-----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, PCzPMXG/2t7Esvu8Y6Kzyl4VxH8pXSLsDA32ma1VsptcHB2RNmystQXfBdpGQu2y W0MSRKox0Qz4db2D7HHGQw== 0000071023-97-000004.txt : 19970703 0000071023-97-000004.hdr.sgml : 19970703 ACCESSION NUMBER: 0000071023-97-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970627 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NELSON THOMAS INC CENTRAL INDEX KEY: 0000071023 STANDARD INDUSTRIAL CLASSIFICATION: 2731 IRS NUMBER: 620679364 STATE OF INCORPORATION: TN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13788 FILM NUMBER: 97631418 BUSINESS ADDRESS: STREET 1: P O BOX 141000 CITY: NASHVILLE STATE: TN ZIP: 37214-1000 BUSINESS PHONE: 6158899000 MAIL ADDRESS: STREET 1: P O BOX 141000 CITY: NASHVILLE STATE: TN ZIP: 37214-1000 FORMER COMPANY: FORMER CONFORMED NAME: ROYAL PUBLISHERS INC DATE OF NAME CHANGE: 19721019 10-K 1 ============================================================ 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, 1997Commission file number 0-4095 ------------------------------ THOMAS NELSON, INC. (Exact name of Registrant as specified in its charter) Tennessee 62-0679364 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 501 Nelson Place, Nashville, Tennessee 37214-1000 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (615) 889-9000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock, Par Value $1.00 per share New York Stock Exchange Class B Common Stock, Par Value $1.00 New York Stock Exchange per share Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of June 25, 1997, the Registrant had outstanding 15,997,798 shares of common stock and 1,112,071 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 $192.8 million. The market value calculation was determined using the closing sales price of the Registrant's common stock and Class B common stock on June 25, 1997, as reported on The New York Stock Exchange, and assumes that all shares beneficially held by executive officers and the Board of Directors of the Registrant are shares owned by "affiliates", a status which each of such officers and directors individually disclaims. ================================================================= DOCUMENTS INCORPORATED BY REFERENCE Documents from which portions Part of Form 10-K are incorporated by reference - - ------------------------------- ----------------------------- PART II Item 5 - Market for Company's Page 31 of Annual Report to Common Equity and Shareholders for year ended Related Shareholder March 31, 1997 (market price Matters and dividend information only) Item 6 - Selected Financial Page 10 of Annual Report to Data Shareholders for year ended March 31, 1997 Item 7 - Management's Dis- Pages 11 to 13 of Annual Report cussion and Analysis to Shareholders for year of Financial Condition ended March 31, 1997 and Results of Operations Item 8 - Financial Statements Pages 14 to 29 of Annual and Supplementary Report to Shareholders Data for year ended March 31, 1997 PART III Item 10- Directors and To be included in Company's Executive Officers Proxy Statement for the of the Company Annual Meeting of Shareholders to be held August 21, 1997, 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 Compen- To be included in Company's sation Proxy Statement for the Annual Meeting of Shareholders to be held August 21, 1997, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Item 12- Security Ownership of To be included in Company's Certain Beneficial Proxy Statement for the Owners and Management Annual Meeting of Shareholders to be held August 21, 1997, 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 Relation- To be included in Company's ships and Related Proxy Statement for the Transactions Annual Meeting of Shareholders to be held August 21, 1997, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. PART I Item 1. BUSINESS Thomas Nelson, Inc. (the "Company") is a leading publisher, producer and distributor of books emphasizing Christian, inspirational and family value themes, and believes it is the largest commercial publisher of the Bible in English language translations. The Company also designs, manufactures and markets a broad line of gift and stationery products. The Company believes it is the largest publisher of Christian and inspirational books and a major producer of gift and stationery items in the world. The Company, incorporated under the laws of the State of Tennessee in 1961, has grown significantly over the last five years through a combination of internal product development, expanded product distribution and acquisitions. In November 1992, the Company acquired Word, Incorporated, a leading producer and publisher of Christian music with complementary operations in Christian and inspirational book publishing. The Company also has enhanced its position in the gift products market and related distribution channels through the acquisition of The C.R. Gibson Company ("C.R. Gibson"), effective October 31, 1995. C.R. Gibson, based in Norwalk, Connecticut, is a leading designer, manufacturer and distributor of paper gift products, including baby and wedding memory books, stationery, gift wrap and other products. During fiscal 1997, the Company analyzed various strategic alternatives for maximizing value from its music division and in the third quarter determined to sell the music division, which included the production of recorded music and related products, the distribution of recordings for other companies and music publishing, including songwriter development, print music publishing and copyright administration. On January 6, 1997, the Company sold the assets, subject to certain liabilities, of the music division ("Music Business") for $120 million and realized a net gain of $16 million (net of goodwill of $17 million). During the fourth quarter of fiscal 1996, the Company determined to discontinue its Royal Media division operations as part of its business strategy to refocus its efforts and resources on the growth of the Company's core businesses. The Royal Media division was formed in fiscal 1995 to evaluate and implement new initiatives in the use of alternative forms of media and new distribution technologies to further capitalize on the commercial potential of the Company's intellectual properties. As a result of the termination of the Royal Media operations, the Company incurred a net loss of approximately $4.7 million from discontinued operations for the fiscal year ended March 31, 1996. The following table sets forth the net revenues (in thousands) and the percentage of total net revenues for each of the Company's principal product lines for the periods indicated:
