-----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, LrfYsLeYbjF/grYFGkRZ+TJJftkBezHuG3HT4X05GOD1KmqivyO9FYMWsYrOCeIn IYaod/39j/rbGSrF6ao7qg== 0000071023-05-000012.txt : 20050614 0000071023-05-000012.hdr.sgml : 20050613 20050614162321 ACCESSION NUMBER: 0000071023-05-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050614 DATE AS OF CHANGE: 20050614 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: 05895127 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 mar2005k.txt FORM 10-K FOR QUARTER AND YEAR ENDED 3/31/05 (FY 2005) 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, 2005 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. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] As of June 13, 2005, the Registrant had outstanding 13,936,675 shares of Common Stock and 916,362 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 $335 million. The market value calculation was determined using the closing sale price of the Registrant's Common Stock and Class B Common Stock on June 13, 2005, 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, 2005 (market price of Equity Securities and dividend information only) Item 6 - Selected Financial Data Page 23 of Annual Report to Shareholders for year ended March 31, 2005 Item 7 - Management's Discussion and Pages 24 to 26 of Annual Report Analysis of Financial Condition to Shareholders for year ended and Results of Operations March 31, 2005 Item 7A - Quantitative and Qualitative Page 26 of Annual Report to Disclosures about Market Risk Shareholders for year ended March 31, 2005 Item 8 - Financial Statements and Pages 28 to 38 of Annual Supplementary Data Report to Shareholders for year ended March 31, 2005 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 18, 2005, 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 18, 2005, 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 18, 2005, 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 18, 2005 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 18, 2005, 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 Bibles and books in the United States. Books are published by the Company under several imprints including Thomas Nelson(R), W PublishingTM, J. Countryman(R), Tommy Nelson(R), Nelson Current, Rutledge Hill Press(R), Cool Springs PressTM, WestBow Press, Caribe-Betania Editores, Nelson Electronic and Reference, World Publishing and our newest imprint, Nelson Ignite, 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 2005, 2004 and 2003, the Company released 452, 480 and 523 new book titles, respectively. The Company publishes and distributes some of the best known communicators in Christian and inspirational publishing, including John Bevere, Lisa Bevere, Henry Blackaby, Dr. Don Colbert, Ted Dekker, 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, Dr. Charles Stanley and Charles Swindoll. In addition, the Company maintains a backlist of over 4,900 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 45% of the book division's net revenues in fiscal 2005. 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. Approximately 41% of the Company's net revenues from Bible publishing in fiscal 2005 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 PublishingTM 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 eveloping 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 3,400 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 2005, Women of Faith hosted 28 conferences throughout North America, which attracted approximately 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. During the last two fiscal years, womenoffaith.com shipped product to over 39,000 unique customers. 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, 2005, the Company employed a sales force of approximately 125 people and maintained 24-hour-a-day telemarketing capability. These employees service over 17,000 retail accounts and 39,000 church, school and consumer-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 2005. 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 2005, 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 each of 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, 2005, 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 the annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K available free of charge through the Company's website, as well as 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 75 Chairman of the Board, Chief Executive Officer and Director Michael S. Hyatt 49 President, Chief Operating Officer and Director Joe L. Powers 59 Executive Vice President, Chief Finacial Officer and Secretary Vance Lawson 46 Senior Vice President, Finance and Operations 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, Chief Financial Officer and Secretary 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, Incorporated since 1988. 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 has signed a lease commencing August 2005 for 41,000 square feet of office space which will replace the current office space lease of 38,000 square feet expiring November 2005. 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 Nashville, TN Sales office/publishing 41,000 $580,000 12/2013
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. This claim was settled in April 2005 with a payment of $18,125. 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 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, 2005 (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, 2005 and 2004. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure 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. Changes in Internal Control Over Financial Reporting There were no changes in the Company's internal controls over financial reporting during the Corporation's fiscal quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Management's Assessment on Internal Control Over Financial Reporting Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance that the controls and procedures will meet their objectives regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company's management assessed the effectiveness of the Company's internal control over financial reporting, based on the criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management's evaluation under the criteria in Internal Control - Integrated Framework, we concluded that our internal control over financial reporting was effective as of March 31, 2005. Management's assessment of the effectiveness of the Company's internal control over financial reporting as of March 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein. 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 18, 2005 (the "Proxy Statement"), to be filed within 120 days of March 31, 2005 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, 2005 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 1,326,486(1) 300,000 $11.94 539,000 Class B by security Common holders - -------------------------------------------------------------------------------
(1) Includes 231,684 options exercisable for either Class B or Common shares. 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 income - - years ended March 31, 2005, 2004 and 2003 Consolidated balance sheets -- March 31, 2005 and 2004 Consolidated statements of shareholders' equity and comprehensive income - - years ended March 31, 2005, 2004 and 2003 Consolidated statements of cash flow - - years ended March 31, 2005, 2004 and 2003 Notes to consolidated financial statements Report of KPMG LLP, Independent Registered Public Accounting Firm Report of KPMG LLP, Independent Registered Public Accounting Firm 2. Financial Statement Schedules The following consolidated financial statement schedules are included herein: Page ---- Schedule II -- Valuation and Qualifying Accounts and Allowances 17 Report of KPMG LLP, Independent Registered Public Accounting Firm 20 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. (b) Reports on Form 8-K - On February 2, 2005, the Company furnished a current report on Form 8-K to announce the results and financial condition for the third quarter of fiscal 2005. - On May 16, 2005, the Company furnished a current report on Form 8-K to announce the results and financial condition for the fourth quarter of fiscal 2005. - On May 23, 2005, the Company furnished a current report on Form 8-K to announce that Mr. Jesse T. Correll has decided not to stand for re-election to the Board but would serve the remainder of his term, which expires on August 18, 2005, the date of the Annual Meeting of Shareholders of the Company. 