of personally owned corporations and to other types of business or public activities not expressly mentioned in this paragraph. C. COMPENSATION 1. Base Salary. Executive shall be paid an annual base salary as set forth on Exhibit A hereto, subject to such increase as may from time to time be approved by the Compensation Committee of the Company's Board of Directors; provided, however, that following any such increase in Executive's base salary by the Compensation Committee, such base salary shall not be reduced without the prior written consent of Executive. Base salary shall be payable according to the Company's regular practice for salary payment. 2. Incentive Compensation. Executive shall be eligible to receive annual incentive and bonus compensation, shall be eligible to participate in the Company's long-term equity-based incentive compensation plans, including, without limitation, the 1992 Employee Stock Incentive Plan and the Company's 2003 Stock Incentive Plan, and in all incentive, gainsharing, savings and retirement plans, practices, policies and programs applicable to other senior executive officers of the Company and its subsidiaries, but in no event shall such plans, practices, policies and programs provide Executive with incentive, gainsharing, savings and retirement benefits opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its subsidiaries for Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the date (the "Change in Control Date") on which a Change in Control (as defined below) occurs, or if more favorable to Executive, those provided generally at any time on or after the Change in Control Date to other senior executive officers of the Company. 3. Other Benefits. During the Employment Period Executive shall be entitled to all of the fringe benefits which the Company and its subsidiaries make available to senior management if and to the extent that the Executive is eligible to participate in accordance with the terms of the benefit plans or policies, provided, however, that the termination benefits hereunder are in lieu of any severance benefits to which the Executive would otherwise be entitled. Such benefits may include, but are not limited to, (i) medical, hospital, dental, disability and life insurance plans and coverages, (ii) pension, profit sharing, 401(k), employee stock ownership plan, deferred compensation and similar plans or arrangements, and (iii) any other benefit plan, program or arrangement, including those relating to automobiles, clubs, vacations, and expense reimbursement, which the Company and its subsidiaries from time to time may make available either to their employees generally or to their senior executive officers, but in no event shall such plans, practices, policies and arrangements provide benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and arrangements in effect at any time during the 90-day period immediately preceding the Change in Control Date or if more favorable to Executive, those provided generally at any time on or after the Change in Control Date to other senior executive officers of the Company and its subsidiaries. D. NONDISCLOSURE AND NON-USE OF CONFIDENTIAL INFORMATION 1. Confidential Information. (a) Executive acknowledges and agrees that the information, observations and data obtained by him during the course of his performance under the Agreement concerning the business or affairs of the Company and its subsidiaries and affiliates is the property of the Company or such subsidiary or affiliate, as the case may be. Therefore, during the Employment Period and at all times thereafter, Executive (i) shall hold in a fiduciary capacity for the benefit of the Company, its subsidiaries and affiliates, and (ii) without the prior written consent of the Board of Directors or except to the extent required by law (and upon prompt written notice of such requirement to the Company and such subsidiary or affiliate), shall not directly or indirectly, divulge, furnish, disclose, use or make accessible for any purpose (except in the course of his employment under this Agreement and in furtherance of the business of the Company and its subsidiaries and affiliates) any Confidential Information (as defined below). Executive acknowledges and agrees that the disclosure of any Confidential Information will be damaging or harmful to the business activities of the Company, its subsidiaries and affiliates, and that such disclosure can direct or divert corporate opportunities, product sales and/or profits away from the Company, its subsidiaries or affiliates. In the event Executive shall be required by law to make any disclosure as set forth above, Executive shall promptly notify the Company and any subsidiary or affiliate which may reasonably be affected by such disclosure and shall cooperate with the Company, such subsidiary and such affiliate to preserve in full the confidentiality of all Confidential Information of the Company, such subsidiary or such affiliate. Confidential Information shall be considered confidential or proprietary unless and to the extent that such Confidential Information become generally known to and available for use by the public other than as a result of any act or omission to act by Executive. Executive will take all appropriate steps to safeguard Confidential Information and to protect it against disclosure, misuse, espionage, loss and theft. (b) As used in this Agreement, the term "Confidential Information" means information that is not generally known to the public and that is used, developed or obtained by the Company or any of its subsidiaries and affiliates in connection with the Company's or such subsidiary's or affiliate's business, including but not limited to (i) products or services, (ii) fees, costs and pricing structures, (iii) designs, plans or manufacturing data, (iv) analysis, observations or data, (v) drawings, artwork, photographs, videotapes, audio tapes, other recordings, and reports, (vi) computer software, including operating systems, applications program listings, and computer files, (vii) flow charts, manuals and documentation, (viii) data bases, (ix) accounting and business methods, (x) inventions, devices, new developments, methods and processes, whether patentable or unpatentable and whether or not reduced to practice, (xi) customers, clients, authors or artist and customer, client, author or artist lists, (xii) other copyrightable works, (xiii) all technology and trade secrets, (xiv) intellectual property, unique business information, or confidential or proprietary information, and (xv) all similar and related information in whatever form. Confidential Information will not include any information that has been published in a form generally available to the public prior to the date Executive proposes to disclose or use such information. Information wil not be deemed to have been published merely because individual portions of the information have been separately published, but only if all material features comprising such information have been published in combination. 2. Product Development. In the event that Executive as part of his activities on behalf of the Company generates, authors or contributes, individually or with the assistance of others, to any invention, design, new development, device, product, method or process (whether or not patentable or reduced to practice or comprising Confidential Information), any copyrightable work (whether or not comprising Confidential Information) or any other form of Confidential Information relating directly or indirectly to the business of the Company or any of its subsidiaries or affiliates as now or hereafter conducted (collectively, the "Intellectual Property"), Executive acknowledges that such Intellectual is the exclusive property of the Company and hereby assigns all right, title and interest in and to such Intellectual Property to the Company. Any copyrightable work prepared in whole or in part by Executive will be deemed "a work made for hire" under Section 201 (b) of the 1976 Copyright Act, and the Company will own all of the rights comprised in the copyright therein. Executive will cooperate with the Company in all reasonable respects to protect the Company's interests in and rights to such Intellectual Property (including, without limitation, providing reasonable assistance in securing patent protection and copyright registrations and executing all documents as reasonably requested by the Company whether such requests occur prior to after termination of Executive's employment with the Company). 3. Delivery of Materials Upon Termination of Employment. As requested by the Company from time to time and upon the termination of the Executive's employment with the Company for any reason, Executive will promptly deliver to the Company all copies and embodiments, in whatever form, of all Confidential Information or Intellectual Property in Executive's possession or within his control (including, but not limited to, written records, memoranda, notes, photographs, plans, records, video tapes, audiotapes, other recordings, reports, manuals, notebooks, documentation, program listings, flow charts, magnetic media, disks, diskettes, tapes and all other materials containing any Confidential Information or Intellectual Property) irrespective of the location or form of such material and, if requested by the Company, will provide the Company with written confirmation that all such materials have been delivered to the Company. E. NONCOMPETITION 1. Covenant Not to Compete. Executive acknowledges and agrees with the Company that Executive's services to the Company and its subsidiaries are unique in nature and that the Company and its subsidiaries would be irreparably damaged if Executive were to provide similar services to any person or entity competing with the Company or any of its subsidiaries, or engaged in similar business. Executive accordingly covenants and agrees with the Company that during the Employment Period and for two years following the termination of Executive's employment with the Company for any reason (the "Noncompetition Period"), Executive will not, directly or indirectly, either for himself or for any other individual, corporation, partnership, joint venture or other entity, participate in (as defined below) any business (including, without limitation, any division, group or franchise of a larger organization) competing with any of the businesses then conducted (or, to the knowledge of Executive, planned to be conducted within two years) by the Company or any of its successors or then subsidiaries within any geographical area in which the Company or its subsidiaries engage or plan within two years to engage in any such businesses. For purposes of this Agreement, the term "participate in" will include, without limitation, having any direct or indirect interest in any corporation, partnership, joint venture or other entity, whether as a sole proprietor, owner, stockholder, partner, joint venturer, creditor or otherwise, or rendering any direct or indirect service or assistance to any individual, corporation, partnership, joint venture and other business entity (whether as a director, officer, manager, supervisor, employee, agent, consultant or otherwise). 2. Nonsolicitation and Noninterference. During the Noncompetition Period, Executive will not directly or indirectly, on behalf of himself or another entity, (i) induce, attempt to induce, or assist others to induce any artist, composer, songwriter, lyricist, musician, author, writer, editor, programmer, technician, cable operator, employee, consultant, customer, supplier, licensee or other person or entity to terminate its, his or her association with the Company or its subsidiaries, or to cease doing business with the Company or its subsidiaries, or do anything to interfere with the relationship between the Company or its subsidiaries, on the one hand, and any artist, composer, songwriter, lyricist, musician, author, writer, editor, programmer, technician, cable operator, employee, consultant or other person or entity doing business and/or under contract with the Company or any of its subsidiaries, or with whom the Company or any of its subsidiaries is then negotiating, or with whom the Company or any of its subsidiaries enters into any contract or agreement during the Noncompetition Period, or (ii) hire, without the written consent of the Company, any person who was an employee of the Company or any of its subsidiaries at any time within twelve (12) months of the termination of the Employment Period. 3. Limitations. (a) Nothing contained in this Section E shall prevent Executive from owning up to a 5% interest in any corporation or entity having one or more classes of its securities listed on a national securities exchange or market, or publicly traded in the over-the-counter market, provided that Executive is not actively involved in any manner whatsoever in the operation or management of such corporation or entity. (b) If under the circumstances existing at the time of enforcement of this Section E, the period, scope or geographic area described in this Section E shall be found or held to be unreasonable, the parties hereto agree that the maximum period, scope or geographic area reasonable under the circumstances shall be substituted for the stated period, scope or geographic area. F. TERMINATION OF EMPLOYMENT (OTHER THAN SUBSEQUENT TO A CHANGE IN CONTROL). 1. Applicability. This Section F shall apply only to termination of the Employment Period prior to the occurrence of a Change in Control (as defined below) during the Employment Period. Termination of the Employment Period following the occurrence of a Change in Control shall be governed by Section H. 2. Events of Termination and Related Payments. (a) Disability. In the event that during the Employment Period Executive should become Disabled, the Company (acting by resolution of the Board) may elect to terminate the Employment Period by written notice to Executive, his guardian or personal representative. Executive, his guardian or personal representative, as the case may be, shall be entitled to receive (i) full compensation pursuant to Section C at his then base salary rate from the date of termination of employment continuing for the lesser of (a) one year following the date of such notice and (b) the remainder of the then effective Employment Period, and (ii) bonus for the calendar year in which Executive's termination of employment occurs as determined in good faith by the Compensation Committee of the Board of Directors in its sole discretion. Notwithstanding the foregoing provisions of this Section F(2)(a), the payments provided herein with respect to any period of Disability shall be reduced by the amount of any benefits payable to Executive, his guardian or personal representative, as the case may be, during such period under any disability or similar plan or program of the Company of any of its subsidiaries in respect of Executive's Disability. (b) Death. In the event of Executive's death during the Employment Period, his personal representative shall be entitled to receive any compensation pursuant to Section C which is accrued and unpaid as of the date of his death. (c) Termination Due to Serious Misconduct. In the event that during the Employment Period Executive should commit Serious Misconduct (as defined below), the Company (acting by resolution of the Board) may elect to terminate the Employment Period by written notice to Executive, and Executive shall be entitled only to any compensation and benefits which are vested but unpaid as of the date of termination of employment. (d) Termination for Reasons Other Than Death. Disability, Serious Misconduct or Voluntary Action by the Executive. In the event that the Employment Period is terminated at the option of the Company for any reason other than for Serious Misconduct, death, disability, or voluntary action by the Executive, the Executive shall be paid a lump sum payment equal to the lesser of (1) current base salary and target bonus for the remainder of the term hereunder, and (2) a sum equal to twice current base salary and target bonus, and the Company shall pay such sum to Executive within thirty (30) business days following such termination. Executive's voluntary resignation resulting from unwarranted demotion and/or material diminution of responsibilities shall be governed by the terms of this provision and shall not be considered a voluntary termination as defined in subparagraph (e) hereunder. In the event of such termination, the Company shall reimburse the Executive for the premium paid by the Executive for the continued coverage for the Executive (and any dependents of the Executive covered by the Company's health care plans as of the date of termination) under the Company's health care plan pursuant to COBRA (or any of the mandatory health care continuation law then in effect), such coverage being substantially similar to that provided the Executive on the date of his termination, but such reimbursement shall be only for a period which is of (1) the remainder of the term hereof, and (2) two years from the date of termination. (e) Voluntary Termination by Executive. In the event that Executive, for reasons other than those set forth in subparagraph (d) hereinabove, voluntarily terminates his employment with the Company prior to the end of the Employment Period, the Company shall pay any earned but unpaid portion of Executive's base salary and incentive compensation through the date of his termination provided that the Executive is in full compliance with the provisions of Sections D and E hereof. 