Year Ended March 31, ----------------------------------------------------- 1997 1996 1995 ----------------------------------------------------- Amount % Amount % Amount % ----------------------------------------------------- Publishing $153,318 63.0 $165,048 75.1 $149,272 85.5 Gift 90,118 37.0 54,790 24.9 25,337 14.5 ----------------------------------------------------- $243,436 100.0 $219,838 100.0 $174,609 100.0 =====================================================
PUBLISHING The Company's book publishing division publishes and distributes hardcover and trade paperback books emphasizing Christian, inspirational and family value themes. The Company believes it is the largest publisher of Christian and inspirational books in the United States. Books are published by the Company under the "Nelson" and "Word" imprints and consist generally of inspirational and personal experience books, and educational, trade and reference books emphasizing Christian, inspirational and family value themes. The Company distributes books primarily through Christian bookstores, general bookstores, mass merchandisers and directly to consumers. The Company also distributes books published by other companies to complement their marketing and distribution capabilities. In fiscal 1997, approximately 12% of the book net revenues related to the distribution of books published by other companies. In fiscal 1997 and 1996, the Company released over 200 new titles annually. The Company publishes some of the most well-known communicators in the Christian and inspirational field, including Charles Colson, James Dobson, Billy Graham, Franklin Graham, Barbara Johnson, Max Lucado, Frank Peretti, Pat Robertson, Robert Schuller, Gary Smalley, Charles Stanley, Charles Swindoll, and Bodie and Brock Thoene. The Company also publishes books emphasizing positive and inspirational themes by famous athletes and celebrities, such as Bobby Bowden, Joe Gibbs, Evander Holyfield, Bill McCartney, Nolan Ryan, Reggie White and Zig Ziglar. In each of the last three fiscal years, the Company published over 50% of the top ten bestselling Christian and inspirational books based on the monthly Christian Booksellers' Association Nonfiction Hardcover bestseller lists. In addition, the Company maintains a backlist of approximately 1,400 titles which provide a stable base of recurring revenues as many popular titles continue to generate significant sales from year to year. Backlist titles accounted for approximately 50% of the book division's net revenues in fiscal 1997. Authors and titles are supported through the use of radio, television, cooperative advertising, author appearances, in- store promotions, print advertising and other means. The Company's book publishing business is enhanced by the breadth and development of its marketing and distribution channels. In addition to enhancing sales of its products, the Company believes its ability to sign and renew contracts with popular authors is improved because the Company's marketing and distribution capabilities provide exposure for the authors' books to a broader audience than its competitors. See "Marketing, Distribution and Production." The Company believes it is the largest commercial publisher of English translations of the Bible. The Bible is based on ancient manuscripts which are the surviving reproductions of the original writings. These manuscripts, written in Hebrew, Aramaic or Greek, have been translated into English and other modern languages by biblical scholars and theologians, generally under the auspices of a major Bible society or translation organization. Each of the many English translations available differs in some degree from the others, primarily because of different translation guidelines and principles used as the basis for each translation. The distinctiveness of each translation is also, in part, a result of the evolution of the meaning and use of words within the English language. Virtually all Bibles and Bible products currently published in the United States are based on one of thirteen major translations. Of these thirteen translations, twelve 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 thirteen major translations, of which four are exclusive to the Company as a result of copyright ownership or licensing arrangements. See "Copyrights and Royalty Agreements." Approximately 80% of the Company's net revenues from Bible publishing in fiscal 1997 were generated through sales of its proprietary Bible products. The following table sets forth the nine major Bible translations currently published by the Company:
Date First Proprietary Translation Published to the Company ----------- ----------- --------------- King James Version (KJV) 1611 No New American Bible (NAB) 1970 No The Living Bible (TLB) 1971 No New American Standard Bible (NAS) 1972 No Today's English Version (TEV) 1976 Yes New King James Version (NKJV) 1982 Yes New Century Version (NCV) 1984 Yes New Revised Standard Version (NRSV) 1990 No Contemporary English Version (CEV) 1995 Yes
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 NKJV in 1982. Among the Company's newer products is the CEV, translated under the auspices of the American Bible Society, which is designed to be easy to read and understandable at virtually any reading level. The new testament portion of the CEV was first published by the Company in 1991 and the complete CEV Bible was released in June 1995. The Company continually seeks to expand its Bible product line by developing or aiding in the development of new translations and editions and seeking new publishing opportunities. The Company also continually makes editorial, design and other changes to its existing line of Bibles and other Bible products in an effort to increase their marketability. The Company currently publishes over 1,300 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. Different editions of a particular Bible translation are created by incorporating extra material, such as study