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 -- 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) 4.2 -- 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) 4.3 -- 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) 4.4 -- First Amendment to Revolving Credit Agreement dated August 27, 2004, among Thomas Nelson, Inc., the Lenders from time totime party thereto and SunTrust Bank, as Administrative Agent (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K dated August 30, 2004 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 -- 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)* 10.4 -- 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)* 10.5 -- 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)* 10.6 -- 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)* 10.7 -- 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)* 10.8 -- 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)* 10.9 -- 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) 10.10 -- 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) 10.11 -- 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) 10.12 -- 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)* 10.13 -- 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)* 10.14 -- 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)* 10.15 -- 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)* 10.16 -- Employment Agreement dated May 25, 2004 between the Company and Michael S. Hyatt (filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended March 31, 2004 and incorporated herein by reference)* 10.17 -- Employment Agreement dated March 25, 1998 between the Company and Jerry Park* 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 2005 (to the extent of portions specifically incorporated herein by reference) 21 -- Subsidiaries of the Company 23 -- Reports on Schedule and Consents of Independent Registered Accounting Firm 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. 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, 2005 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, 2005 - ---------------------------- Directors and Chief Executive Sam Moore Officer /s/ Michael S. Hyatt President and Chief Operating June 14, 2005 - ---------------------------- Officer Michael S. Hyatt /s/ Joe L. Powers Executive Vice President, June 14, 2005 - ---------------------------- Secretary, and Chief Financial Joe L. Powers Officer /s/ Ronald W. Blue Director June 14, 2005 - ----------------------------- Ronald W. Blue /s/ Jesse T. Correll Director June 14, 2005 - ----------------------------- Jesse T. Correll /s/ Brownlee O. Currey, Jr. Director June 14, 2005 - ----------------------------- Brownlee O. Currey, Jr. /s/ W. Lipscomb Davis, Jr. Director June 14, 2005 - ----------------------------- W. Lipscomb Davis, Jr. /s/ S. Joseph Moore Director June 14, 2005 - ----------------------------- S. Joseph Moore /s/ Millard V. Oakley Director June 14, 2005 - ----------------------------- Millard V. Oakley SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
March 31, March 31, March 31, 2005 2004 2003 ---------- ----------- ----------- Allowance for Sales Returns: - --------------------------- Balance at beginning of period $ 6,792,000 $ 6,046,000 $ 4,984,000 Additions: 1. Charged to costs and expenses 41,053,000 40,058,000 38,728,000 Deductions: 1. Charge-offs 40,408,000 39,312,000 37,666,000 ----------- ----------- ----------- Balance at end of period $ 7,437,000 $ 6,792,000 $ 6,046,000 =========== =========== =========== Allowance for Doubtful Accounts: - ------------------------------- Balance at beginning of period $ 1,159,000 $ 1,264,000 $ 1,435,000 Additions: 1. Charged to costs and expenses 600,000 1,262,000 1,463,000 Deductions: 1. Charge-offs 657,000 1,368,000 1,633,000 ----------- ----------- ----------- Balance at end of period $ 1,102,000 $ 1,159,000 $ 1,265,000 =========== =========== =========== Discontinued Operations: - ----------------------- Balance at beginning of period $ 158,000 $ 128,000 $ 6,313,000 Additions: 1. Charged to costs and expenses - 208,000 - Deductions: 1. Charge-offs 114,000 178,000 6,185,000 ---------- ----------- ----------- Balance at end of period $ 44,000 $ 158,000 $ 128,000 =========== =========== ===========
INDEX TO EXHIBITS Exhibit Page Number Description Number - ------ ----------- ------ 10.17 -- Employment Agreement dated March 25, 1998 between the Company and Jerry Park*.................................................19 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 2005 (to the extent of portions specifically incorporated by reference).............23 21 -- Subsidiaries of the Company.....................................52 23 -- Reports on Schedule and Consents of Independent Registered Accounting Firm......................................53 31.1 -- Certification of Sam Moore, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002...............................54 31.2 -- Certification of Joe L. Powers, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002...............................55 32.1 -- Certification of Sam Moore, pursuant to 18 U.S.C. Section 1350 - the Sarbanes-Oxley Act of 2002.........56 32.2 -- Certification of Joe L. Powers, pursuant to 18 U.S.C. Section 1350 - the Sarbanes-Oxley Act of 2002.........57 EX-10.17 3 ex10172005k.txt EXHIBIT 10.17 TO FY 2005 FORM 10-K EXHIBIT 10.17 EMPLOYMENT AGREEMENT This contract of Employment is made and entered into by and between Thomas Nelson, Inc., a Tennessee corporation, hereinafter referred to as "Employer", and Jerry Park, hereinafter referred to as "Employee." Employer desires to employ Employee in the capacity of Sr. Vice President, Trade Sales & Christian Markets, with all principal powers, duties and responsibilities attendant thereto, and such other duties as shall be requested of Employee by the Company, and Employee desires to be so employed by Employer. In consideration therefore, the parties mutually agree as follows: A. TERM OF AGREEMENT ----------------- The term of this contract shall be for a period of one (1) year commencing on January 27, 1998 and thereafter shall automatically renew for additional thirty (30) day periods unless 1) cancelled upon thirty (30) days written notice by either party or 2) superseded by a new employment agreement. B. EMPLOYEE COMPENSATION --------------------- Employee's remuneration shall be as set forth in Schedule A attached to this Agreement and incorporated herein. C. EMPLOYEE CONDUCT ---------------- As Sr. Vice President, Trade Sales & Christian Markets, Employee recognizes and understands his fiduciary relationship with and responsibilities to Employer. Employee therefore promises to act always in good faith and in the best interests of Employer in the discharge of his duties and obligations. Further, Employee agrees to devote his full time and efforts to his employment with Employer. Should Employee during the term of this Agreement fail to so devote his full working time and efforts to the benefit of Employer for any reason other than illness or disability, or should he engage in any activity or business enterprise competing or conflicting with the business or activities of Employer, its subsidiaries, partners, or agents, or should he engage in any illegal or criminal conduct or acts of insubordination, or should he violate any of the terms and provisions of Subparagraph D(1) hereunder, then Employer, at its sole discretion, may terminate the employment of Employee immediately. All Employee's rights hereunder shall end upon such termination by Employer and Employee's only rights in such event shall be to receive all salary accrued through the date of termination. D. CONFIDENTIAL CLAUSES AND NON-COMPETITION AGREEMENT -------------------------------------------------- Employee further agrees as follows: (1) During Employment by Employer: Confidential Information Employee recognizes and acknowledges that there are certain trade secrets related to Employer's Bible, book, gift, and related businesses including, but not limited to, the names, royalties, account information and/or business relationships pertaining to Employer's artists, authors, writers, customers, and manufacturers, as well as certain information related to manufacturing schedules and procedures, new products, future plans, marketing practices, sales volumes of various products, and other items of Employer's businesses not specifically mentioned herein. Employee recognizes and understands that he holds a position of fiduciary privilege, and except as authorized in writing by Employer, he agrees during the term of this Agreement and thereafter to refrain from disclosing to any person, firm, corporation, partnership, association or other business entity, or to use for his own benefit, any trade secrets, unique business information, plans, products, manufacturing data, customer lists, author or artist lists, or any other confidential information relating to any and all ongoing business activities of Employer, or its parent company, or its subsidiaries the disclosure of which he knows, or in the exercise of reasonable care should have reason to know, may, can, or will be damaging or harmful to Employer's business activities or those of its parent company, affiliates, or subsidiaries, or which disclosure shall serve to direct or divert corporate opportunities, product sales, and/or profits away from Employer, its parent company, its affiliates, its subsidiaries, partners, or agents, to the person, firm, corporation, partnership, association, or the given entity to whom or to which such disclosure is made. (2) Subsequent to Termination of Employment: Non-Competition Employee agrees that for a period extending two (2) years from the date of Employee's termination with Employer for any reason: (i) He will not negotiate or enter into any contract with any artist, author, writer, editor, designer, packager or other person who, at the time of termination, is under contract to Employer, or its parent, affiliates or subsidiaries, or