3. Definition of Certain Terms. (a) "Disabled" means such physical or mental condition of Executive as is determined by the Company's Board of Directors in its sole discretion to be expected to continue indefinitely and which renders him incapable of performing any substantial portion of the services contemplated hereby (as confirmed by competent medical evidence). (b) "Serious Misconduct" means embezzlement or misappropriation of corporate funds, other acts of dishonesty or reckless or intentional misconduct which is materially harmful to the business or reputation of the Company or its subsidiaries, the conviction of a felony, refusal to perform or disregard of the duties properly assigned by the Chief Executive Officer of the Company or the Board, or a material breach of any of the provisions of Sections D or E above or of any of the other provisions of this Agreement which violations are not cured within sixty (60) days of written notice to the Executive of the breach. 4. Effect of Breach of Noncompetition of Nondisclosure Provisions. In the event Executive materially breaches or otherwise fails to comply in any material respect with the provisions of Sections D or E above, then, in addition to any other remedies provided herein or at law or in equity, the Company shall not have any further obligation to make any additional payments to Executive pursuant to this Agreement. Termination of such payments pursuant to the preceding sentence shall not relieve Executive's obligations pursuant to Sections D or E above. G. CHANGE IN CONTROL For purposes hereof, a "Change in Control" shall have occurred if: (1) any "person" other than any trustee or other fiduciary holding securities under an employee benefit plan of the Company within the meaning of Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") becomes the "beneficial owner" as defined in Rule 13D-3 thereunder, directly or indirectly, of 20% or more of either the then outstanding shares of the Company's Common Stock (the "Outstanding Company Common Stock") or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Company Voting Securities"); provided, however, that any acquisition by the Company or its subsidiaries, or by Sam Moore, S. Joseph Moore, members of their families, relatives, certain family partnerships, trusts associated with the Moore family and other entities who have as of July 1, 1995 jointly filed a Statement on Schedule 13D under the Exchange Act, or by any reconstituted version of such filing group or any corporation with respect to which, following such acquisition, more than 80% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the Voting Securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Company Voting Securities immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, shall not constitute a Change in Control; (2) during any two-year period, individuals who constitute the Board of Directors of the Company (the "Incumbent Board") as of the beginning of the period cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director during such period whose election or nomination for election by the Company's shareholders was approved by an affirmative vote of at least two-thirds of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director without objection to such nomination) shall be, for the purposes of this subparagraph (b), considered as though person were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company (as such terms are used in Rule 14A-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents; or (3) approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the Common Stock and Company Voting Securities immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation, or a complete liquidation or dissolution of the Company or of the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control for purposes of this Agreement shall not be considered to occur as a result of a transaction which is approved by the Company's Board of Directors in advance of the transaction and prior to the consummation of the transaction if such transaction is specifically excluded by the Board of Directors from the definition of "Change of Control" for purposes of this Agreement and such exclusion is approved by an affirmative vote of at least two-thirds of the directors then comprising the Incumbent Board. Furthermore, anything in this Agreement to the contrary notwithstanding, if Executive's employment with the Company is terminated prior to the date on which a Change in Control occurs, and if it is reasonably demonstrated by Executive that such termination of employment (1) was at the request of a third party who has taken steps reasonably calculated to effect the Change in Control or (2) otherwise arose in connection with or in anticipation of the Change in Control, then for all purposes of this Agreement, a Change in Control shall be considered to have occurred immediately prior to Executive's employment termination date. In the event the Board adopts any plan or takes any action which, if consummated, would result in a Change in Control of the Company, the Company shall take any action determined by the Board to be necessary or appropriate to ensure the prompt payment when due of any amounts which may thereafter become payable hereunder upon termination by the Company of Executive during the Employment Period, including but not limited to the placement of sufficient funds to pay all such amounts in an escrow account with a bank or other fiduciary institution. On the Change in Control Date, to the extent permitted by law, regardless of date or grant, all stock options previously granted shall be come exercisable and all restrictions on restricted stock shall lapse. All previously deferred compensation (including interest or earnings) shall, at Executive's election, be paid to Executive within 10 days of the Change in Control Date. H. TERMINATION FOLLOWING CHANGE IN CONTROL Following a Change in Control of the Company, the provisions of Section H and Section I shall apply exclusively with respect to (i) the termination of Executive's employment during the Employment Period and (ii) amounts payable to Executive upon such termination. If a Change in Control of the Company shall have occurred, Executive shall be entitled to the benefits provided herein upon Executive's subsequent termination of employment during the Employment Period, unless such termination is (i) because of Executive's death, (ii) by the Company because of Executive's Disability or Serious Misconduct or (iii) by Executive other than for Good Reason. For purposes hereof, "Good Reason" shall mean the occurrence or continuation, without consent of Executive, after a Change in Control of the Company of any of the following events within 24 months after the Change in Control Date: (1) the assignment to Executive of any duties materially inconsistent with the position with the Company that Executive held immediately prior to the Change in Control of the Company, or a material adverse change in the status, position or conditions of Executive's employment or the nature of Executive's responsibilities in effect immediately prior to such Change in Control, or any removal of Executive from or any failure to re-elect Executive to any of such positions, except in connection with the termination of his employment by the Company for Serious Misconduct, Disability or death or by Executive other than for Good Reason; (2) a reduction by the Company in Executive's annual base salary as in effect immediately prior to such Change in Control which is not consistent with general compensation reduction for a senior executive officer of the Company; (3) the relocation of Executive's principal office to a location outside a 25 mile radius from Executive's principal office immediately prior to such Change in Control, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control; (4) the failure by the Company to pay to Executive any portion of Executive's salary within seven days of the date such salary is due; (5) the failure by the Company to continue in effect any benefit or compensation plan in which Executive participates immediately prior to the Change in Control which is material to Executive's total compensation, including but not limited to the stock option, employee stock ownership, bonus, insurance, disability and vacation plans which the Company currently has or any substitute or additional plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan or plans) has been made with respect to such plan, or the failure by the Company to continue Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of Executive's participation relative to other participants, as in existence immediately prior to such Change in Control; or (6) the failure of the Company to obtain an agreement from any successor to assume and agree to perform this Agreement, as contemplated herein. Executive's right to terminate his employment for Good Reason pursuant to this section shall not be affected by Executive's incapacity due to physical or mental illness. Executive's continued employment shall not constitute consent to, or a waiver of with respect to, any circumstance constituting Good Reason hereunder. In the event of any dispute between Executive and the Company as to whether any event constituting Good Reason shall have occurred, the burden of proving by clear and convincing evidence that such event does not constitute Good Reason shall rest on the Company. Any termination of Executive's employment by the Company or by Executive pursuant to this Section H shall be communicated by written notice of termination (the "Notice of Termination") to the other party hereto, and shall indicate the specific termination provision in the Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment. For the purposes hereof, "Date of Termination" shall mean (i) if Executive's employment is terminated for Disability, 30 days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such 30 days) or (ii) if Executive's employment is terminated for any other reason other than death, the date specified in the Notice of Termination. I. PAYMENTS UPON TERMINATION FOLLOWING TO CHANGE IN CONTROL Following a Change in Control, Executive shall be entitled to the following benefits upon termination of employment during the 36-month period following the Change in Control Date: 1. Death, Disability, Serious Misconduct or Termination by Executive Other Than for Good Reason. Following a Change in Control and a termination of Executive's employment because of Executive's death or by the Company because of Executive's Disability or Serious Misconduct or by Executive other than for Good Reason, the Company's only remaining obligations under this Agreement shall be to pay any base salary earned through the Date of Termination plus the amount of any compensation previously deferred by Executive, in each case to the extent theretofore unpaid, and Executive's benefits shall be limited to vested benefits provided under any retirement, insurance and other benefit programs of the Company then in effect determined in accordance with the terms thereof. 2. Other. If following a Change in Control the employment shall be terminated by Executive for Good Reason or by the Company other than for death, Disability or Serious Misconduct, Executive shall be entitled to the amounts provided below, such amounts to be paid in cash in a lump sum no later than the tenth business day following the Date of Termination: (a) the Company shall pay to Executive his full base salary, and earned or accrued, but unpaid vacation pay, through the Date of Termination at the rate in effect at such time, plus all other amounts, including but not limited to incentive compensation for a past fiscal year which has not yet been awarded or paid to Executive under incentive plans, programs or arrangements, including any deferred awards (it being understood that with respect to any incentive compensation which has not been awarded, the individual performance component of the award shall be determined on at least the basis that Executive has met all applicable standards) to which Executive is entitled under any compensation or benefit plan of the Company; (b) a lump-sum severance payment (the "Severance Payment") equal to two (2) times the sum of (i) Executive's annual base salary as of the Date of Termination and (ii) any cash bonus received by Executive in the immediately preceding fiscal year; provided, that such amount shall be paid in lieu of, and Executive hereby waives the right to receive, any other amount of severance relating to salary or bonus continuation to be received by Executive upon termination of employment of Executive under any severance plan, policy or arrangement of the Company; and (c) at the election of Executive, the cash-out of any or all of Executive's stock or stock-based awards granted pursuant to both the Thomas Nelson, Inc. 1992 Employee Stock Incentive Plan and the 2003 Stock Incentive Plan at the "Change in Control Price" provisions set for therein. 3. Legal Expenses. In addition to any other amounts payable hereunder, the Company also shall reimburse Executive for all legal fees and expenses reasonably incurred by Executive as a result of any termination of the Employment Period under the circumstances set forth in Section H hereto (including all such fees and expenses, if any, incurred in contesting or disputing any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment of benefit provided hereunder). 4. Continuation of Benefits. Following a Change in Control, for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to Executive at least equal to those which would have been provided to them in accordance with the plan, programs, practices and policies described in Section C(3) of this Agreement if Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company or its subsidiaries applicable generally to other senior executive officers during the 90-day period immediately preceding the Change in Control Date or, if more favorable to Executive, as in effect generally at any time thereafter with respect to other senior executive officers of the Company and its subsidiaries; provided, however, that if Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of Executive for retiree benefits pursuant to such plans, practices, programs and policies, Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of the Employment Period. To the extent not theretofore paid, the Company shall timely pay or provide to Executive any other amounts or benefits required to be paid or provided or which Executive is eligible to receive pursuant to this Agreement under any plan, program, policy or practice or contract or agreement of the Company and its subsidiaries, but excluding solely purposes of this Section I(4) amounts waived by Executive pursuant to Section I(2)(b). 5. Certain Reduction in Payments by the Company. For purposes of this Section, (i) a "Payment" shall mean any payment or distribution in the nature of compensation to or for the benefit of Executive, whether paid or payable pursuant to this Agreement or otherwise; (ii) an "Agreement Payment" shall mean a Payment paid or payable pursuant to this Agreement (disregarding this Section); (iii) "Net After Tax Receipt" shall mean the Present Value (as defined below) of a Payment net of all taxes imposed on Executive with respect thereto under Sections I and 4999 of the Code, determined by applying the highest marginal rate under Section I of the Code which applied to Executive's taxable income for the immediately preceding taxable year (iv) "Present Value" shall mean such value determined in accordance with Section 280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the smallest aggregate amount of Agreement Payments which (a) is less than the sum of all Agreement Payments and (b) results in aggregate Net After Tax Receipts which are equal to or greater than the Net After Tax Receipts which would result if the aggregate Agreement Payments were any other amount less than the sum of all Agreement Payments. Anything in this Agreement to the contrary notwithstanding, in the event KPMG LLP (the "Accounting Firm") shall determine that receipt of all Payments would subject Executive to tax under Section 4999 of the Code, the Accounting Firm shall determine whether some amount of Payments would meet the definition of a Reduced Amount. If the Accounting Firm determined that there is a Reduced Amount, the aggregate Payments shall be reduced to such Reduced Amount. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determined that aggregate Agreement Payments should be reduced to the Reduced Amount, the Company shall promptly give Executive notice to that effect and a copy of the detailed calculation thereof, and Executive may then elect, in his sole discretion, which and how much of the Agreement. Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his election within 10 days of his receipt of notice. If no such election is made by Executive within such 10-day period, the Company may elect which of such Agreement Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Agreement Payments equals the Reduced Amount) and shall notify Executive promptly of such election. All determinations made by the Accounting Firm under this Section shall be binding upon the Company and Executive and shall be made within 60 days of a Date of Termination. As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of Executive such Agreement Payments as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such Agreement Payments as become due to Executive under this Agreement. While it is the intention of the Company and Executive to reduce the amounts payable or distributable to Executive hereunder only if the aggregate Net After Tax Receipts to Executive would thereby be increased as a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefits of Executive pursuant to this Agreement which should not have been so paid or distributed ("Overpayment") or that additional amounts which will have not been paid or distributed by the Company for the benefit of the Executive pursuant to this Agreement could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Accounting Firm, based either upon the assertion of a deficiency by the Internal Revenue Service against the Company or Executive which the Accounting Firm believes has a high probability of success determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of Executive shall be treated for all purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Executive to the Company if an to the extent such deemed loan and payment would not either reduce the amount on which the Executive is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determined that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. 6. Full Settlement. Except as otherwise provided herein, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provision of this Agreement and, except as provided to Executive under any of the provisions of this Agreement and, except as provided in Section I(2)(b) of this Agreement, such amounts shall not be reduced whether or not Executive obtains other employment. J. REMEDIES Executive acknowledges that he will receive privileged information from the Company and that he will have substantial access to the Company's trade secrets, business information and personnel data. In consideration of his employment and the privilege of access to the Company's trade secrets, information, business methods and procedures, and personnel data, Executive acknowledges that the restrictions contained within Sections D and E are reasonable and necessary in order to preserve the Company's legitimate interests and that any violation thereof would result in irreparable injury to the Company for which monetary damages would be an inadequate remedy. Therefore, Executive acknowledges and agrees that in the event of any violations thereof, the Company may seek from any court of competent jurisdiction preliminary and permanent injunctive relief as well as an equitable account of all Executive's profits or benefits arising out of such violation, which rights shall be cumulative and in addition to any other action or remedies to which the Company may be entitled. K. SUCCESSORS (a) This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach hereof and shall entitle Executive to terminate his employment for Good Reason. L. NOTICES All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Michael S. Hyatt, President Thomas Nelson, Inc. Nelson Place at Elm Hill Pike Nashville, Tennesssee 37214-1000 If to the Company: Thomas Nelson, Inc. Nelson Place at Elm Hill Pike Post OFfice Box 141000 Nashville, Tennessee 37214-1000 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. M. MISCELLANEOUS 1. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of the Agreement. 2. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. 3. Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other promotion or right of this Agreement. N. WAIVERABILITY OF PROVISIONS No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and is signed by Executive and an executive officer of the Company. No waiver by either party hereto of the party's compliance with or breach of, any condition or provision herein to be performed by said party shall constitute a simultaneous waiver of any other terms, provisions or conditions herein nor shall such waiver by either party constitute a continuing waiver of said pertinent term, provision or condition subsequent thereto unless such continuation of waiver is agreed to in writing by the parties pursuant to the terms of this paragraph. O. ENTIRE AGREEMENT This Agreement, including attachments, contains the entire agreement between the parties hereto and no agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. P. APPLICABLE LAW The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Tennessee. Any dispute regarding this Agreement or any amendment or addendum hereto shall be resolved through an arbitration hearing held in accordance with the procedures of the American Arbitration Association. Such arbitration hearing shall be held in Davidson County, Tennessee and the arbitrators' decision shall be final, binding and nonappealable by the parties hereto. The cost of any such litigation to enforce all or part of this Agreement, including, without limitation, court costs and attorney's fees, shall be paid by the party found to be in default hereunder or who is otherwise found to be acting or to have acted contrary to the terms hereof. IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the day and year first written above. EXECUTIVE: THOMAS NELSON, INC.: /s/ Michael S. Hyatt /s/ Sam Moore - ------------------------- ------------------------- Michael S. Hyatt Name President Chairman and CEO ------------------------- Title May 25, 2004 May 26, 2004 - ------------------------- ------------------------- Date Date EX-13 4 ex13032004k.txt EXHIBIT 13 TO FORM 10-K FOR PERIOD ENDED MARCH 31, 2004 EXHIBIT 13 Selected Financial Data (in thousands, except per share data)
YEARS ENDED March 31, 2004 2003 2002 2001 2000 - ----------------------------------------------------------------------------- OPERATING RESULTS (a): Net revenues (b) $222,619 $217,217 $215,552 $214,147 $182,001 Operating income 27,140 18,926 16,563 17,785 18,560 Income from continuing operations 16,295 10,184 7,821 8,977 10,657 Income (loss) from discontinued operations (c) (130) -- (16,862) (11,811) (716) Cumulative effect of a change in accounting principle (d) -- -- (40,433) -- -- -------- -------- -------- -------- -------- Net income (loss) $ 16,165 $ 10,184 $(49,474) $( 2,834) $ 9,941 ======== ======== ======== ======== ======== Cash flow: Net cash provided by continuing operating activities $ 27,752 $ 34,439 $ 23,199 $ 348 $ 8,781 Net cash provided by (used in) discontinued operating activities 21,237 1,660 (3,092) 57 (12,692) Net cash provided by (used in) investing activities (6,866) (4,569) 34,705 (666) (15,299) Net cash provided by (used in) financing activities (21,050) (30,358) (56,411) 1,574 19,757 EBITDA(e): Income from continuing operations $ 16,295 $ 10,184 $ 7,821 $ 8,977 $ 10,657 Interest expense 882 3,026 4,295 3,738 3,549 Provision for income taxes 9,756 5,878 4,495 5,160 4,407 Depreciation and amortization 2,287 2,061 2,649 2,841 2,475 -------- -------- -------- -------- -------- EBITDA FROM CONTINUING OPERATIONS 29,220 21,149 19,260 20,716 21,088 -------- ------- -------- -------- -------- Changes in working capital and other (1,468) 13,290 3,939 (20,368) (12,307) -------- -------- -------- -------- -------- Net cash provided by continuing operatiing activities $ 27,752 $ 34,439 $ 23,199 $ 348 $ 8,781 ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------- FINANCIAL POSITION: Total assets $179,719 $163,055 $185,389 $287,238 $286,595 Working capital 77,528 60,994 84,262 140,466 145,897 Total debt 5,330 25,952 56,374 111,800 107,941 Shareholders' equity 102,982 87,824 77,576 127,437 131,732 Long-term debt to total capitalization 4.9% 22.8% 42.1% 46.7% 45.0% - ----------------------------------------------------------------------------- DILUTED PER SHARE DATA (a): Income per share from continuing operations $ 1.09 $ 0.70 $ 0.54 $ 0.62 $ 0.75 Income (loss) per share from discontinued operations (c) (0.01) -- (1.16) (0.82) (0.05) Cumulative effect of a change in accounting principle (d) -- -- (2.79) -- -- -------- -------- -------- -------- -------- Net income (loss) per share $ 1.08 $ 0.70 $ (3.41) $ (0.20) $ 0.70 ======== ======== ======== ======== ======== Dividends declared per share $ 0.12 $ -- $ 0.04 $ 0.16 $ 0.16 Book value per share 7.12 6.11 5.40 8.88 9.26 Weighted average number of shares outstanding (in thousands) (f) 14,999 14,596 14,488 14,535 14,244
- ----------------------------------------------------------------------------- (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, audios, videos and CD-ROM products emphasizing Christian, inspirational and family values 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. 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) ------------------------ ------------------------- 2004 2003 2002 2003 to 2004 2002 to 2003 ------ ------ ------ ------------ ------------ Net Revenues: Publishing 86.8% 86.4% 87.3% 3.0% (0.4)% Conferences 13.2 13.6 12.7 (0.5) 8.6 ------ ------ ------ ------ ------ Total net revenues 100.0 100.0 100.0 2.5 0.8 Costs and expenses: Cost of goods sold 58.2 59.6 60.2 0.1 (0.2) Selling, general and administrative 28.6 30.8 30.9 (4.8) 0.3 Depreciation and amortization 1.0 0.9 1.2 11.0 (22.2) ------ ------ ------ ------ ------ Total costs and expenses 87.8 91.3 92.3 (1.4) (0.4) ------ ------ ------ ------ ------ Operating income 12.2 8.7 7.7 43.4 14.3 ------ ------ ------ ------ ------ Interest expense 0.4 1.4 2.0 (70.9) (29.5) ------ ------ ------ ------ ------ Income from continuing operations 7.3 4.7 3.6 60.0 30.2 ------ ------ ------ ------ ------ Loss from discontinued operations - - (7.8) ------ ------ ------ Cumulative effect of change in accounting principle - - (18.8) ------ ------ ------ Net income (loss) 7.3 4.7 (23.0) ====== ====== ======
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. 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 operating 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, the realization of deferred tax assets, our access to capital and the outcome of any taxing authority audits. Future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its business strategy during the 2005 fiscal year. The Company disclaims any intent or obligation to update forward-looking statements. Fiscal 2004 Compared to Fiscal 2003 Net revenues in fiscal 2004 increased $5.4 million, or 2.5% over fiscal 2003. Net revenues from publishing products increased $5.6 million, or 3.0%, primarily due to a strong performance by the publishing segment, including additional revenues generated by the World Publishing acquisition. Net revenues from conferences decreased $0.2 million, or 0.5%, primarily due to lower attendance levels in the early stages of fiscal 2004. We believe the lower attendance levels were primarily due to the war in Iraq and the smaller venues of the early conferences, compared to fiscal 2003. In fiscal 2004, the Company hosted 29 conferences compared to 28 in fiscal 2003. The Company expects to host a comparable number of conferences in fiscal 2005. Price increases did not have a material effect on revenues. The Company's cost of goods sold increased $0.2 million, or 0.1% from fiscal 2003 and, as a percentage of net revenues, decreased to 58.2% from 59.6% in the prior fiscal year. Improved gross margins from publishing products were partially offset by lower gross margins in conferences. The improvement in margins for publishing products was primarily due to strong performing publishing products and improved recovered costs from excess and obsolete inventory and royalty advances. The decline in margins for conferences was primarily related to the previously mentioned lower paid attendance levels at the events. Selling, general and administrative expenses, excluding depreciation and amortization, decreased by $3.2 million, or 4.8%, from fiscal 2003. These expenses, expressed as a percentage of net revenues, decreased to 28.6% from 30.8%. The reduction in selling, general and administrative expenses is primarily related to a planned reduction in advertising expenditures for publishing products. While we do not expect continued significant improvements in our overhead structure going forward, the Company is taking steps intended to control selling, general and administrative expenses in the same relationship to net revenues during the next fiscal year. Depreciation and amortization for fiscal 2004 increased $0.2 million from fiscal 2003, primarily due to a warehouse expansion that was added in December of 2002 and office renovations that were completed during fiscal 2004. Interest expense for fiscal 2004 decreased $2.1 million from fiscal 2003 due to lower debt levels. The provision for income taxes has been increased from 36.5% to 37.5% for fiscal 2004 due to increased business activity in states with higher income tax rates without the benefit of state net operating loss carry forwards that existed in prior periods, and accruals for other tax items. 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 increased its market share for Christian publishing product during 2003, 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 fiscal 2003, 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. Price increases did not have a material effecton 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 was 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. 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 remained 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). LIQUIDITY AND CAPITAL RESOURCES At March 31, 2004, the Company had $22.8 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, 2004, the Company had working capital of $77.5 million. Under its bank credit facilities, at March 31, 2004, the Company had no borrowings outstanding, and $65 million available for borrowing, compared to $17 million in borrowings outstanding and $48 million available for borrowing at March 31, 2003. Net cash provided by operating activities was $49.0 million, $36.1 million and $20.1 million in fiscal 2004, 2003 and 2002, respectively. The cash generated by operations during fiscal 2004 was principally attributable to income from continuing operations and an $18.7 million tax refund related to discontinued operations. The cash generated by operations during fiscal 2003 was principally attributable to net income and 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. During fiscal 2004, capital expenditures totaled approximately $3.7 million. The capital expenditures were primarily for office renovations and computer software and equipment at the corporate headquarters. In fiscal 2005, the Company anticipates capital expenditures of approximately $4 million, consisting primarily of 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 tax liability. If 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. 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 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, 2004, the Company had no balance outstanding under the Credit Facility and $65 million available for borrowing. At March 31, 2004, the Company was in compliance with all covenants of the Credit Facility. The Company has outstanding $5.3 million in secured Senior Notes, which bear interest at rates from 6.68% to 8.31% and mature on various 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, 2004, the Company was in compliance with all covenants of the Senior Notes. Management believes cash generated by operations, cash in banks and borrowings available under the Credit Facility will be sufficient to fund anticipated working capital and capital expenditure requirements for existing operations in fiscal 2005. The Company's current cash commitments include current maturities of debt and operating lease obligations. 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). The Company also does not have any undisclosed material related party transactions or relationships with management, officers or directors.