with whom Employer or its parent, affiliates or subsidiaries is negotiating at such time, or with whom Employer or its parent, affiliates or subsidiaries enters into any contract or agreement during the non-compete period hereunder. Employee further agrees not to negotiate or enter into contract with any of the above persons for a period of two (2) years following the expiration of any such person's contract with Employer or its parent, affiliates or subsidiaries. (ii) He will not attempt to procure, nor encourage others to procure, the employment of any employees of Employer or its parent, affiliates or subsidiaries who are employed at the time of execution hereof, or such employees as may become employed by Employer or any of its subsidiaries during the non-compete period hereunder. (iii) He will not engage in publishing, producing, selling or distributing Bibles, religious or secular books, or audio/video product, or religious or secular gift or stationery products, nor divert to other companies any artists, authors, writers, editors, designers, packagers, or any other person under contract with Employer or its parent, affiliates or subsidiaries or with whom Employer is negotiating at the time of termination, in any geographical region in which Employer or its parent, affiliates or subsidiaries conduct such business or sell such products both as of the time of execution hereof and throughout the non-compete period hereunder. (iv) He agrees never to make, utter, write, nor otherwise publish derogatory or defamatory statements which can, may, or do cause harm, whether intended or not, to the relationship between Employer or its parent, affiliates, or subsidiaries and any of their customers, personnel, producers, artists, authors, or writers. E. REMEDIES -------- Employee acknowledges that he will receive privileged information from Employer during his employment and that he will have substantial access to Employer's trade secrets, business information and personnel data. In consideration of his employment and the privilege of access to Employer's trade secrets, information, business methods and procedures, and personnel data, Employee acknowledges that the restrictions contained within paragraph D are reasonable and necessary in order to preserve Employer's legitimate interests and that any violation thereof would result in irreparable injury to Employer for which monetary damages would be an inadequate remedy. Therefore, Employee acknowledges and agrees that in the event of any violations thereof, Employer may seek from any court of competent jurisdiction preliminary and permanent injunctive relief as well as an equitable accounting of all Employee'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 Employer may be entitled. In the event that any Non-Competition provision of this Agreement shall be held by a court of competent jurisdiction to be, in any respect, an unreasonable restriction of Employee, then the court so holding may reduce the territory to which it pertains and/or the period of time to which it operates or effect any other change to the extent necessary to render the Non-Competition provisions and the Non-Disclosure of Information provisions of this Contract enforceable by the said court. F. WAIVERABILITY OF PROVISIONS --------------------------- In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected nor impaired thereby and such provisions shall be enforced to the fullest extent possible in accordance with the mutual intent of the parties hereto. G. NON-WAIVER AGREEMENT -------------------- 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 the Employee and an officer of Employer. No waiver by either party hereto of the other 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. H. WARRANTIES AND REPRESENTATION ----------------------------- 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. I. APPLICABLE LAW -------------- The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Tennessee and the parties hereto submit to the exclusive jurisdiction of the courts of Davidson Country, Tennessee, which shall be the venue for resolution of any dispute arising herefrom. The costs 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 term hereof. Agreement is made and entered into this 25th day of March, 1998. ACCEPTED BY THOMAS NELSON, INC. /s/ Jerry Park By: /s/ Sam Moore - -------------------------- -------------------------- Jerry Park Name: Sam Moore -------------------------- Title: CEO -------------------------- EX-13 4 ex13032005k.txt EXHIBIT 13 TO FY 2005 FORM 10-K EXHIBIT 13 SELECTED FINANCIAL DATA (in thousands, except per share data)
YEARS ENDED March 31, 2005 2004 2003 2002 2001 - ----------------------------------------------------------------------------- OPERATING RESULTS (a): Net revenues $237,817 $222,619 $217,217 $215,552 $214,147 Operating income 31,708 27,140 18,926 16,563 17,785 Income from continuing operations 19,767 16,295 10,184 7,821 8,977 Income (loss) from discontinued operations (b) 50 (130) -- (16,862) (11,811) Cumulative effect of a change in accounting principle (c) -- -- -- (40,433) -- -------- -------- -------- -------- -------- Net income (loss) $ 19,817 $ 16,165 $ 10,184 $(49,474) $ (2,834) ======== ======== ======== ======== ======== Cash flow: Net cash provided by continuing operating activities $ 7,121 $ 27,752 $ 34,439 $ 23,199 $ 348 Net cash provided by (used in) discontinued operating activities 1,238 21,237 1,660 (3,092) 57 Net cash provided by (used in) investing activities (4,500) (6,866) (4,569) 34,705 (666) Net cash provided by (used in) financing activities (2,640) (21,050) (30,358) (56,411) 1,574 EBITDA(d): Income from continuing operations $ 19,767 $ 16,295 $ 10,184 $ 7,821 $ 8,977 Interest expense 644 882 3,026 4,295 3,738 Provision for income taxes 11,647 9,756 5,878 4,495 5,160 Depreciation and amortization 2,587 2,287 2,061 2,649 2,841 -------- -------- -------- -------- -------- EBITDA FROM CONTINUING OPERATIONS 34,645 29,220 21,149 19,260 20,716 -------- ------- -------- -------- -------- Changes in working capital and other (27,524) (1,468) 13,290 3,939 (20,368) -------- -------- -------- -------- -------- Net cash provided by continuing operating activities $ 7,121 $ 27,752 $ 34,439 $ 23,199 $ 348 ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------- FINANCIAL POSITION: Total assets $202,959 $179,266 $163,055 $185,389 $287,238 Working capital 90,423 77,075 60,994 84,262 140,466 Total debt 2,308 5,330 25,952 56,374 111,800 Shareholders' equity 124,621 102,982 87,824 77,576 127,437 Long-term debt to total capitalization 1.8% 4.9% 22.8% 42.1% 46.7% - ----------------------------------------------------------------------------- DILUTED PER SHARE DATA (a): Income per share from continuing operations $ 1.31 $ 1.09 $ 0.70 $ 0.54 $ 0.62 Income (loss) per share from discontinued operations (b) -- (1.01) -- (1.16) (0.82) Cumulative effect of a change in accounting principle (c) -- -- -- (2.79) -- -------- -------- -------- -------- -------- Net income (loss) per share $ 1.31 $ 1.08 $ 0.70 $ (3.41) $ (0.20) ======== ======== ======== ======== ======== Dividends declared per share $ 0.19 $ 0.12 $ -- $ 0.04 $ 0.16 Book value per share 8.42 7.12 6.11 5.40 8.88 Weighted average number of shares outstanding (e) 15,107 14,999 14,596 14,488 14,535
(a) For all periods presented, operating results and per share data have been reestated for discontinued operations. (b) Discontinued operations include Ceres Candles and Gifts, Remuda Ranch Center for Anorexia and Bulimia, Inc. and The C.R. Gibson Company. (c) 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. (d) 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. (e) 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 EXECUTIVE SUMMARY Thomas Nelson, Inc. publishes Bibles, books, audios, videos and CD-ROM products and hosts inspirational conferences, designed to appeal to the Christian and family-oriented lifestyle segments of the population. The Company's business strategy is to publish high-quality products and offer related conference services for the Christian and general retail markets. Thomas Nelson's Common Stock and Class B Common Stock are listed on the New York Stock Exchange under the symbols TNM and TNMB, respectively. More information can be found at our website: www.thomasnelson.com. Net revenues in fiscal 2005 increased 6.8% over fiscal 2004. Net revenues from publishing products increased 5.8%, primarily due to a strong performance from our new imprints, WestBow Press (fiction) and Nelson Impact (curriculum) and this being the first full year for our World Publishing acquisition. Net revenues from conferences increased 13.4%, compared to the prior fiscal year. This improvement relates to stronger attendance levels at the events and higher product sales per attendee. We hosted 28 events this fiscal year compared to 29 events in the prior fiscal year. This summary should be read together with the complete Management's Discussion and Analysis and the related financial statements and notes thereto. CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS The following discussion includes certain forward-looking statements (all statements other than those made solely with respect to historical fact) and the actual results may differ materially from those contained in the forward-looking statements due to known and unknown risks and uncertainties. Any one or more of several risks and uncertainties could account for differences between the forward-looking statements that are made here and the actual results, including with respect to our sales, profits, liquidity and capital position. These factors include, but are not limited to: softness in the general retail environment or in the markets for our products; the timing and acceptance of products being introduced to the market; the level of product returns experienced; the level of margins achievable in the marketplace; the collectibility of accounts receivable; the recoupment of royalty advances; the effects of acquisitions or dispositions; the financial condition of our customers and suppliers; the realization of inventory values at carrying amounts; our access to capital; the outcome of any Internal Revenue Service audits; and the realization of income tax and intangible assets. These conditions cannot be predicted reliably, and the Company may adjust its strategy in light of changed conditions or new information. Thomas Nelson disclaims any obligation to update forward-looking statements. 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) ------------------------ ------------------------- 2005 2004 2003 2004 to 2005 2003 to 2004 ------ ------ ------ ------------ ------------ Net Revenues: Publishing 85.9% 86.8% 86.4% 5.8% 3.0% Conferences 14.1 13.2 13.6 13.4 (0.5) ------ ------ ------ ------ ------ Total net revenues 100.0 100.0 100.0 6.8 2.5 Costs and expenses: Cost of goods sold 56.4 58.2 59.6 3.5 0.1 Selling, general and administrative 29.2 28.6 30.8 9.1 (4.8) Depreciation and amortization 1.1 1.0 0.9 13.1 11.0 ------ ------ ------ ------ ------ Total costs and expenses 86.7 87.8 91.3 5.4 (1.4) ------ ------ ------ ------ ------ Operating income 13.3 12.2 8.7 16.8 43.4 Interest expense 0.3 0.4 1.4 (27.0) (70.9) ------ ------ ------ ------ ------ Net income 8.3% 7.3% 4.7% 21.3% 60.0% ====== ====== ====== ====== ======
The Company's net revenues fluctuate seasonally, with revenues in the first fiscal quarter historically being less than each of 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. Fiscal 2005 Compared to Fiscal 2004 - ----------------------------------- Net revenues in fiscal 2005 increased $15.2 million or 6.8% over fiscal 2004. Net revenues from publishing products increased $11.2 million or 5.8%, primarily due to a strong performance by our new imprints WestBow Press (fiction) and Nelson Impact (curriculum) and this being the first full year for our World Publishing acquisition. Net revenues from conferences increased $4 million, or 13.4%, primarily due to larger attendance at the events and higher product sales per attendee. We hosted 28 events in fiscal 2005 compared to 29 events in fiscal 2004. These events include 2 national events in fiscal 2005 compared to 1 national event in fiscal 2004. A national event is a 3-day event compared to our normal 2-day event and, as such, carries a higher ticket price. Price increases did not have a material effect on net revenues. The Company's cost of goods sold increased $4.5 million, or 3.5% from fiscal 2004 and, as a percentage of net revenues, decreased to 56.4% from 58.2% in the prior year. The improvement in cost of goods sold as a percentage of net revenues is primarily attributable to improved recovery on sales of excess publishing product inventories and improved recovery of royalty advances on publishing products. The improvement in publishing products was partially offset by a planned increase in cost of goods sold at conferences as a percentage of net revenues as an attempt to increase attendance and total profit at conference events. Selling, general and administrative expenses, excluding depreciation and amortization, increased by $5.8 million, or 9.1% from fiscal 2004 and, as a percentage of net revenues, increased to 29.2% from 28.6%. The increase in dollars and percentage over the prior year is primarily attributable to additional expenditures required for compliance with the Sarbanes-Oxley Act, planned increases in advertising, variable expenses that increased in relation to net revenues, and overhead investments in certain publishing areas for future growth, such as fiction, curriculum, World Publishing and direct to school sales programs. Depreciation and amortization increased slightly from the prior year due to building improvements and investments in computer hardware and software. Other income consists primarily of interest income from cash equivalents and notes payable (included in other assets). The loss in fiscal 2004 was attributable to an abandoned, unconsolidated start-up joint venture, partially offset by interest income. Interest expense for fiscal 2005 was $0.6 million compared to $0.9 million in the prior year, a decrease of $0.3 million due to lower debt levels. The provision for income taxes for fiscal 2005 was 37.1% compared to 37.5% in the prior year. The decline in the effective tax rate is primarily attributable to a permanent tax difference related to product donations to charitable organizations during the fourth quarter of fiscal 2005. We expect our annual marginal income tax rate to be 38% for future earnings, unless we donate additional products in the future. 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. 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. Lower costs of goods sold as a percentage of net revenues from publishing products were partially offset by higher cost of goods sold in conferences. The improvement in cost of good sold for publishing products was primarily due to strong performing publishing products and improved recovered costs from excess and obsolete inventories and royalty advances. The increase in cost of goods sold 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. 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 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. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2005, the Company had $24.0 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, 2005, the Company had working capital of $90.4 million. Under its bank credit facilities, at March 31, 2005, the Company had no borrowings outstanding, and $50 million available for borrowing, compared to no borrowings outstanding and $65 million available for borrowing at March 31, 2004. Net cash provided by operating activities was $8.4 million, $49.0 million and $36.1 million in fiscal 2005, 2004 and 2003, respectively. The cash provided by operations during fiscal 2005 was principally attributable to income from operations, partially offset by royalty advances paid to key authors for future projects. The cash generated by operations during fiscal 2004 was principally attributable to income from 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. During fiscal 2005, capital expenditures totaled approximately $4.2 million. The capital expenditures were primarily for office renovations, computer software and equipment at the corporate headquarters and warehouse. In fiscal 2006, the Company anticipates capital expenditures of approximately $6.7 million, consisting primarily of corporate office renovations, computer equipment, computer software and warehousing equipment. In April 2003, the Company received a tax refund of $18.7 million. This tax refund was related to the disposal of the Company's C.R. Gibson gift division and was used to pay down debt. Further, the Company has reduced subsequent income tax payments by approximately $2.9 million related to additional tax credits generated by the tax loss realized on the disposal of C.R. Gibson. 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 and any tax credits will be recorded as a non-current tax liability. If the Company's position is sustained, the Company will record the refund and any tax credits as income from discontinued operations. The Company's bank credit facility is a $50 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 matures on October 15, 2008. At March 31, 2005, the Company had no balance outstanding under the Credit Facility and $50 million available for borrowing. At March 31, 2005, the Company was in compliance with all covenants of the Credit Facility. The Company has outstanding $2.3 million in secured Senior Notes, which bear interest at a rate of 6.68% due through December 2005. 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, 2005, 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 2006. The Company' 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 2010 and (in 000's) 2006 2007 20088 2009 thereafter Total - --------------------- ------- ------- ------- ------- ---------- ------- Long-term debt $ 2,308 $ - $ - $ - $ - $ 2,308 Inventory purchases 8,729 5,417 5,000 3,333 - 22,479 Operating leases 1,205 692 1,188 978 3,740 7,803 Royalty advances 7,529 1,692 993 788 1,114 12,116 ------- ------- ------- ------- ------- ------- Total obligations $19,771 $ 7,801 $ 7,181 $5,099 $ 4,854 $44,706 ======= ======= ======= ======= ======= =======
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 following table indicates dividend activity for the fiscal year ended March 31, 2005. Dividends relate to both Common Stock and Class B Common Stock.