Payments Due by Fiscal Year Contractual ----------------------------------------------------- commitments 2009 and (in 000's) 2005 2006 2007 2008 thereafter Total - --------------------- ------- ------- ------- ------- ---------- ------- Long-term debt $ 3,022 $ 2,308 $ - $ - $ - $ 5,330 Inventory purchases 8,300 5,000 5,000 5,000 3,333 26,633 Operating leases 1,614 1,089 478 424 886 4,491 Royalty advances 5,198 2,834 768 363 27 9,190 ------- ------- ------- ------- ------- ------- Total obligations $18,134 $11,231 $ 6,246 $5,787 $ 4,246 $45,644 ======= ======= ======= ======= ======= =======
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. The Company has historically declared and paid a dividend of four cents per share every quarter through the first quarter of fiscal 2002. 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. On August 22, 2003, the Board of Directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend was payable October 20, 2003, to shareholders of record on October 6, 2003. On November 20, 2003, the Company's Board of Directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend was payable January 19, 2004, to shareholders of record on January 5, 2004. On February 19, 2004, the Board of Directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend was payable April 19, 2004, to shareholders of record on April 5, 2004. On February 3, 2004, the Company received a letter from one of its former customers that has filed for Chapter 11 bankruptcy. It indicated that the Company may have received preference transfers, in the form of cash and returned books, totaling approximately $1.7 million. We are evaluating the notice and intend to vigorously defend the matter. While resolution of this matter is not expected to materially affect the Company's liquidity, if all or a portion of these amounts were to be repaid, it would reduce the Company's net income in the amount of the repayment, net of tax. ACCOUNTING PRONOUNCEMENTS In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equities. SFAS No. 150 requires issuers to classify as liabilities (or assets, in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, SFAS No. 150 is effective for financial instruments entered or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement had no impact on the Company's consolidated financial statements. In January 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities," which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The adoption of this Interpretation had no impact on the Company's consolidated financial statements. 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. However, there were no borrowings outstanding under the Credit Facility at March 31, 2004. Interest income on invested cash is not material. 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 disclosures 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 or when title passes. In accordance with Securities and Exchange Commission's Staff Accounting Bulletin No. 104 regarding revenue recognition, we recognize revenue only when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable; and collectibility is reasonably assured. An allowance for sales returns is recorded where return privileges exist. The returns allowance is determined by using a 12-month rolling average return rate, multiplied by gross sales occurring over the previous four-month period by market sales channel. Historical experience reflects that product is generally returned from and credited to customers' accounts within the first 120 days of the original sale. The full amount of the returns allowance, net of inventory and royalty costs (based on current gross margin rates) is shown as a reduction of accounts receivable in the accompanying condensed consolidated financial statements. Returns of publishing products from customers are accepted in accordance with standard industry practice. Generally, products that are designated as out-of-print are not returnable 90 days after notice of out-of-print status is given to the customer. Also, certain high discount sales are not returnable. Revenue from conferences is recognized as the conferences take place. Cash received in advance of conferences is included in the accompanying consolidated financial statements as deferred revenue. Royalty income from licensing the Company's publishing rights is recorded as revenue when earned under the terms of the applicable license, net of amounts due to authors. Billed freight consists of shipping charges billed to customers and is recorded as revenue upon shipment of product. Allowance for Doubtful Accounts: The Company records an allowance for bad debts as a reduction to accounts receivable in the accompanying consolidated financial statements. The valuation allowance has a specific component related to accounts with known collection risks and a component which is calculated using a 5-year rolling bad debt history applied as a percentage of the accounts receivable balance, less the specific component of the allowance. In fiscal 2003, the Company changed from a 10-year rolling bad debt history to a 5-year history to compute the allowance in order to better reflect the current economic environment. This change did not have a material impact on the allowance balance. Our credit department identifies specific allowances for each customer who is deemed to be a collection risk, may have filed for bankruptcy protection or may have disputed amounts with the Company. Inventories: Inventories are stated at the lower of cost or market value using the first-in, first-out (FIFO) valuation method. The FIFO method of accounting for inventory was selected to value our inventory at the lower of market value or current cost because the Company continuously introduces new products, eliminates existing products and redesigns products. Therefore, inflation does not have a material effect on the valuation of inventory. Costs of producing publishing products are included in inventory and charged to operations when product is sold or otherwise disposed. These costs include paper, printing, binding, outside editorial and design, typesetting, artwork, international freight and duty costs, when applicable. The Company's 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 (non-current) 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 75% to 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. 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. In accordance with SFAS No. 142, goodwill is 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 are evaluated using discounted expected cash flows and current market multiples. The Company's annual inparment testing in fiscal 2004 and 2003 indicated no goodwill impairment was evident. THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Years Ended March 31, -------------------------------- 2004 2003 2002 -------- -------- -------- NET REVENUES $222,619 $217,217 $215,552 COSTS AND EXPENSES: Cost of goods sold 129,532 129,378 129,691 Selling, general and administrative 63,660 66,852 66,649 Depreciation and amortization 2,287 2,061 2,649 -------- -------- -------- Total costs and expenses 195,479 198,291 198,989 -------- -------- -------- OPERATING INCOME 27,140 18,926 16,563 Other income (expense) (241) 205 48 Interest expense 882 3,026 4,295 -------- -------- -------- Income from continuing operations before income taxes 26,017 16,105 12,316 Provision for income taxes 9,756 5,878 4,495 Minority interest (34) 43 - -------- -------- -------- Income from continuing operations 16,295 10,184 7,821 Discontinued operations: Operating loss, net of applicable tax benefit of $395 - - (766) Loss on disposal, net of applicable tax benefit of $78 and $8,359 respectively (130) - (16,096) -------- -------- -------- Total loss from discontinued operations (130) - (16,862) Income (loss) before cumulative effect of a change in accounting principle 16,165 10,184 ( 9,041) Cumulative effect of change in accounting principle - - ( 40,433) -------- -------- -------- Net income (loss) $ 16,165 $ 10,184 ($ 49,474) ======== ======== ======== Weighted average number of shares outstanding: Basic 14,404 14,368 14,348 ======== ======== ======== Diluted 14,999 14,596 14,488 ======== ======== ======== NET INCOME (LOSS) PER SHARE: Basic: Income from continuing operations $ 1.13 0.71 $ 0.55 Loss from discontinued operations (0.01) - (1.18) Cumulative effect of a change in accounting principle - - (2.82) -------- -------- -------- Net income (loss) per share $ 1.12 0.71 $ (3.45) ======== ======== ======== Diluted: Income from continuing operations $ 1.09 0.70 $ 0.54 Loss from discontinued operations (0.01) - (1.16) Cumulative effect of a change in accounting principle - - (2.79) -------- -------- -------- Net income (loss) per share $ 1.08 0.70 $ (3.41) ======== ======== ======== See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, -------------------- 2004 2003 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 22,780 1,707 Accounts receivable, less allowances of $7,951 and $7,311, respectively 56,275 56,806 Inventories 30,341 33,637 Prepaid expenses 14,018 13,521 Assets held for sale - 1,785 Deferred income tax benefits 4,923 5,085 -------- -------- Total current assets 128,337 112,541 Property, plant and equipment, net 13,039 11,630 Other assets 6,425 7,358 Deferred charges 1,754 1,695 Intangible assets 860 527 Goodwill 29,304 29,304 -------- -------- TOTAL ASSETS $179,719 $163,055 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 19,753 $ 20,218 Accrued expenses 13,278 13,835 Deferred revenue 11,758 11,493 Dividends payable 579 - Income taxes currently payable 2,419 2,379 Current portion of long-term debt 3,022 3,622 -------- -------- Total current liabilities 50,809 51,547 Long-term debt, less current portion 2,308 22,330 Long-term taxes payable 21,290 - Deferred tax liabilities 1,021 721 Other liabilities 1,300 590 Minority interest 9 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 and 13,502,855 and 13,350,431 shares, respectively 13,503 13,350 Class B Common Stock, $1.00 par value, authorized 5,000,000 shares; issued 963,195 and 1,024,795 shares, respectively 963 1,025 Additional paid-in capital 44,697 44,064 Retained earnings 43,819 29,385 -------- -------- Total shareholders' equity 102,982 87,824 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $179,719 $163,055 ======== ======== 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, 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 ======== ======== ========= ======== ======== Net and comprehensive income 16,165 16,165 Class B stock converted to common 62 (62) - Common Stock issued: Option plans -- 90,823 common shares 91 633 724 Dividends declared - $0.12 per share (1,731) (1,731) I -------- -------- --------- -------- -------- Balance at March 31, 2004 $13,503 $ 963 $44,697 $43,819 $102,982 ======== ======== ========= ======== ======== See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years ended March 31, ------------------------------------ 2004 2003 2002 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $16,295 $10,184 $ 7,821 Adjustments to reconcile income to net cash provided by continuing operations: Depreciation and amortization 2,287 2,061 2,649 Amortization of deferred charges 210 378 376 Deferred income taxes 462 2,810 4,470 Loss (gain) on sale of fixed assets and assets held for sale 110 36 (41) Minority interest (34) 43 - Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net (135) 4,794 (3,751) Inventories 7,447 5,558 12,213 Prepaid expenses (463) 4,050 (329) Accounts payable and accrued expenses (1,122) 2,590 1,304 Deferred revenue 265 271 166 Income taxes currently payable 40 1,879 (504) Change in other assets and liabilities 2,390 (215) (1,175) ---------- ---------- ---------- Net cash provided by continuing operations 27,752 34,439 23,199 ---------- ---------- ---------- Discontinued operations: Loss from discontinued operations (130) - (766) Loss on disposal - - (16,096) Federal income tax payable 21,290 - - Changes in discontinued net assets 77 1,660 13,770 ---------- ---------- ---------- Net cash provided by (used in) discontinued operations 21,237 1,660 (3,092) ---------- ---------- ---------- Net cash provided by operating activities 48,989 36,099 20,107 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,666) (4,596) (1,139) Net proceeds from sales of property, plant and equipment and assets held for sale 1,734 27 37,844 Purchase of net assets of acquired companies - net of cash received (4,559) - - Changes in other assets and deferred charges - - (2,000) Acquisition of publishing rights (375) - - ---------- ---------- ---------- Net cash provided by (used in) investing activities (6,866) (4,569) 34,705 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments under revolving credit facility (17,000) (27,100) (51,550) Payments on long-term debt (3,622) (3,322) (3,876) Dividends paid (1,152) - (1,148) Proceeds from issuance of Common Stock 724 64 163 ---------- ---------- ---------- Net cash used in financing activities (21,050) (30,358) (56,411) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 21,073 1,172 (1,599) Cash and cash equivalents at beginning of year 1,707 535 2,134 ---------- ---------- ---------- Cash and cash equivalents at end of year $22,780 $ 1,707 $ 535 ========== ========== ========== Supplemental disclosures of noncash investing and financing activities: Dividends accrued and unpaid $ 579 $ - $ - 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 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, audios, videos and CD-ROM products emphasizing Christian, inspirational and family values 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. 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 0.1% of the outstanding equity shares of LEM at March 31, 2004. 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. 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 conferences 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 or when title passes. In accordance with Securities and Exchange Commission's Staff Accounting Bulletin No. 104 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 2004 and 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 balance sheets. 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 and sales to certain market channels are not returnable. Revenue from seminars is recognized as the seminars take place. Cash received in advance of seminars is included in the accompanying consolidated balance sheets 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 balance sheets. 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 inventor in the accompanying consolidated balance sheets. 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 the reporting units' net book carrying values to their 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 were evaluated using discounted expected cash flows and current market multiples. 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. The Company's annual impairment testing is fiscal 2004 and 2003 indicated no goodwill impairment was evident. 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 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. 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 (non-current) assets in the accompanying consolidated balance sheets, 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 75% to 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 the amortization expense is accelerated to match the royalty earnings. All abandoned projects and advances that management does not expect to fully recover are charged to operations when identified. For authors with multiple book and 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, which approximates the effective interest method, and 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 balance sheets and are amortized on a straight-line basis for a period not to exceed five years (as determined by management). OTHER ASSETS: Other assets include 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.