Declaration Dividend Record Payment Date Per Share Date Date ----------- --------- ---------------- ------------ May 20, 2004 $0.04 July 5, 2004 July 19, 2004 August 19, 2004 $0.05 October 7, 2004 October 21, 2004 November 18, 2004 $0.05 January 6, 2005 January 20, 2005 February 17, 2005 $0.05 April 4, 2005 April 18, 2005
Class B Common Stock carries ten votes per share, compared to one vote per share for Common Stock, and is convertible to Common Stock on a one-to-one ratio at the election of the holder. The Class B and Common Stock are identical in all other material respects. ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123R (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, supersedes APB No. 25 and related interpretations and amends SFAS No. 95, "Statement of Cash Flows." The provisions of SFAS 123R are similar to those of SFAS 123; however, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements as compensation cost based on their fair value on the date of grant. Fair value of share-based awards will be determined using option-pricing models and assumptions that appropriately reflect the specific circumstances of the awards. Compensation cost will be recognized over the vesting period based on the fair value of awards that actually vest. SFAS 123R is effective for all public companies no later than the first annual period beginning after June 15, 2005 and applies to all outstanding and unvested share-based payment awards at a company's adoption date. We plan to adopt this pronouncement beginning in the first quarter of fiscal 2007, using the modified-prospective transition method. Under this method, compensation cost will be recognized in the financial statements issued subsequent to the date of adoption for all share-based payments granted, modified or settled after the date of adoption, as well as for any unvested awards that were granted prior to the date of adoption. As we previously adopted only the pro forma disclosures under SFAS 123, we will recognize compensation cost relating to the unvested portion of awards granted prior to the date of adoption, using the same estimate of grant-date fair value and the same option pricing model used to determine the pro forma disclosures under SFAS 123 (see Note A of the Notes To 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, 2005. Interest income on invested cash is not material. The Company invoices and collects all foreign sales and makes purchses from overseas in U.S. dollars. Accordingly, the Company's customers and vendors bear all material currency exchange risks. 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 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. 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 a 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: 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 impairment testing in fiscal 2005 and 2004 indicated no goodwill impairment was evident. MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance that the controls and procedures will meet their objectives regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company's management assessed the effectiveness of the Company's internal Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management's evaluation under the criteria in Internal Control - Integrated Framework, we concluded that our internal control over financial reporting was effective as of March 31, 2005. Management's assessment of the effectiveness of the Company's internal control over financial reporting as of March 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein. THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)
Years Ended March 31, -------------------------------- 2005 2004 2003 -------- -------- -------- NET REVENUES $237,817 $222,619 $217,217 COSTS AND EXPENSES: Cost of goods sold 134,057 129,532 129,378 Selling, general and administrative 69,465 63,660 66,852 Depreciation and amortization 2,587 2,287 2,061 -------- -------- -------- Total costs and expenses 206,109 195,479 198,291 -------- -------- -------- OPERATING INCOME 31,708 27,140 18,926 Other income (expense) 354 (241) 205 Interest expense 644 882 3,026 -------- -------- -------- Income from continuing operations before income taxes 31,418 26,017 16,105 Provision for income taxes 11,647 9,756 5,878 Minority interest 4 (34) 43 -------- -------- -------- Income from continuing operations 19,767 16,295 10,184 Discontinued operations: Gain (loss) on disposal, net of applicable tax expense of $31 and tax benefit of $78, respectively 50 (130) - -------- -------- -------- Net income $ 19,817 $ 16,165 $ 10,184 ======== ======== ======== Weighted average number of shares outstanding: Basic 14,649 14,404 14,368 ======== ======== ======== Diluted 15,107 14,999 14,596 ======== ======== ======== NET INCOME (LOSS) PER SHARE: Basic: Income from continuing operations $ 1.35 $ 1.13 $ 0.71 Loss from discontinued operations - (0.01) - -------- -------- -------- Net income per share $ 1.35 $ 1.12 $ 0.71 ======== ======== ======== Diluted: Income from continuing operations $ 1.31 $ 1.09 $ 0.70 Loss from discontinued operations - (0.01) - -------- -------- -------- Net income (loss) per share $ 1.31 $ 1.08 $ 0.70 ======== ======== ======== See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, -------------------- 2005 2004 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 23,999 $ 22,780 Accounts receivable, less allowances of $8,539 and $7,951, respectively 60,907 56,275 Inventories 36,678 30,341 Prepaid expenses 18,037 14,018 Deferred income tax benefits 4,797 4,470 -------- -------- Total current assets 144,418 127,884 Property, plant and equipment, net 14,618 13,039 Other assets 12,181 6,425 Deferred charges 1,353 1,754 Intangible assets 1,085 860 Goodwill 29,304 29,304 -------- -------- TOTAL ASSETS $202,959 $179,266 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 25,304 $ 19,753 Accrued expenses 12,699 13,278 Deferred revenue 9,784 11,758 Dividends payable 740 579 Income taxes currently payable 3,160 2,419 Current portion of long-term debt 2,308 3,022 -------- -------- Total current liabilities 53,995 50,809 Long-term debt, less current portion - 2,308 Long-term taxes payable 22,592 21,290 Deferred tax liabilities 911 568 Other liabilities 827 1,300 Minority interest 13 9 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 13,875,108 and 13,502,855 shares, respectively 13,875 13,503 Class B Common Stock, $1.00 par value, authorized 5,000,000 shares; issued 923,762 and 963,195 shares, respectively 924 963 Additional paid-in capital 48,978 44,697 Retained earnings 60,844 43,819 -------- -------- Total shareholders' equity 124,621 102,982 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $202,959 $179,266 ======== ======== 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, 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) -------- -------- --------- -------- -------- Balance at March 31, 2004 $13,503 $ 963 $44,697 $43,819 $102,982 ======== ======== ========= ======== ======== Net and comprehensive income 19,817 19,817 Class B Stock converted to common 39 (39) - Common Stock issued: Option plans -- 332,821 common shares 333 2,792 3,125 Tax benefit from stock options exercised - - 1,489 - 1,489 Dividends declared -- $0.19 per share (2,792) (2,792) -------- -------- --------- -------- -------- Balance at March 31, 2005 $13,875 $ 924 $48,978 $60,844 $124,621 ======== ======== ========= ======== ======== See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years ended March 31, ------------------------------------ 2005 2004 2003 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $19,767 $16,295 $10,184 Adjustments to reconcile income to net cash provided by continuing operations: Depreciation and amortization 2,587 2,287 2,061 Amortization of deferred charges 170 210 378 Deferred income taxes 16 462 2,810 Loss on sale of fixed assets and assets held for sale 16 110 36 Minority interest 4 (34) 43 Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net (4,632) (135) 4,794 Inventories (6,337) 7,447 5,558 Prepaid expenses (4,019) (463) 4,050 Accounts payable and accrued expenses 5,086 (1,122) 2,590 Deferred revenue (1,974) 265 271 Income taxes currently payable 741 40 1,879 Change in other assets and liabilities (5,793) 2,390 (215) Tax benefit from stock options exercised 1,489 - - ---------- ---------- ---------- Net cash provided by continuing operations 7,121 27,752 34,439 ---------- ---------- ---------- Discontinued operations: Loss on disposal 50 (130) - Federal income tax payable 1,302 21,290 - Changes in discontinued net assets (114) 77 1,660 ---------- ---------- ---------- Net cash provided by discontinued operations 1,238 21,237 1,660 ---------- ---------- ---------- Net cash provided by operating activities 8,359 48,989 36,099 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,153) (3,666) (4,596) Net proceeds from sales of property, plant and equipment and assets held for sale 3 1,734 27 Purchase of net assets of acquired companies - net of cash received - (4,559) - Acquisition of publishing rights (350) (375) - ---------- ---------- ---------- Net cash used in investing activities (4,500) (6,866) (4,569) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments under revolving credit facility - (17,000) (27,100) Payments on long-term debt (3,022) (3,622) (3,322) Dividends paid (2,631) (1,152) - Proceeds from issuance of Common Stock 3,125 724 64 Other (112) - - ---------- ---------- ---------- Net cash used in financing activities (2,640) (21,050) (30,358) ---------- ---------- ---------- Net increase cash and cash equivalents 1,219 21,073 1,172 Cash and cash equivalents at beginning of year 22,780 1,707 535 ---------- ---------- ---------- Cash and cash equivalents at end of year $23,999 $22,780 $ 1,707 ========== ========== ========== Supplemental disclosures of noncash investing and financing activities: Dividends accrued and unpaid $ 740 $ 579 $ - See Notes to Consolidated Financial Statements