2004 2003 2002 -------- -------- -------- Net income (loss) (in thousands): As reported $16,165 $10,184 ($49,474) ======== ======== ======== Less: additional stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 1,781 1,346 365 ======== ======== ======== Pro forma $14,384 $ 8,838 ($49,839) ======== ======== ======== Net income (loss) per share: Basic -- As reported $ 1.12 $ 0.71 $ (3.45) ======== ======== ======== Pro forma $ 1.00 $ 0.62 $ (3.47) ======== ======== ======== Diluted -- As reported $ 1.08 $ 0.70 $ (3.41) ======== ======== ======== Pro forma $ 0.96 $ 0.61 $ (3.44) ======== ======== ========
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:
2004 2003 2002 -------- -------- -------- Expected future dividend payment $ 0.16 $ - $ - Expected stock price volatility 45.2% 39.9% 35.4% Risk free interest rate 3.3% 5.0% 5.4% 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. COMPREHENSIVE INCOME (LOSS): Comprehensive income (loss) generally includes al 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. 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. The following table presents the calculations of earnings per share (in thousands, except per share data):
March 31, March 31, March 31, 2004 2003 2002 ----------- ----------- ----------- BASIC EARNINGS PER SHARE: - ------------------------ Weighted average shares outstanding 14,404 14,368 14,348 =========== =========== =========== Income from continuing operations $16,295 $10,184 $ 7,821 Loss from discontinued operations (130) - (16,862) Cumulate effect of accounting change - - (40,433) ----------- ----------- ----------- Net income (loss) $16,165 $10,184 $(49,474) =========== =========== =========== Income per share from continuing operations $ 1.13 $ 0.71 $ 0.55 Loss per share from discontinued operations (0.01) - (1.18) Cumulative effect of accounting change - - (2.82) ----------- ----------- ----------- Net income (loss) per share $ 1.12 $ 0.71 $ (3.45) =========== =========== =========== DILUTED EARNINGS PER SHARE: - -------------------------- Basic weighted average shares outstanding 14,404 14,368 14,348 Dilutive stock options - based on treasury stock method using the average market price 595 228 140 ----------- ----------- ----------- Total shares 14,999 14,596 14,488 Income from continuing operations $16,295 $10,184 $ 7,821 Loss from discontinued operations (130) - (16,862) Cumulative effect of accounting change - - (40,433) ----------- ----------- ----------- Net income (loss) $16,165 $10,184 $(49,474) =========== =========== =========== Income per share from continuing operations $ 1.09 $ 0.70 $ 0.54 Loss per share from discontinued operations (0.01) - (1.16) Cumulative effect of accounting change - - (2.79) ----------- ----------- ----------- Net income per share $ 1.08 $ 0.70 $ (3.41) =========== =========== ===========
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 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 adoption of SFAS No. 150 had no impact on the Company's consolidated financial statements. In January 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities," which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolication of Variable Interest Entities," which was issued in January 2003. The adoption of this Interpretation had no impact on the Company's consolidated financial statements. RECLASSIFICATIONS: Certain reclassifications of prior period amounts have been made to conform to the current year's presentation. NOTE B - ACQUISITIONS On September 19, 2003, the Company purchased substantially all of the assets of World Bible Publishers ("World") from RiversideWorld, Inc. for approximately $5.3 million. As of December 31, 2003, the Company had paid cash in the amount of $4.6 million and issued credit against accounts receivable from RiversideWorld in the amount of $0.7 million. World primarily publishes Bibles and Christian books. The purchase price has been preliminarily allocated to the net assets acquired, based on their estimated fair values (inventory of $4.2 million and development cost for publication of Bibles of $1.1 million, which will be amortized over a five-year period). This acquisition was accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of operations do not include any revenues or expenses related to this acquisition prior to the closing date. This acquisition did not have a material impact on the consolidated financial statements. NOTE C - 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 T). 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 net revenues of $45.7 million in fiscal year 2002. Interest expense allocations to the gift discontinued operations were based on percentage of net assets employed and totaled $1.4 million for fiscal year ended 2002. 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 2004 and 2003, the Company recorded a loss on disposal of $249,000 and $87,000, respectively, 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 T). 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. Through the date of sale, Ceres generated net revenues of $2.5 million during fiscal year 2002. Interest expense allocations to Ceres totaled $0.4 million for fiscal year 2002. During fiscal 2004 and 2003, the Company recorded income on disposal of $41,000 and $33,000, respectively, 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. 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 D - INVENTORIES Inventories consisted of the following at March 31 (in thousands):
2004 2003 -------- -------- Finished goods $28,000 $31,298 Work in process and raw materials 2,341 2,339 -------- -------- $30,341 $33,637 ======== ========
NOTE E - PREPAID EXPENSES Prepaid expenses consisted of the following at March 31 (in thousands):
2004 2003 -------- -------- Royalties $ 9,155 $ 8,394 Prepaid conference expenses 2,702 2,823 Prepaid production costs 1,257 1,198 Other 904 1,106 -------- -------- $14,018 $13,521 ======== ========
NOTE F - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at March 31 (in thousands):
2004 2003 -------- -------- Land $ 291 $ 291 Buildings 12,172 11,382 Machinery and equipment 12,036 11,775 Furniture and fixtures 3,873 4,341 Other 2,517 1,330 -------- -------- 30,889 29,119 Less accumulated depreciation and amortization ( 17,850) ( 17,489) -------- -------- $13,039 $11,630 ======== ========
Depreciation expense was $2.3 million, $2.1 million and $2.6 million for fiscal years 2004, 2003 and 2002, respectively. NOTE G - DEFERRED CHARGES Deferred charges consisted of the following at March 31 (in thousands):
2004 2003 -------- -------- Deferred publication costs $1,492 $1,224 Deferred finiancing charges 262 471 -------- -------- $1,754 $1,695 ======== ========
Amortization for deferred charges was $0.2, $0.4 and $0.4 million for fiscal 2004, 2003 and 2002, respectively. NOTE H - OTHER ASSETS Other assets consisted of the following at March 31 (in thousands):
2004 2003 -------- -------- Prepaid royalties $2,302 $2,858 Notes receivable 2,000 2,258 Cash surrender value of life insurance policies 1,907 1,821 Other 216 421 -------- -------- $6,425 $7,358 ======== ========
NOTE I - GOODWILL AND INTANGIBLE ASSETS
Weighted Gross Average Net Carrying Amortization Accumulated Carrying Amount Period Amortization Amount -------- ------------ ------------ --------- Goodwill $29,304 ========= Intangible assets - ----------------- Amortizable intangible assets: Publishing rights and copyrights 2,944 5 2,584 360 Non-amortizable intangible assets: Publishing rights 500 n/a - 500 -------- ------------ --------- Total intangible assets $3,444 $2,584 $ 860 ======== ============ =========
Amortization expense for intangible assets was $88,000, $31,000 and $25,000 for fiscal years 2004, 2003 and 2002, respectively. Estimated amortization expense for the next five years is $75,000 in 2005, 2006, 2007, 2008 and 2009, respectively. NOTE J - ACCRUED EXPENSES Accrued expenses consisted of the following at March 31 (in thousands):
2004 2003 -------- -------- Accrued royalties $ 4,408 $ 6,374 Accrued compensation 5,530 4,001 Accrued commissions 360 352 Accrued group insurance 692 687 Accrued interest 95 311 Accrued sales and property tax 274 365 Net liability of discontinued operations 158 128 Accrued conference expenses 711 633 Other 1,050 984 -------- -------- $13,278 13,835 ======== ========
Cash payments for interest were $1.1 million in 2004, $3.1 million in 2003, and $6.6 million in 2002. NOTE K - LONG-TERM DEBT Long-term debt consisted of the following at March 31 (in thousands):
2004 2003 -------- -------- Credit facility $ - $17,000 Senior notes 5,330 8,352 Industrial revenue bonds - 600 -------- -------- 5,330 25,952 Less current portion ( 3,022) ( 3,622) ------- ------- $ 2,308 $22,330 ======= =======
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, 2004. The Company has agreed to maintain certain financial ratios and tangible net worth, as well as to limit the payment of cash dividends under the Credit Facility. The Credit Facility has a term of three years and matures on June 28, 2005. At March 31, 2004, the Company had no outstanding balance under the Credit Facility and $65 million available for borrowing. At March 31, 2004, the Company was in compliance with all covenants of the Credit Facility. The Company has outstanding $5.3 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, 2004, the Company was in compliance with all covenants of the Senior Notes. Maturities of long-term debt for the years ending March 31 are as follows (in thousands):
2005 $3,022 2006 2,308 ------- $5,330 =======
NOTE L - LEASES Total rental expense for operating leases associated with continuing operations, including short-term leases of less than a year, amounted to approximately $2.0 million in 2004, $2.7 million in 2003 and $3.2 million in 2002. 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):
2005 $1,614 2006 1,089 2007 478 2008 424 2009 and thereafter 886 ------- Total minimum lease payments $4,491 =======
Remaining Outstanding Options Weighted Weighted Shares ------------------- Average Average Reserved Common Class B Exercise/Grant Fair For Grant Stock Stock Price Value ---------- --------- --------- -------------- ------- 1992 Plan - --------- April 1, 2001 934,991 692,000 420,000 $11.16 ========== ========= ========= Options canceled 414,000 (324,000) (90,000) 10.86 Options exercised - (22,332) - Options granted (573,500)* 573,500 - 7.10 $4.05 ---------- --------- --------- March 31, 2002 775,491 941,500 330,000 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 654,491 1,378,834 5,000 10.09 ========== ========= ========= Options canceled 74,868 (74,868) - 10.69 Options exercised - (91,823)*** - 8.20 Options granted (340,000) 340,000 - 11.98 $6.74 Termination of Plan (389,359) - - - ---------- --------- --------- March 31, 2004 - 1,552,143 5,000 8.87 ======================================================== * Includes 220,000 options exercisable as either common or Class B common stock. ** Includes 6,684 options exercisable as either common or Class B Common Stock. *** 1,000 shares returned to Company at market price in lieu of cash to exercise certain options. The 2003 Stock Incentive Plan ("the Plan"), which was approved at the 2003 Annual Meeting of Shareholders, has 1,000,000 authorized shares of stock. Any number of shares of Common Stock or Class B Common Stock may be awarded under the Plan so long as the total number of shares of stock awarded does not exceed 1,000,000 shares, but no more than 200,000 shares may be issued as Restricted Stock and no more than 500,000 shares may be issued upon exercise of options qualified under Section 422 of the Code (Incentive Stock Options).
Remaining Outstanding Options Weighted Weighted Shares ------------------- Average Average Reserved Common Class B Exercise/Grant Fair For Grant Stock Stock Price Value ---------- --------- --------- -------------- ------- 2003 Plan - --------- Plan implemented 1,000,000 - - - - Options granted (300,000) - 300,000 12.33 $5.55 ---------- --------- --------- March 31, 2004 700,000 - 300,000 12.33 ========================================================= Consolidated Plans 700,000 1,552,143 305,000 10.86 =========================================================
At March 31, 2004, there were exercisable options outstanding to purchase 479,271 shares of Common Stock and 80,563 shares of Class B Common Stock with a weighted average exercise price of $10.00. As of 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. At March 31, 2004, the range of exercise prices and weighted average remaining contractual life of outstanding options was $6.95 to $18.38 and 6.8 years, respectively. 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 2004, 2003 and 2002, compensation expense in relation to the Deferred Compensation Plan was recorded in the amounts of approximately $0.5 million, $0.1 million and $0.3 million, respectively. NOTE N - 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, $1.0 million and $0.7 million during fiscal 2004, 2003 and 2002, 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 2004 and 2003, LEM matched 20% of all employee contributions, up to 15% of eligible compensation. The Company's matching contributions under this plan totaled $16,000, $17,000 and $24,000 during fiscal 2004, 2003 and 2002, respectively. NOTE O - 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. The Company has historically declared and paid a dividend of four cents per share every quarter through the first quarter of fiscal 2002. 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. On August 22, 2003, the Board of Directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend was payable October 20, 2003, to shareholders of record on October 6, 2003. On November 20, 2003, the Company's Board of Directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend was payable January 19, 2004, to shareholders of record on January 5, 2004. On February 19, 2004, the Board of Directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend was payable April 19, 2004, to shareholders of record on April 5, 2004. NOTE P - INCOME TAXES The income tax provision (benefit) is comprised of the following for the fiscal years ended March 31, (in thousands):
2004 2003 2002 -------- -------- -------- Current: U.S. federal $8,300 $2,900 ($7,800) State 916 168 ( 929) -------- -------- -------- Total current 9,216 3,068 ( 8,729) Deferred 462 2,810 4,470 -------- -------- -------- Total tax provision (benefit) $9,678 $5,878 ($4,259) ======== ======== ======== Provision for income taxes from continuing operations $9,756 $5,878 $4,495 Provision (benefit) for income taxes from discontinued operations (78) - ( 8,754) -------- -------- -------- Total tax provision (benefit) $9,678 $5,878 ( 4,259) ======== ======== ========
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 cumulative state tax losses in recent years and contribution carryforwards for which utilization is uncertain due to limited carryforward periods. The valuation allowance decreased $554,000 in fiscal 2004 due to the utilizatin of charitable contribution carryforwards. The net deferred tax asset is comprised of the following at March 31 (in thousands):
2004 2003 -------- -------- Deferred tax assets: Contributions $ 94 $1,700 Inventory obsolescence allowances 840 985 Bad debt and returns allowances 2,536 2,450 Inventory-unicap tax adjustment 956 793 Advances and prepaid expenses 140 68 Accrued liabilities 357 260 Deferred charges 617 - Valuation allowance (617) (1,171) -------- -------- 4,923 5,085 Deferred tax liabilities: Accelerated depreciation and amortization (1,021) (721) -------- -------- Net deferred taxes $3,902 $4,364 ======== ========
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:
2004 2003 2002 -------- -------- -------- U.S. federal statutory tax rate provision 35.0% 35.0% 34.0% State taxes on income, net of federal tax effect 2.5% 1.5% 2.5% -------- -------- -------- Effective tax rate 37.5% 36.5% 36.5% ======== ======== ========
Cash payments (received) for income taxes were $(11.7) million, $1.8 million and $2.3 million in 2004, 2003 and 2002, respectively. Long-term taxes payable at March 31, 2004 includes a liability which resulted from an income tax refund of $18.7 million received in April 2003. This tax refund was related to the disposal of the Company's C.R. Gibson gift division and was used to pay down existing debt. Further, the Company has reduced its current year income tax payments by approximately $2.2 million related to additional tax credits generated by the tax loss realized on the disposal of C.R. Gibson. Until such time that the Company can conclude that the position taken on its income tax returns will ultimately be sustained by the taxing authorities, the refund and the tax credits will be recorded as a tax liability. If the Company's position is sustained, the Company will recognize the refund and the tax credits as income from discontinued operations. NOTE Q - QUARTERLY RESULTS (UNAUDITED) Summarized results from continuing operations for each quarter in the fiscal years ended March 31, 2004 and 2003 are as follows (dollars in thousands, except basic per share data):
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 2004 - ---- Net revenues $41,831 $63,829 $56,047 $60,912 Operating income 1,731 11,111 6,932 7,366 Net income 1,057 6,774 3,952 4,512 Net income per share, basic 0.07 0.47 0.28 0.31 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, basic 0.02 0.29 0.17 0.23
NOTE R - 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 $9.2 million at March 31, 2004. 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 $26.6 million over the next five years. On February 3, 2004, the Company received a letter from one of its former customers that has filed for Chapter 11 bankruptcy. It indicated that the Company may have received preference transfers, in the form of cash and returned books, totaling approximately $1.7 million. We are evaluating the notice and intend to vigorously defend the matter. While resolution of this matter is not expected to materially affect the Company's liquidity, if all or a portion of these amounts were to be repaid, it would reduce the Company's net income in the amount of the repayment, net of tax. The Company is subject to various other legal proceedings, claims and liabilities, which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the Company. NOTE S - GUARANTEES As of March 31, 2004, the Company is listed as the primary tenant on a lease 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 $0.8 million at March 31, 2004. NOTE T - 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 consolidated 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. This property was sold during fiscal 2004. NOTE U - FINANCIAL INSTRUMENTS The following disclosure of estimated fair value of financial instruments as of March 31, 2004 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, 2004 and 2003, respectively. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market transaction (in thousands):
2004 2003 --------------------- --------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value --------- ---------- --------- ---------- CASH AND CASH EQUIVALENTS $22,780 $22,780 $ 1,707 $ 1,707 LONG-TERM DEBT: Credit facility $ - 0 - $ - 0 - $17,000 $17,000 Senior notes 5,330 5,474 8,352 8,616 Industrial revenue bonds - 0 - - 0 - 600 600
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 $1.1 million and $1.0 million as of March 31, 2004 and 2003, 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, 2004 and 2003. 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 V - 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).