Thomas Nelson, Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE A - DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS: Thomas Nelson, Inc. (a Tennessee corporation) and subsidiaries (the "Company"), is a publisher, producer and distributor of Bibles, books, 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, 2005. 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. OPERATING SEGMENTS: The Company is organized and managed based upon its products and services. The Company has identified two reportable business segments: publishing and conferences. The publishing segment primarily creates and markets Bibles, inspirational books and videos. The conference segment hosts inspirational 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 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 conferences 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. Our credit department identifies specific allowances for each customer who is deemed to be a collection risk or may have filed for bankruptcy protection or may have disputed amounts with the Company. INVENTORIES: Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) valuation method. The FIFO method of accounting for inventory was selected to value our inventory at the lower of market or current cost because the Company continuously introduces new products, eliminates existing products and redesigns products. Therefore, inflation does not have a material effect on the valuation of inventory. Costs of producing publishing products are included in inventory and charged to operations when product is sold or otherwise disposed. These costs include paper, printing, binding, outside editorial and design, typesetting, artwork, international freight and duty costs, when applicable. The Company policy is to expense all internal editorial, production, warehousing and domestic freight-in costs as incurred, except for certain indexing, stickering, typesetting and assembly costs, which are capitalized into inventory. Costs of abandoned publishing projects are charged to operations when identified. The Company also maintains an allowance for excess and obsolete inventory as a reduction to inventory in the accompanying consolidated 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: 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 impairment testing in fiscal 2005 and 2004 indicated no goodwill impairment was evident. IMPAIRMENT OF LONG-LIVED ASSETS: 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. 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 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 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 a 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 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.
2005 2004 2003 -------- -------- -------- Net income (in thousands): As reported $19,817 $16,165 $10,184 ======== ======== ======== Less: additional stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects 1,760 1,781 1,346 -------- -------- -------- Pro forma net income $18,057 $14,384 $ 8,838 ======== ======== ======== Net income (loss) per share: Basic -- As reported $ 1.35 $ 1.12 $ 0.71 ======== ======== ======== Pro forma $ 1.23 $ 1.00 $ 0.62 ======== ======== ======== Diluted -- As reported $ 1.31 $ 1.08 $ 0.70 ======== ======== ======== Pro forma $ 1.20 $ 0.96 $ 0.61 ======== ======== ========
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:
2005 2004 2003 -------- -------- -------- Expected future dividend payment $ 0.20 $ 0.16 $ - Expected stock price volatility 51.4% 45.2% 39.9% Risk free interest rate 4.5% 3.3% 5.0% Expected life of options 9 years 9 years 9 years Average fair value $12.61 $ 6.18 $ 7.77
At March 31, 2005, there were no other securities outstanding that could potentially dilute basic earnings per share in the future. 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 all changes to equity during a period, excluding those resulting from investments by stockholders and distributions to stockholders. Comprehensive income (loss) was the same as net income (loss) for the periods presented. STATEMENT OF CASH FLOWS: For purposes of the consolidated statement of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less as cash equivalents. 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, 2005 2004 2003 ----------- ----------- ----------- BASIC EARNINGS PER SHARE: - ------------------------ Weighted average shares outstanding 14,649 14,404 14,368 =========== =========== =========== Income from continuing operations $19,767 $16,295 $10,184 Loss from discontinued operations 50 (130) - ----------- ----------- ----------- Net income (loss) $19,817 $16,165 $10,184 =========== =========== =========== Income per share from continuing operations $ 1.35 $ 1.13 $ 0.71 Loss per share from discontinued operations - (0.01) - ----------- ----------- ----------- Net income (loss) per share $ 1.35 $ 1.12 $ 0.71 =========== =========== =========== DILUTED EARNINGS PER SHARE: - -------------------------- Basic weighted average shares outstanding 14,649 14,404 14,368 Dilutive stock options - based on treasury stock method using the average market price 458 595 228 ----------- ----------- ----------- Total shares 15,107 14,999 14,596 =========== =========== =========== Income from continuing operations $19,767 $16,295 $10,184 Loss from discontinued operations 50 (130) - ----------- ----------- ----------- Net income (loss) $19,817 $16,165 $10,184 =========== =========== =========== Income per share from continuing operations $ 1.31 $ 1.09 $ 0.70 Loss per share from discontinued operations - (0.01) - ----------- ----------- ----------- Net income per share $ 1.31 $ 1.08 $ 0.70 =========== =========== ===========
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 December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123R (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, supersedes APB No. 25 and related interpretations and amends SFAS No. 95, "Statement of Cash Flows." The provisions of SFAS 123R are similar to those of SFAS 123; however, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements as compensation cost based on their fair value on the date of grant. Fair value of share-based awards will be determined using option-ricing models and assumptions that appropriately reflect the specific circumstances of the awards. Compensation cost will be recognized over the vesting period based on the fair value of awards that actually vest. SFAS 123R is effective for all public companies no later than the first annual period beginning after June 15, 2005 and applies to all outstanding and unvested share-ased payment awards at a company's adoption date. We plan to adopt this pronouncement beginning in the first quarter of fiscal 2007 using the modified-prospective transition method. Under this method, compensation cost will be recognized in the financial statements issued subsequent to the date of adoption for all shared-based payments granted, modified or settled after the date of adoption, as well as for any unvested awards that were granted prior to the date of adoption. As we previously adopted only the pro forma disclosures under SFAS 123, we will recognize compensation cost relating to the unvested portion of awards granted prior to the date of adoption using the same estimate of grant-date fair value and the same option pricing model used to determine the pro forma disclosures under SFAS 123 (see "Stock-Based Compensation" above). 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 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' wholly-owned subsidiary, The C.R. Gibson Company ("Gibson"). Gibson is a designer, marketer and distributor of stationery and memory albums (the Company' 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 2005, the Company recorded income on disposal of $81,000 to record final final settlement of certain reserved items, partially offset by legal expenses. 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):
2005 2004 -------- -------- Finished goods $33,540 $28,000 Work in process and raw materials 3,138 2,341 -------- -------- $36,678 $30,341 ======== ========
NOTE E - PREPAID EXPENSES Prepaid expenses consisted of the following at March 31 (in thousands):
2005 2004 -------- -------- Royalties $13,327 $ 9,155 Prepaid conference expenses 2,490 2,702 Prepaid production costs 968 1,257 Other 1,252 904 -------- -------- $18,037 $14,018 ======== ========
NOTE F - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at March 31 (in thousands):
2005 2004 -------- -------- Land $ 291 $ 291 Buildings 12,616 12,172 Machinery and equipment 11,958 12,036 Furniture and fixtures 4,109 3,873 Construction in progress 3,023 2,517 -------- -------- 31,997 30,889 Less accumulated depreciation and amortization ( 17,379) ( 17,850) -------- -------- $14,618 $13,039 ======== ========
Depreciation expense was $2.5 million, $2.3 million and $2.1 million for fiscal years 2005, 2004 and 2003, respectively. NOTE G - DEFERRED CHARGES Deferred charges consisted of the following at March 31 (in thousands):
2005 2004 -------- -------- Deferred publication costs $1,149 $1,492 Deferred finiancing charges 204 262 -------- -------- $1,353 $1,754 ======== ========
Amortization for deferred charges was $0.2, $0.2 and $0.4 million for fiscal 2005, 2004 and 2003, respectively. NOTE H - OTHER ASSETS Other assets consisted of the following at March 31 (in thousands):
2005 2004 -------- -------- Prepaid royalties $ 7,715 $2,302 Notes receivable 2,000 2,000 Cash surrender value of life insurance policies 2,324 1,907 Other 142 216 -------- -------- $12,181 $6,425 ======== ========
NOTE I - GOODWILL AND INTANGIBLE ASSETS
Weighted Gross Average Net Carrying Amortization Accumulated Carrying Amount Period Amortization Amount -------- ------------ ------------ --------- Goodwill $29,304 ========= Intangible assets - ----------------- Amortizable: Publishing rights and copyrights $3,295 5 $2,712 583 Non-amortizable: Publishing rights 502 n/a - 502 -------- ------------ --------- Total intangible assets $3,797 $2,712 $ 1,085 ======== ============ =========
Amortization expense for intangible assets was $93,000, $88,000 and $31,000 for fiscal years 2005, 2004 and 2003, respectively. Estimated amortization expense for the next five years is $100,000 in each of fiscal years 2006, 2007, 2008, 2009 and 2010. NOTE J - ACCRUED EXPENSES Accrued expenses consisted of the following at March 31 (in thousands):
2005 2004 -------- -------- Accrued royalties $ 5,288 $ 4,408 Accrued compensation 6,078 5,943 Accrued group insurance 23 692 Accrued interest 39 95 Accrued sales and property tax 106 274 Net liability of discontinued operations 44 158 Accrued conference expenses 194 711 Unclaimed perperty liabilities 177 199 Accured legal and audit 229 80 Contractual commitments 116 116 Other 405 602 -------- -------- $12,699 13,278 ======== ========
Cash payments for interest were $0.7 million in 2005 $1.1 million in 2004, and $3.1 million in 2003. NOTE K - LONG-TERM DEBT Long-term debt consisted of the following at March 31 (in thousands):
2005 2004 -------- -------- Credit facility $ - $ - Senior notes 2,308 5,330 -------- -------- 2,308 5,330 Less current portion (2,308) (3,022) ------- ------- $ - $2,308 ======= =======
The Company's bank credit facility is a $50 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 3.9% at March 31, 2005. 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 matures on October 15, 2008. At March 31, 2005, the Company had no outstanding balance under the Credit Facility and $50 million available for borrowing. At March 31, 2005, the Company was in compliance with all covenants of the Credit Facility. The Company has outstanding $2.3 million in secured Senior Notes, which bear interest at a rate of 6.68% 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, 2005, the Company was in compliance with all covenants of the Senior Notes. 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 $1.9 million in 2005, $2.0 million in 2004 and $2.7 million in 2003. 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):
2006 $1,205 2007 692 2008 1,188 2009 978 2010 and thereafter 3,740 ------- Total minimum lease payments $7,803 =======
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, 2002 775,491 946,500 325,000 $ 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 1,383,834* - 10.09 ================================= Options canceled 75,534 (75,534) - 10.69 Options exercised - (91,823)** - 8.20 Options granted (340,000) 340,000 - 11.98 $6.74 Termination of Plan (390,025) - - - --------------------------------- March 31, 2004 - 1,556,477 - 8.87 ================================= Options canceled (58,170) 12.98 Options exercised (332,821) 9.39 Options granted - --------------------------------- March 31, 2005 1,165,486 $10.78 ======================================================== * Includes 231,684 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") 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 ----------------------------------- Options canceled - - - Options exercised - - - Options granted (161,000) 161,000 19.55 $12.61 ----------------------------------- March 31, 2005 539,000 161,000 300,000 14.85 ----------------------------------- Consolidation of Plans 539,000 1,326,486 300,000 $11.94 ==========================================================
As of March 31, 2005, there were exercisable options outstanding to purchase 817,823 shares of Common Stock and 100,000 shares of Class B Common Stock with a weighted average exercise price of $10.21. 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. At March 31, 2005, the range of exercise prices and weighted average remaining contractual life of outstanding options was $6.95 to $19.80 and 6.1 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 and dividend payment dates, based on changes in the quoted price of the Company's Common Stock. During fiscal years 2005, 2004 and 2003, compensation expense in relation to the Deferred Compensation Plan was recorded in the amounts of approximately $(0.1) million, $0.5 million and $0.1 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 for each of the fiscal years ended 2005, 2004 and 2003. 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 2005 and 2004, LEM matched 20% of all employee contributions, up to 15% of eligible compensation. The Company's matching contributions under this plan totaled $26,000, $16,000 and $17,000 during fiscal 2005, 2004 and 2003, 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 following table indicates dividend activity for the fiscal year ended March 31, 2005. Dividends relate to both Common Stock and Class B Common Stock.
Declaration Date Dividend Per Share Record Date Payment Date ---------------- ------------------ --------------- ---------------- May 20, 2004 $0.04 July 5, 2004 July 19, 2004 August 19, 2004 $0.05 October 7, 2004 October 21, 2004 November 18, 2004 $0.05 January 6, 2005 January 20, 2005 February 17, 2005 $0.05 April 4, 2005 April 18, 2005
Class B Common Stock carries ten votes per share, compared to one vote per share for Common Stock, and is convertible to Common Stock on a one-to-one ratio at the election of the holder. The Class B and Common Stock are identical in all other material respects. NOTE P - INCOME TAXES The income tax provision (benefit) is comprised of the following for the fiscal years ended March 31, (in thousands):
2005 2004 2003 -------- -------- -------- Current: U.S. federal $10,300 $8,300 $2,900 State 1,362 916 168 -------- -------- -------- Total current 11,662 9,216 3,068 Deferred 16 462 2,810 -------- -------- -------- Total tax provision (benefit) $11,678 $9,678 $5,878 ======== ======== ======== Provision for income taxes from continuing operations $11,647 $9,756 $5,878 Provision (benefit) for income taxes from discontinued operations 31 (78) - -------- -------- -------- Total tax provision $11,678 $9,678 $5,878 ======== ======== ========
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. The valuation allowance decreased $357,000 in fiscal 2005 due to the expiration of state net operating loss carryforwards. The net deferred tax asset is comprised of the following at March 31 (in thousands):
2005 2004 -------- -------- Net current deferred tax assets: Contributions $ - $ 94 Inventory obsolescence allowances 927 840 Bad debt and returns allowances 2,589 2,353 Inventory-uniform capitalization tax adjustment 988 956 Advances and prepaid expenses 134 140 Accrued liabilities/other 159 87 State net operating loss carryforwards 260 617 Valuation allowance (260) (617) -------- -------- 4,797 4,470 Net non-current deferred tax liabilities: Accelerated depreciation and amortization (1,284) (1,021) Note receivable bad debt reserve 147 183 Accrual liability 226 270 -------- -------- (911) (568) -------- -------- Net deferred taxes $3,886 $3,902 ======== ========
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:
2005 2004 2003 -------- -------- -------- U.S. federal statutory tax rate provision 35.0% 35.0% 35.0% State taxes on income, net of federal tax effect 2.7% 2.5% 1.5% Permanent difference for product donations (0.6%) - - -------- -------- -------- Effective tax rate 37.1% 37.5% 36.5% ======== ======== ========
Net cash payments (received) for income taxes were $8.7 million, $(11.7) million and $1.8 million in 2005, 2004 and 2003, respectively. Long-term taxes payable at March 31, 2005 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 subsequent income tax payments by approximately $2.9 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 non-current 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 for each quarter in the fiscal years ended March 31, 2005 and 2004 are as follows (dollars in thousands, except basic per share data):
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 2005 - ---- Net revenues $49,008 $61,902 $63,355 $63,552 Operating income 3,196 10,602 8,905 9,005 Net income 1,871 6,424 5,468 6,054 Net income per share, basic 0.12 0.43 0.36 0.40 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 6,618 3,950 4,540 Net income per share, basic 0.07 0.45 0.26 0.30
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 $12.1 million at March 31, 2005. 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 $22.5 million over the next five years. The Company is subject to various other legal proceedings, claims and liabilities that 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, 2005, 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 $0.3 million at March 31, 2005. 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 $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, 2005 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, 2005 and 2004, respectively. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market transaction (in thousands):
2005 2004 --------------------- --------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value --------- ---------- --------- ---------- CASH AND CASH EQUIVALENTS $23,999 $23,999 $22,780 $22,780 LONG-TERM DEBT: Senior notes $ 2,308 $ 2,329 $ 5,330 $ 5,474
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. Outstanding letters of credit totaled $1.3 million and $1.1 million as of March 31, 2005 and 2004, 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, 2005 and 2004. 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).