2004 Publishing Conferences Other Total - ---- ---------- ----------- -------- ---------- Net revenues $193,161 $29,458 $ - $222,619 Operating income 26,025 1,115 - 27,140 Assets, excluding goodwill 143,510 4,905 2,000 150,415 Goodwill 14,169 15,135 - 29,304 Total assets 157,679 20,040 2,000 179,719 Capital expenditures 3,569 97 - 3,666 Depreciation and amortization 2,028 259 - 2,287 2003 - ---- Net revenues $187,599 $ 29,618 $ - $217,217 Operating income 14,684 4,242 - 18,926 Assets, excluding goodwill 124,299 5,667 3,785 133,751 Goodwill 14,169 15,135 - 29,304 Total assets 138,468 20,802 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 Assets, excluding goodwill 137,338 6,447 12,300 156,085 Goodwill 14,169 15,135 - 29,304 Total assets 151,507 21,582 12,300 185,389 Capital expenditures 898 241 - 1,139 Depreciation and amortization 1,959 690 - 2,649
No single customer accounted for as much as 10% of consolidated revenues in fiscal 2004, 2003 or 2002. Foreign revenues accounted for less than 10% of consolidated revenues in fiscal 2004, 2003 and 2002. Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Thomas Nelson, Inc.: We have audited the accompanying consolidated balance sheets of Thomas Nelson, Inc. and subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the years in the two-year period ended March 31, 2004. 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 audits. The Company's consolidated financial statements as of March 31, 2002 and for the year 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 V to the consolidated financial statements, in their report dated May 10, 2002. Those auditors' report also included explanatory paragraph with respect to the change in the method of accounting for goodwill and other intangible assets (as discussed in Note A to the consolidated financial statements). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 financial position of Thomas Nelson, Inc. and subsidiaries as of March 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the two-year period ended March 31, 2004, in conformity with U.S. generally accepted accounting principles. As discussed above, the Company's 2002 consolidated financial statements were audited by other auditors who have ceased operations. As described in Note V, the Company began disclosing two reportable segments in 2003, and the amounts in the 2002 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 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 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 consolidated financial statements taken as a whole. /s/ KPMG LLP - ------------------------- Nashville, Tennessee May 10, 2004 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 Annual Report, 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 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 ANNUAL REPORT, AND WE HAVE DISPENSED WITH THE REQUIREMENTS TO FILE THEIR CONSENT IN RELIANCE UPON RULE 437A UNDER THE SECURITIES ACT OF 1933. THE REPORT OF ARTHUR ANDERSEN LLP INCLUDED HEREWITH IS A COPY OF THE LATEST SIGNED AND DATED REPORT ISSUED BY ANDERSEN AND SUCH REPORT HAS NOT BEEN REISSUED BY ANDERSEN. 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. 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 ---------------- ---------------- Declared High Low High Low Per Share ------- ------- ------- ------- --------------- Fiscal 2004 - ----------- First Quarter $11.83 $ 8.45 $13.45 $10.55 $ - Second Quarter 14.10 11.20 14.00 11.80 .04 Third Quarter 24.13 14.80 23.75 14.50 .04 Fourth Quarter 27.73 20.50 28.00 20.50 .04 -------------- $ .12 ============== 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 - -------------- $ - ==============
As of June 11, 2004, there were 677 record holders of the Common Stock and 457 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. The Company has historically declared and paid a dividend of four cents per share every quarter through the first quarter of fiscal 2002. 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. On August 22, 2003, the Board of Directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend was payable October 20, 2003, to shareholders of record on October 6, 2003. On November 20, 2003, the Company's Board of Directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend was payable January 19, 2004, to shareholders of record on January 5, 2004. On February 19, 2004, the Board of Directors declared a cash dividend of $.04 per share of Common and Class B Common Stock. The dividend was payable April 19, 2004, to shareholders of record on April 5, 2004. EX-14 5 ex14032004k.txt EXHIBIT 14 TO FORM 10-K FOR PERIOD ENDED MARCH 31, 2004 EXHIBIT 14 THOMAS NELSON, INC. CODE OF BUSINESS CONDUCT AND ETHICS I. INTRODUCTION II. CONFLICTS OF INTEREST A. Introduction B. General Policy C. Serving as a Director, Officer or Employee of a Non-Nelson Business D. Potential Conflicts by Family and Friends E. Political Activities III. CORPORATE OPPORTUNITIES A. Prohibition on Taking Nelson Corporate Opportunities B. Understanding Permissible Business Gifts IV. CONFIDENTIALITY AND PRESERVATION OF RECORDS V. BUSINESS CONDUCT AND FAIR DEALING A. General Policy B. Antitrust Matters C. Relations with Competitors D. Relations with Customers E. Relations with Suppliers F. Price Discrimination and Promotional Allowances G. Monopolization and Market Power H. Mergers, Acquisitions and Joint Ventures I. Unfair Methods of Competition and Deceptive Advertising and Practices VI. PROTECTION AND USE OF NELSON PROPERTY A. Nelson Property B. Use of Technology VII. COMPLIANCE WITH LAWS, RULES AND REGULATIONS A. General B. Integrity of Nelson Records C. Compliance with Insider Trading Laws D. Fair Employment Practices E. Government Requests F. Safety and Health g. Environmental Matters H. Copyright and Trademark Matters VIII. COMPLIANCE WITH AND IMPLEMENTATION OF CODE OF BUSINESS CONDUCT A. General B. Questions Regarding Code C. Determination of Violations D. Request for Waivers E. Good Faith Reporting of Wrongdoing IX. DISCLAIMER OF EMPLOYMENT CONTRACT X. RESERVATION OF RIGHTS THOMAS NELSON, INC. CODE OF BUSINESS CONDUCT AND ETHICS I. INTRODUCTION Thomas Nelson, Inc. (the "Company" or "Nelson") is committed to achieving high standards of business and personal and ethical conduct for itself, its Directors and all personnel. Through performance in accordance with these standards, the Company, its Directors and all of its employees will merit and enjoy the respect of one another, the business community, our shareholders, our meeting planners and guests, our suppliers, and the public. It is the personal responsibility of all Directors and employees to acquaint themselves with all legal and policy standards and restrictions applicable to their duties and responsibilities, and to conduct themselves accordingly. Over and above the strictly legal aspects involved, all Directors and employees are expected to observe high standards of business and personal ethics in the discharge of their duties. This Code of Business Conduct and Ethics (the "Code") is designed to help ensure that these things occur. This Code applies to all Directors and employees of Nelson and its subsidiaries. "Employees" means an officer or employee of Nelson and its affiliates, and it includes Executive Officers, unless otherwise stated. Certain parts of this Code may apply specifically to "Executive Officers," and are so indicated. "Executive Officer" means a member of Nelson management so designated by resolution of the Board. All employees and Directors are required to read and understand this Code, and compliance with the conduct policies set forth herein is required of all personnel. This Code supercedes and replaces any conflicting provisions of the Thomas Nelson, Inc. Corporate Compliance Program and any conflicting provisions of the Employee Handbook for Thomas Nelson, Inc. and is intended to comply with the new requirements of the NYSE Listing Standards Committee and the Sarbanes-Oxley Act of 2002. Directors and employees are encouraged to report violations of laws, regulations, or this Code using the processes described in Article VIII of this Code. Nelson will not permit retaliation against Directors or employees for reports made in good faith. II. CONFLICTS OF INTEREST A. Introduction For purposes of our Code, a "conflict of interest" occurs when an individua's private interests interfere in a material way or appears from the perspective of a reasonable person to interfere in a material way with the interests of Nelson as a whole. A conflict situation can arise when an employee or Director takes actions or has interests that may make it difficult to perform his or her responsibilities objectively and effectively. Ordinarily, a conflict exists when an outside interest could actually or potentially influence the judgment or actions of an individual in the conduct of Nelson's business. Conflicts of interest may also arise when an employee or Director or a member of his or her family, receives improper personal benefits as a result of his or her position at Nelson. Notwithstanding the foregoing, accepting things of value in accordance with Section III.B of this Code shall not constitute the receipt of improper personal benefits. B. General Policy Nelson must have the confidence of its authors, suppliers, customers and the public. Directors and employees must avoid conflicts or the appearance of conflicts, as discussed above. Specifically, employees should avoid any outside financial interests that might conflict with the Company's interests. Such outside interests could include, among other things: 1. Personal or family financial interests in or indebtedness to enterprises that have business relations with the Company. 2. Acquiring any interest in outside entities, properties, etc., in which the Company has an interest or potential interest. This would include stock in businesses being considered for acquisition, or real estate or possible new or expanded company operations. 3. Conduct of any business not on behalf of the Company with any author, vendor, supplier, customer or agency or any of their officers or employees. Employees should report any material transaction or relationship that could result in a conflict of interest to Nelson's General Counsel. C. Serving as a Director, Officer or Employee of a Non-Nelson Business The Company expects its employees to devote their full energies to their work. Therefore, an employees' outside activities must not reflect adversely on the Company or give rise to a real or apparent conflict of interest with the employee's duties with the Company. Employees must be alert to potential conflicts of interests and be aware that they may be asked to discontinue any outside activity should such a conflict arise. Nelson employees must have the written approval in advance of accepting an appointment or position to serve as a Director, partner, owner, officer, or employee of any non-Nelson business. Employees should submit the request in writing to an appropriate corporate officer. If the service is permitted, then any employee acting in this dual capacity must inform the applicable corporate officer of any matter affecting this dual responsibility at any time and, if warranted, abstain from any discussion or vote arising from this situation. No outside employment of a Nelson employee which may constitute a conflict of interest is permitted unless approved in advance under this Code. Outside employment considered to be a conflict of interest would include, but is not limited to, employment with or service on the board of directors of a publishing company. Nelson directors who accept nominations to serve as directors of other public companies shall, in cases where such nominations have not previously been disclosed, notify in writing the Chairman of the Board of Directors. Notwithstanding the foregoing, volunteering in civic and charitable organizations is encouraged for Nelson employees. To serve as a director or officer of a charitable or civic organization, an employee must obtain written approval from the employee's supervisor in advance of accepting the appointment. Participation in such activities shall not be deemed to be within an individual's scope of employment or authority as an employee, and Nelson assumes no liability therefor. D. Potential Conflicts by Family and Friends The above conflict of interest guidelines are not intended to interfere with your personal life, but there may be situations where the actions of family members and close personal friends may cause an employee a conflict of interest. For example, gifts or other benefits offered to an employee's family member by suppliers or potential suppliers are considered business gifts and it is the same as if they were given to the employee. If an employee's spouse, relative, or close personal friend is directly involved in a business that would like to provide goods or services to Nelson, the employee cannot use his or her position at Nelson to influence the bidding process or negotiation in any way. E. Political Activities The Company encourages all employees to participate in the political process and respects the right of each employee to determine his or her own participation. However, federal law and the laws of many states and foreign countries prohibit corporations from making political contributions. Thus, an employee's contributions to a candidate for elective office or a political party must not be - or appear to be - made with or reimbursed from the Company's funds or assets. Similarly, employees may not devote any worktime to any campaign for a candidate or political party, nor may any employee permit any campaign or candidate to use any Company facility or property. From time to time, the Company identifies legislative issues that affect the Company's business. In certain instances, the Company may encourage employees to support or oppose such legislation. In no instance, however, may any employee use a position of authority to make another employee feel compelled or pressured to work for or on behalf of any legislation, candidate, political party or committee, to make contributions for any political purpose or to cast his or her vote in a particular way. No funds or assets of the Company will be used for federal, state or local political campaign contributions. These prohibitions cover not only direct contributions but also indirect assistance or support of candidates or political parties through purchase of tickets to special dinners or other fundraising events or the furnishing of any other goods, services or equipment to political parties or committees. No funds or assets of the Company will be used directly or indirectly for political contributions outside the United States, even when permitted by applicable law, without the prior written approval of the Chief Executive Officer of the Company. III. CORPORATE OPPORTUNITIES A. Prohibition on Taking Nelson Corporate Opportunities Directors and employees of Nelson stand in a fiduciary relationship to Nelson and must advance its legitimate interests when the opportunity to do so arises. It is a breach of this duty for any such person to take advantage of a business opportunity for his or her own or another person's personal profit or benefit when the opportunity is within the corporate powers of Nelson and when the opportunity is of present or potential practical advantage to Nelson. If such a person so appropriates such a Nelson corporate opportunity, Nelson may claim the benefit of the transaction or business and such person exposes himself or herself to liability in this regard. It is Nelson's policy that no Director or employee take a corporate opportunity without the consent of the Board. B. Understanding Permissible Business Gifts The general purpose of gifts and favors in a business context is to create goodwill. If they do more than that, and have the potential to unduly influence judgment or create a feeling of obligation, employees should not accept them. Employees may not solicit any kind of gift or personal benefit from present or potential suppliers or customers. Employees are prohibited from accepting gifts of money (or monetary equivalents), whether solicited or unsolicited. The following transactions are permitted and shall be considered an exception to the general prohibition against accepting things of value: 1. Acceptance of gifts, gratuities, amenities or favors based on obvious family or personal relationships (such as those with parents, children or spouse) when the circumstances make it clear that it is those relationships, rather than the business of Nelson that are the motivating factors; 2. Acceptance of meals, refreshments, travel arrangements or accommodations, or entertainment, all of reasonable value, in the course of a meeting or other occasion, the purpose of which is to hold bona fide business discussions or to foster better business relations, provided that the expense would be paid for by Nelson as a reasonable business expense if not paid for by another party; 3. Acceptance of advertising or promotional material of reasonable value such as pens, pencils, note pads, key chains, calendars and similar items; 4. Acceptance of discounts or rebates on merchandise or services that do not exceed those available to other customers; 5. Acceptance of gifts of reasonable value related to commonly recognized events or occasions, such as a promotion, new job, wedding, retirement or Christmas; or 6. Acceptance of civic, charitable, education, or religious organizational awards for recognition of service and accomplishment. In addition, an employee may not give anything of value to any customer or potential customer as an inducement to obtain business or favorable treatment. Similarly, employees are prohibited from giving anything of value to public officials, as an inducement to have a law or regulation enacted, defeated or violated. The purpose of this policy is to avoid violations of law and to insure that Nelson's business is safeguarded from undue influence of bribery and personal favors. Whenever you have dealings with persons who have business with the Company, the requirements of the law must be kept in mind. Necessarily, the application of the policy stated herein will require good judgment and common sense. If you encounter situations in which you are not sure of your obligations, you should consult the Company's legal counsel. It is inevitable and desirable that you will have individual business and personal relationships with Nelson's customers, suppliers and others who do business with Nelson even though such individual business and personal relationship is not connected with Nelson's business. This policy is not intended to discourage such relationships. Any such business relationship should be on customary terms and for proper and usual purposes. However, you should not solicit any special favors in recognition of your relationship with Nelson. IV. CONFIDENTIALITY AND PRESERVATION OF RECORDS Employees frequently have access to confidential information concerning the Company's business. Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company or its customers, if disclosed. Safeguarding confidential information is essential to the conduct of the Company. Caution and discretion must be exercised in the use of such information, which should be shared only with those who have a clear and legitimate need and right to know. No employee may disclose confidential information of any type to anyone except persons within the Company who need to know. Information regarding a customer may not be released to third parties, government, or other organizations, without the consent of the customer unless required by law. Any requests for information arising through a legal process (e.g., subpoena or court order) must first be referred to the Company's General Counsel before the release of the information. Whenever an employee becomes aware of an investigation which affects Nelson, he or she shall immediately notify the Company's General Counsel. Notwithstanding any Nelson records retention guidelines, under no circumstances shall any records known to be the subject of or germane to any anticipated, threatened or pending lawsuit or governmental or regulatory investigation or case filed in bankruptcy be removed, concealed or destroyed. For purposes of this section, "records" means any of hard copy, paper documents and electronic records, including but not limited to, e-mail, voicemail and the contents of hard drives. Furthermore, all audit and audit review work papers shall be retained as required, in accordance with the rules promulgated by the Securities and Exchange Commission ("SEC") under the Sarbanes-Oxley Act of 2002. V. BUSINESS CONDUCT AND FAIR DEALING A. General Policy Each Nelson employee and Director must endeavor to deal fairly with Nelson's customers, suppliers, competitors and other employees. No employee or Director shall take unfair advantage of anyone through manipulation, concealment, abuse of privileged or confidential information, misrepresentation of a material fact, or any other unfair-dealing practice. B. Antitrust Matters The Company wishes to comply with the antitrust laws of the United States and with the competition laws in every country in which the Company conducts business because it is committed to fair and open competition. The Company believes that the long-range interests of its shareholders, customers, and personnel are best served by following business practices based on compliance with the law and respect for the operation of a free-market economy. An antitrust violation is a serious matter. Under federal law, for certain violations such as price fixing, felony convictions are provided, and a corporation may be fined up to $10 million if convicted. Individuals may be fined up to $350,000, or imprisoned for up to three years, or both. Many states' laws also provide criminal penalties. Antitrust violations may also subject the Company to extremely costly litigation and civil damages. Companies or individuals that are harmed as a result of antitrust violations are entitled to recover three times the amount of the actual damages, plus attorneys' fees. C. Relations with Competitors The Company's personnel are prohibited from entering into discussions, formal agreements, or informal understandings with competitors concerning any material aspect of the Company's business. This includes such issues as prices and anything that affects prices, such as general pricing policies, wages, costs, profits, terms of sale, discounts and allowances, promotions, and credit arrangements. Other forbidden topics include market share, production volume, production quota, production capacity, sales territory, choice of customers, products and services to be offered, bidding strategy, customer allocation, territory allocation, and methods of distribution. The policy against communications with competitors also includes listening to or receiving information, even if unsolicited from competitors. Company personnel shall not send to or receive from a competitor any kind of price information. Information concerning competitors' pricing activities, including published price lists generally circulated to the trade, may be obtained only from the Company's customers or other non-competitive sources. However, the Company's personnel are prohibited from using customers as conduits to enable the Company to communicate with competitors. The Company's policy regarding the setting of Company prices requires that all prices be determined independently by the Company, in light of Company costs, market conditions, and competitive prices. Competitive prices may be considered in making pricing decisions, but they should be obtained only from publicly available published lists or from customers. D. Relations with Customers As a general rule, the Company has the right to select its customers and to determine with whom it does business. The Company also has the right to refuse to do business with a person or company, provided that decision is made independently. Any refusal to deal with a potential customer must not be part of an agreement with another person or company, whether formal or informal, or part of a plan to injure competition, obtain a monopoly, or otherwise restrain trade. Refusals to deal frequently lead to litigation and so legal counsel should be obtained before the Company refuses to sell to any customer or prospective customer, except when that refusal is based solely upon credit reasons. Company personnel shall not enter into any agreements or understandings, including "gentlemen's agreements" or unspoken tacit understandings, concerning the resale prices or terms or conditions of a sale of Company products by a customer. The Company may at most suggest resale prices and terms and conditions of sales of the Company's products by the customers. There must never be any requirement or even the appearance of a requirement that a customer must adhere to the Company's suggestions as to prices. The practice of requiring a customer to purchase one product in order to obtain another product, called a "tying arrangement", is generally against Company policy. The same is true of "full-line forcing," requiring a customer to buy a full line of products or none at all. Not all tying arrangements or line-forcing situations, however, are illegal or against Company policy. Because of the complexity of this area of the law, counsel should be consulted before any sale is made which involves a tying arrangement. Employees should also consult legal counsel before entering into any exclusive arrangements with customers. E. Relations with Suppliers The Company is free to choose its suppliers and to refuse to do business with any particular supplier, so long as that decision is made independently and does not involve any agreement with another company or person. The Company may sell its products to its suppliers, but it is against Company policy to require a supplier to purchase the Company's products as a condition to the Company purchasing products or services from that supplier. As a general rule, it is against Company policy to enter into exclusive arrangements with suppliers which unreasonably restrict the suppliers' ability to deal with competitors of the Company. Certain types of exclusive agreements with suppliers are permissible, and legal counsel should be consulted before entering into any such arrangements. F. Price Discrimination and Promotional Allowances United States law prohibits selling the same products at different prices, or under different terms, services, or allowances, to different customers who compete or whose customers compete in the sale of the Company's products. Under most circumstances, this law also prohibits the Company, when buying products, from inducing or accepting such discriminatory prices, terms, services, or allowances. Although a discriminatory price or other allowance may be justifiable in certain limited situations, such as meeting a specific competitor's price or reflecting verifiable cost savings, such legal justification is generally difficult. Any summarization of price discrimination law is necessarily incomplete, and legal counsel should be consulted before engaging in any discriminatory practice. G. Monopolization and Market Power Company employees should avoid any tactics that may appear to be intended to eliminate competition or to put particular competitors out of business. Such activity would include sales at unreasonably low prices (e.g., below cost) as well as other predatory practices. Competitive strategies and market conditions in areas where the Company has a significant market position should be reviewed with legal counsel. H. Mergers, Acquisitions and Joint Ventures These activities may violate the antitrust laws if their effect presently or in the future may be to lessen competition substantially or to tend to create a monopoly. Certain acquisitions or divestitures that meet minimum government requirements must be reported to federal agencies in advance. In those instances, the Company must observe statutory waiting periods before completing the transaction. Failure to notify can result in severe penalties. Therefore, Company personnel must consult Company counsel as soon as a merger, acquisition, or joint venture, or even a partial acquisition is contemplated, and he or she is to be kept advised of all developments including proposed closing dates. I. Unfair Methods of Competition and Deceptive Advertising and Practices Federal law and the laws of many states prohibit unfair methods of competition and unfair or deceptive acts or practices. These statutes are broad in scope and prohibit, among other things, deceptive advertising, as well as statements or pricing that tend to convey a false impression of a value of the product or are otherwise misleading. Company personnel should avoid any practice that could be construed as unethical or as an unfair method of competition or a deceptive or unfair practice. VI. PROTECTION AND USE OF NELSON PROPERTY A. Nelson Property Employees and Directors have a duty to protect and conserve Nelson property and to insure its efficient use for proper purposes. All Nelson assets shall be used for legitimate business purposes and not for personal gain. Employees of Nelson are to take care and responsibility to safeguard the property of Nelson within reason. Notwithstanding the foregoing, at no time is Nelson employee to put his/her person at risk to safeguard Nelson property. Nelson property includes, but is not limited to: (i) all physical property of Nelson whether leased or owned by Nelson and includes all fixtures; (ii) all books and records in possession of Nelson; (iii) all marketing studies, advertising or promotional materials, customer lists, logs, reports or any other forms or surveys that are in Nelson's possession; and (iv) all proprietary software. B. Use of Technology Electronic mail and e-mail systems (including electronic bulletin boards) are property of the Company and must be used primarily for business purposes and only occasionally for personal reasons. The use of e-mail must conform to the policies and values of the Company. Among other things, messages which violate any of the Company's policies or invite participation in illegal activities, such as gambling or the use and sale of controlled substances, are prohibited. Statements which, if made in any other forum, would violate any of the Company's policies, including without limitation, policies against harassment or discrimination and the misuse of confidential information, are prohibited to the same extent in an e-mail message. E-mail systems may be used to transmit sensitive information only when such information is adequately protected. Subject to applicable laws and regulations, the Company reserves the right to monitor, review and disclose e-mail and voicemail as it deems appropriate. The Internet is an efficient and valuable business tool and is to be used primarily for business purposes. Nelson reserves the right to access all information on Company computers, including but not limited to e-mail and history of internet usage, even where personal passwords have been assigned. If you have questions about the use of your computer, the Internet, e-mail or voice mail, please see your supervisor. VII. COMPLIANCE WITH LAWS, RULES AND REGULATIONS A. General Directors and employees must comply fully with applicable laws, rules and regulations at all times. In particular, Directors and employees should take note of laws, rules and regulations regarding the integrity of Nelson's records, insider trading and fair employment practices. B. Integrity of Nelson Records Accuracy and reliability in the preparation of all business records, financial statements and reports to regulatory and other government agencies is of critical importance to the corporate decision-making process and to the proper discharge of the Company's financial, legal and reporting obligations. To this end, the Company shall: - comply with generally accepted accounting principles at all times; - maintain a system of internal accounting controls that will provide reasonable assurances to management that all transactions are properly recorded; - maintain books and records that accurately and fairly reflect the Company's transactions; - prohibit the establishment of any undisclosed or unrecorded funds or assets; - maintain a system of internal controls that will provide reasonable assurances to management that material information about the Company is made known to management, particularly during the periods in which the Company's periodic reports are being prepared; and - maintain disclosure controls and procedures which ensure that material information relating to the Company and its subsidiaries is made known to the Company's senior management on a timely basis. All business records, expense accounts, vouchers, bills, payroll, service records and other statements and reports are to be prepared with care and honesty. False or misleading entries are prohibited. All corporate funds and assets are to be recorded in accordance with applicable corporate procedures. Compliance with accounting procedures and internal control procedures is required at all times. It is the responsibility of all employees to ensure that both the letter and the spirit of corporate accounting and internal control procedures are strictly adhered to at all times. In accordance with the rules promulgated by the SEC under the Sarbanes- Oxley Act of 2002, it shall be a violation of this Code for any officer or Director of Nelson or any other person acting under the direction thereof, to take any action to fraudulently influence, coerce, manipulate, or mislead any independent or certified accountant engaged in the performance of an audit of Nelson's financial statements for the purposes of rendering such financial statements materially misleading. C. Compliance with Insider Trading Laws Stock transactions are regulated by numerous complex laws. Severe civil and criminal penalties can be imposed on individuals and corporations convicted of violations. You are expected to comply fully with the Thomas Nelson, Inc. Securities Trading Policy (the "Policy"). Certain provisions are summarized below. All employees are encouraged to consult the Policy for a complete description. 1. You may not trade in Nelson stock or other securities when you have material information about Nelson that has not been publicly released. 2. You may not share material, nonpublic information about Nelson with friends, family members or others who do not need the information as part of their work for Nelson. 3. You may not engage in transactions in which you may profit from short-speculative swings in the value of Thomas Nelson stock. 4. Directors, executive officers, and certain other Thomas Nelson employees are prohibited from trading in Thomas Nelson stock or other securities prior to quarterly earnings releases, during special blackout periods or during pension plan blackout periods. 