2005 Publishing Conferences Other Total - ---- ---------- ----------- -------- ---------- Net revenues $204,398 $33,419 $ - $237,817 Operating income 28,421 3,287 - 31,708 Assets, excluding goodwill 166,068 5,587 2,000 173,655 Goodwill 14,169 15,135 - 29,304 Total assets 180,237 20,722 2,000 202,959 Capital expenditures 3,657 496 - 4,153 Depreciation and amortization 2,364 223 - 2,587 2004 - ---- Net revenues $193,161 $ 29,458 $ - $222,619 Operating income 24,823 2,317 - 27,140 Assets, excluding goodwill 143,057 4,905 2,000 149,962 Goodwill 14,169 15,135 - 29,304 Total assets 157,226 20,040 2,000 179,266 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 14,486 4,440 - 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
Net revenues from conferences include event ticket sales of $24.1 million, $21.9 million and $22.2 million for fiscal years 2005, 2004 and 2003, respectively. No single customer accounted for as much as 10% of consolidated revenues in fiscal 2005, 2004 or 2002. Foreign revenues accounted for less than 10% of consolidated revenues in fiscal 2005, 2004 and 2003. Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting The Board of Directors and Stockholders Thomas Nelson, Inc.: We have audited management's assessment, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting, that Thomas Nelson, Inc. and subsidiaries maintained effective internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Thomas Nelson, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment that Thomas Nelson, Inc. and subsidiaries maintained effective internal control over financial reporting as of March 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Thomas Nelson, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Thomas Nelson, Inc. and subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended March 31, 2005, and our report dated June 10, 2005 expressed an unqualified opinion on those consolidated financial statements. /s/ KPMG LLP Nashville, Tennessee June 10, 2005 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, 2005 and 2004, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended March 31, 2005. 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. 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, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2005, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Thomas Nelson, Inc.'s internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 10, 2005, expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting. /s/ KPMG LLP Nashville, Tennessee June 10, 2005 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 2005 - ----------- First Quarter $28.85 $20.30 $28.75 $20.75 $ .04 Second Quarter 21.95 17.57 22.00 17.50 .05 Third Quarter 24.70 19.99 24.65 20.00 .05 Fourth Quarter 24.06 21.60 23.75 21.50 .05 -------------- $ .19 ============== Fiscal 2004 - ----------- First Quarter $12.50 $ 8.45 $13.45 $10.55 $ - Second Quarter 14.10 11.70 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 ==============
As of June 13, 2005, there were 644 record holders of the Common Stock and 431 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 following table indicates dividend activity for the fiscal year ended March 31, 2005. Dividends relate to both Common Stock and Class B Common Stock.
Declaration Date Dividend Per Share Record Date Payment Date ---------------- ------------------ --------------- ---------------- May 20, 2004 $0.04 July 5, 2004 July 19, 2004 August 19, 2004 $0.05 October 7, 2004 October 21, 2004 November 18, 2004 $0.05 January 6, 2005 January 20, 2005 February 17, 2005 $0.05 April 4, 2005 April 18, 2005
Class B Common Stock carries ten votes per share, compared to one vote per share for Common Stock, and is convertible to Common Stock on a one-to-one ratio at the election of the holder. The Class B and Common Stock are identical in all other material respects. EX-21 5 ex21032005k.txt EXHIBIT 21 TO FY 2005 FORM 10-K 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% 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% Vision Imprints PUblishing, Inc. Delaware 100% Nelson Current, Inc. Tennessee 100% Thomas Nelson Sales Co., Inc. Delaware 100%
EX-23 6 ex23032005k.txt EXHIBIT 23 TO FY 2005 FORM 10-K EXHIBIT 23 REPORT AND CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Thomas Nelson, Inc.: The audits referred to in our report dated June 10, 2005, with respect to the consolidated financial statements of Thomas Nelson, Inc. and subsidiaries included the related financial statement schedule as of March 31, 2005, 2004 and 2003, and for each of the years then ended, included in the annual report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, 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 use of our reports with respect to the consolidated financial statements and the related financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting included herein and to the reference in this Form 10-K, into the Company's previously filed Registration Statements (No.'s 333-114491, 333-04503, 033-60615, 033-64695 and 033-40829). /s/ KPMG LLP Nashville, Tennessee June 10, 2005 EX-31.1 7 ex311032005k.txt EXHIBIT 31.1 TO FY 2005 FORM 10-K 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) designed such internal control over financial reporting, or caused such internal contrl over financial reporting to be designed under our supervision, to privide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) 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 10, 2005 By: /s/ Sam Moore ----------------------- Sam Moore Chairman and Chief Executive Officer EX-31.2 8 ex312032005k.txt EXHIBIT 31.2 TO FY 2005 FORM 10-K 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) designed such internal control over financial reporting, or caused such internal contrl over financial reporting to be designed under our supervision, to privide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) 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 10, 2005 By: /s/ Joe L. Powers ----------------------- Joe L. Powers Executive Vice President, Secretary and Chief Financial Officer EX-32.1 9 ex321032005k.txt EXHIBIT 32.1 TO FY 2005 FORM 10-K 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, 2005, 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 10, 2005 EX-32.2 10 ex322032005k.txt EXHIBIT 32.2 TO FY 2005 FORM 10-K 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 Quarterly Report of Thomas Nelson, Inc. (the "Company") on Form 10-K for the period ending March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joe L. Powers, Executive Vice President, Secretary and Chief Financial 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/ Joe L. Powers - ---------------------------------- Joe L. Powers Executive Vice President, Secretary and Chief Financial Officer June 10, 2005 -----END PRIVACY-ENHANCED MESSAGE-----