5. The consequences of violating insider trading laws can include civil penalties, criminal penalties and jail terms. D. Fair Employment Practices Race, Color, Religion, National Origin, Sex, Age and Disability. Diversity is not only a welcomed reality in today's competitive work force, but also a key to increased productivity. Employees at the Company were recruited, selected and hired on the basis of individual merit and ability with respect to the position filled. As a business comprised of talented and diverse team members, the Company must be committed to the fair and effective utilization of all employees without regard to race, color, religion, national origin, sex, age or disability unrelated to ability to do the job. Employees must all keep in mind that equal employment opportunity is indispensable in every aspect of the employment relationship. The relationship covers origin, training, working conditions, benefits, compensation practices, employment functions (including promotion, demotion, discipline, transfer, termination and reduction in force) and Company sponsored educational, social and recreational programs. The Company will move affirmatively and aggressively toward full and equal participation for each and every one of its employees as a matter of sound moral, legal and business policy. The Company steadfastly requires all of its employees to treat each other, regardless of title or position, with the fairness and respect necessary to maintain a diverse place of employment that encourages each person to contribute to her or his fullest potential. Sexual Harassment. Every person conducting business on the Company premises, whether or not employed by the Company, must refrain from engaging in any verbal or physical conduct that could be construed as sexual harassment. Such conduct may consist of making unwelcome sexual advances, or engaging in coercive behavior that is sexual in nature when the rejection of or submission to such conduct affects, either implicitly or explicitly, an employee's status of employment (e.g., pay, promotion, assignment, termination, etc.). In addition to offending-if not injuring-the victim of such conduct, sexual harassment is counterproductive to sound business policy. E. Government Requests It is the Company's policy to cooperate with all reasonable requests from government authorities. All requests for information should be responded to with complete and accurate information. In addition, documents should always be retained in accordance with the Company's document retention policy and should never be concealed, altered or destroyed in anticipation of, or in response to, any investigation. Any request for information from a government authority, other than routine items requested in the ordinary course of business, should be reported to the General Counsel so that the Company may consult its legal counsel about the request prior to providing any information. F. Safety and Health The Company is committed to its employees and to providing and maintaining safe and healthful working conditions. Thomas Nelson, Inc. is a "drug-free workplace" and a "tobacco free workplace". The Company maintains an on-site security program for the protection of its employees, as well as its property. Personal injuries and illnesses arising out of occurrences at work result in poor morale, lost production, lost wages, medical expense, worker's compensation and disability expense and the loss of enjoyment of life by employees. A successful safety and health program must be the joint responsibility of the Company and its employees. The Company is committed to providing working conditions that comply with all applicable laws, regulations and standards affecting safety and health. All employees are required to know and observe the safety and health laws, regulations and standards applicable to their particular jobs, areas and equipment and to report to the Company anything that violates those laws, regulations or standards or is unsafe or unhealthy. G. Environmental Matters It is the Company's policy to comply with all applicable environmental laws at all times. The Company is committed to the proper handling, storage, use, shipment and disposal of all materials that are regulated under any applicable environmental law, and all employees will abide by such requirements. The Company is also committed to maintaining all necessary environmental permits and approvals. Certain employees are charged with ensuring that the Company remains in material compliance with the terms and conditions of any such permits and approvals and with filing any reports and notifications required under any applicable environmental laws. Such employees will ensure that all permit applications, reports and notifications are timely filed. If such employees discover any omission or lack of timely action, they will promptly report this to their immediate supervisor and take appropriate action to correct such omission. Certain employees are charged with maintaining, in accordance with the Company's document retention policy, all documents required to be maintained under applicable environmental laws. Such persons will verify that all manifests, other shipping documents, Material Safety Data Sheets ("MSDS"), chemical inventory forms, and monitoring and sampling, data reports are properly completed and maintained. If any employee becomes aware of a spill, release, or discharge of any material regulated pursuant to an applicable environmental law or of any violation of an applicable environmental law, such employee will immediately report such event to his or her immediate supervisor so that necessary action may be taken. Necessary action may include evacuating employees, reporting such event to a governmental authority if required pursuant to any environmental law, and containing and cleaning up any such spill, release, or discharge. Employees should also report any other violations of this policy that they observe. H. Copyright and Trademark Matters It is the policy of the Company to comply fully with all laws of the United States and each state where the Company conducts business concerning copyright and trademark matters. Any question whether a proposed action would infringe upon the copyright or trademark rights of another company or individual should be referred directly to the general counsel's office. Such matters include copying or distributing written work prepared by others, using signs or symbols that may be trademarks or service marks, or doing company business under any name other than the Company's name. Certain copyrights and trademarks owned by the Company are valuable assets. Each employee must carefully consider any action that could dilute or affect in any way the Company's copyright and trademark interests. No employee should enter into any agreement to transfer, assign or license the Company's copyrights or trademarks without the prior approval of the Company's General Counsel. VIII. COMPLIANCE WITH AND IMPLEMENTATION OF CODE OF BUSINESS CONDUCT A. General All employees are required to read, understand and refer to this Code. Compliance with the conduct policies set forth in this Code is required of all personnel. Enforcement is the direct responsibility of every supervisor. Managers and supervisors may be sanctioned for failure to instruct adequately their subordinates or for failing to detect non-compliance with applicable policies and legal requirements, where reasonable diligence on the part of the manager or supervisor would have led to the discovery of any problems or violations and given the Company the opportunity to correct them earlier. If an employee is approached by anyone inside or outside of the Company with a request to do something the employee recognizes to be illegal or unethical, the employee should refuse. The employee should tell the person making the request that such conduct is contrary to the Company's policy and then report the incident to the employee's supervisor. No supervisor may direct a subordinate to violate this Code. Employees should immediately disassociate themselves from taking part in any discussions, activities, or other situations that they recognize to be potentially illegal or unethical. If an employee becomes aware of any illegal or unethical conduct or behavior in violation of this Code by anyone working for or on behalf of the Company, that employee should report it promptly, fully and objectively to the General Counsel. The Company will attempt to treat such reports confidentially and to protect the identity of the employee who has made the request to the maximum extent and as maybe be permitted under applicable law. All reports will be investigated. Upon receipt of credible reports of suspected violations or irregularities, the General Counsel shall see that corrective action takes place appropriately. THIS CODE SETS FORTH GENERAL GUIDELINES ONLY AND MAY NOT INCLUDE ALL CIRCUMSTANCES THAT WOULD FALL WITHIN THE INTENT OF THE CODE AND BE CONSIDERED A VIOLATION THAT SHOULD BE REPORTED. EMPLOYEES SHOULD REPORT ALL SUSPECTED DISHONEST OR ILLEGAL ACTIVITIES WHETHER OR NOT THEY ARE SPECIFICALLY ADDRESSED IN THE CODE. B. Questions Regarding Code General questions regarding this Code or the application of this Code to particular situations may be directed to Nelson's General Counsel, F.M. Wentworth, Jr. Questions from Directors and Executive Officers may also be discussed with the Chairman of the Board or the Chairman of the Audit Committee. C. Determination of Violations Determinations regarding whether a violation of this Code has occurred shall be made as follows: 1. Process: (a) If the alleged violation under consideration concerns an Executive Officer or Director, the determination of the existence of any violation shall be made by the Audit Committee in consultation with legal counsel. (b) If the situation under consideration concerns any other employee, the determination of the existence of a violation shall be made by the General Counsel. (c) Whoever makes the decision as to whether a violation has occurred shall document the decision and forward the documentation to the Director of Human Resources for filing and retention, with a copy to the Legal Department. These files shall be available to the Internal Audit and Legal Departments. (d) In determining whether a violation of this Code has occurred, the committee or person making such determination may take into account to what extent the violations were intentional; the qualitative and quantitative materiality of such violation from the perspective of either the detriment to Nelson or the benefit to the Director, Executive Officer, or employee, the policy behind the provision violated and such other facts and circumstances as they shall deem advisable under all the facts and circumstances. 2. Acts or omissions determined to be violations of this Code by other than the Audit Committee under the process set forth above shall be promptly reported by the Legal Department to the Audit Committee and by the Audit Committee to the Board. D. Request for Waivers A waiver of a provision of this Code shall be requested whenever there is a reasonable likelihood that a contemplated action will violate the Code. 1. Process: (a) If the request under consideration relates to an Executive Officer or Director, the determination with respect to the waiver shall be made by the Audit Committee, in consultation with the legal counsel and submitted to the Board for ratification. (b) If the request under consideration relates to any other employee, the determination shall be made by the General Counsel course of business, in which case such determination shall be made by the Audit Committee. (c) The decision with respect to the waiver requested shall be documented and forwarded to the Director of Human Resources for filing and retention, with a copy to the Legal Department. These files shall be available to the Internal Audit and Legal Departments. 2. All waivers of this Code (other than those approved by the Audit Committee) shall be promptly reported by the Legal Department to the Audit Committee. 3. Waivers will not be granted except under extraordinary or special circumstances. 4. Board of Directors in consultation with the legal counsel, waivers shall be publicly disclosed on a timely basis. E. Good Faith Reporting of Wrongdoing 1. Employees of Nelson are protected, to the extent provided by law, against retaliation by Nelson when they provide information or assist in an investigation by federal regulators, law enforcement, Congress, or Nelson itself, regarding conduct which the employee reasonably believes relates to fraud against Nelson's shareholders. 2. Good faith reports of wrongdoing should be submitted, in writing, to the General Counsel, or, if such reports concern the General Counsel, to the Chairman of the Board. The General Counsel may arrange a meeting with the employee to allow the employee to present a personal and complete description of the situation. (a) "Good faith report" shall mean a report of conduct defined as wrongdoing, which the person making the report has reasonable cause to believe is true and which is made without malice or consideration of personal benefit. (b) "Wrongdoing" shall mean a violation which is not of a merely technical or minimal nature of a federal or state statute or regulation or of this Code designed to protect the interest of the public or Nelson. 3. Directors may submit any good faith reports of wrongdoing in writing to the General Counsel. A thorough investigation will be undertaken by the General Counsel or his designee and appropriate action taken. 4. The Sarbanes-Oxley Act of 2002 requires that the Nelson Audit Committee establish procedures for confidential, anonymous submission of employee concerns regarding questionable accounting or auditing matters. Employee complaints and reports of this nature shall be handled under the procedures established by the Audit Committee. It is the policy of Nelson to comply with both the letter and the spirit of the federal laws and regulations that govern Nelson's activities. All operating policies, procedures and forms used to conduct Nelson's business shall be in conformity with applicable federal laws and regulations. Any employee who violates a provision of this Code is subject to applicable disciplinary action ranging from warnings and reprimand up to and including termination, and, where appropriate, the filing of a civil or criminal complaint. Directors who violate a provision of this Code are subject to such sanction as the Board of Directors shall impose. Notwithstanding the foregoing, Nelson also preserves and reserves its other rights and remedies against any individual who violates any provision of this Code, both at law and in equity. IX. DISCLAIMER OF EMPLOYMENT CONTRACT This Code is neither an employment contract nor any guaranty of continued employment. The employment relationship between Nelson and its employees is "at will". Nelson's policies, guidelines and related procedures are subject to unilateral change by Nelson at any time. A fuller discussion of these matters appears in the Handbook For Employees and Managers of Thomas Nelson, Inc. X. RESERVATION OF RIGHTS The Company reserves the right to amend this Code, in whole or in part, at any time and solely at its discretion. Any amendments, to the extent determined to be required or appropriate by the Board of Directors in consultation with the legal counsel, shall be publicly disclosed on a timely basis. XI. CERTIFICATION Each Director and employee will be required to read or review this Code each year and certify, in writing, that he or she understands his or her responsibilities to comply with the guidelines and provisions set forth herein. EX-21 6 ex21032004k.txt EXHIBIT 21 TO FORM 10-K FOR PERIOD ENDED MARCH 31, 2004 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% World Publishing, Inc. Tennessee 100%
EX-23 7 ex23032004k.txt EXHIBIT 23 TO FORM 10-K FOR PERIOD ENDED MARCH 31, 2004 EXHIBIT 23 REPORT ON SCHEDULE AND CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Thomas Nelson, Inc.: The audits referred to in our report dated May 10, 2004, included the related consolidated financial statement schedule as of March 31, 2004 and 2003, and for the years 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 audits. The consolidated financial statement schedule for the year ended March 31, 2002 was audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on the consolidated financial statement schedule. In our opinion, such financial statement schedule as of March 31, 2004 and 2003 and for the years 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 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 in order to conform such disclosures to the 2003 composition of reportable segments, as more fully described in Note V to the consolidated financial statements. However, we were not engaged to audit, review, or apply any procedures to the 2002 consolidated financial statements other than with respect to such disclosures. /s/ KPMG LLP - ---------------------- Nashville, Tennessee June 14, 2004 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 EX-24 8 ex311032004k.txt EXHIBIT 31.1 TO FORM 10-K FOR PERIOD ENDED MARCH 31, 2004 EXHIBIT 31.1 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 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-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter inthe case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal cotnrol over fiancial reporting, 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 and matieral weakensses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, precess, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 14, 2004 By: /s/ Sam Moore ----------------------- Sam Moore Chairman and Chief Executive Officer EX-25 9 ex312032004k.txt EXHIBIT 31.2 TO FORM 10-K FOR PERIOD ENDED MARCH 31, 2004 EXHIBIT 31.2 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 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-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter inthe case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal cotnrol over fiancial reporting, 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 and matieral weakensses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, precess, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 14, 2004 By: /s/ Joe L. Powers ----------------------- Joe L. Powers Executive Vice President and Secretary (Principal Financial and Accounting Officer) EX-26 10 ex321032004k.txt EXHIBIT 32.1 TO FORM 10-K FOR PERIOD ENDED MARCH 31, 2004 EXHIBIT 32.1 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, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sam Moore, Chairman 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 Chairman and Chief Executive Officer June 14, 2004 EX-28 11 ex322032004k.txt EXHIBIT 32.2 TO FORM 10-K FOR PERIOD ENDED MARCH 31, 2004 EXHIBIT 32.2 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, 2004, 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 14, 2004 -----END PRIVACY-ENHANCED MESSAGE-----