helps, concordances, indices and Bible outlines, or artwork, into the biblical text. These editions (which are generally proprietary to the Company regardless of whether or not the Company holds proprietary rights to the underlying Bible translation) are targeted to the general market or positioned for sale to specific market segments. GIFT The Company's gift division more than doubled in size during fiscal 1996 through the acquisition of C.R. Gibson and nearly doubled in size again in fiscal 1997, and the Company believes it now is a major producer of gift and stationery products in the world. Current product lines offered by the Company include journals and gift books, photo albums, baby and wedding memory books, kitchen accessories, and stationery. Products are marketed under the C.R. Gibsonr, Pretty Paperr, Creative Papersr, Stepping Stonesr and Inspirationsr brand names, the latter of which incorporates Christian and inspirational text or themes. Certain product lines are marketed as collections, with each collection including a variety of products featuring a common design or theme. Designs include original art work designed in-house as well as licensed from artists or design groups such as Carol Endres, Shelly Hely, Disneyr and Gearr. The Company believes the gift division has significant opportunities for growth as a result of the range of complementary gift categories not currently offered and the breadth of the Company's existing and potential distribution channels. In addition to its product lines, the C.R. Gibson acquisition provided the Company access to a dedicated sales force of more than 100 representatives experienced in marketing to the general gift, department and specialty stores and access to C.R. Gibson's manufacturing and distribution facilities, which allows the Company greater control over product quality and production schedules. MARKETING, DISTRIBUTION AND PRODUCTION The principal market channels through which the Company markets its publishing products domestically are Christian bookstores, which are primarily independently owned; general bookstores, including national chains such as Barnes & Noble and Borders; specialty gift and department stores, such as Carlton Cards and the Federated Department Store group; mass merchandisers such as Target, K-Mart, WalMart and Sam's Wholesale Club; and directly to consumers through direct mail and telemarketing. The Company services these market channels through its sales force, and through wholesalers or jobbers servicing bookstores, gift stores, other retail outlets and libraries. In addition, the Company sells certain of its products for promotional purposes and sells specially designed or imprinted products to certain customers. The Company's direct marketing operations sell publishing products directly to approximately 200,000 customers consisting of churches, other religious organizations and pastors by direct mail and telemarketing. Retail sales also are made during the summer months on a door-to-door, cash sales basis through a student sales organization operated by the Company. As of March 31, 1997, the Company employed a sales force of approximately 210 people and maintains 24-hour-a- day telemarketing capability. These employees service over 50,000 retail accounts and 200,000 church related accounts. Customer orders are usually shipped through a variety of common carriers, as well as by UPS, RPS and parcel post. No single customer accounted for more than 10% of net revenues during fiscal 1997. The Company contracts with a number of foreign publishers to translate the Company's English titles to foreign languages. The Company typically retains ownership rights to the titles translated. The Company distributes its products internationally in South America, Europe, Australia, New Zealand, South Africa, the Far East, Mexico and Canada. In fiscal 1997, the Company's international and export operations accounted for approximately 8% of the Company's total net revenues. Substantially all of the Company's publishing 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 manufactures a significant portion of its gift products and purchases its raw materials (e.g. paper, film and boxes) from a wide group of suppliers. COPYRIGHTS AND ROYALTY AGREEMENTS The Company customarily secures copyrights on its publishing editions in order to protect its publishing rights. Almost all of the Company's book products are published under royalty agreements with their respective authors or other copyright proprietors. Many of the Company's gift products incorporate copyrighted art work, which is licensed directly from the artist or the owning entity under a royalty agreement. COMPETITION The Company believes that it is the largest publisher of Christian and inspirational books, the largest commercial publisher of Bibles in English language translations and a major producer of gift and stationery items. The publishing and gift divisions each compete with numerous other companies that publish and distribute Christian and inspirational books or manufacture and distribute gift products, many of which have significantly longer operating histories and larger revenue bases than the Company and certain of which are tax-exempt organizations. While the Company's prices are comparable to those of its competitors, the Company believes that its breadth of product line, established market channels, established sales forces and customer service, give it a competitive advantage. The most important factor with respect to the competitive position of the Company's publishing division is the contractual relationships it establishes and maintains with authors. The Company competes with other book publishing companies, both Christian and secular, for signing top authors. The Company's ability to sign and re- sign popular authors depends on a number of factors, including distribution and marketing capabilities, the Company's management team and the royalty and advance arrangements offered. The Company believes its relationships with its authors, which are based on its reputation in the book publishing industry, its marketing experience and its management expertise give it a competitive advantage in signing and maintaining contracts with top Christian and inspirational authors. The Company's gift division has many competitors with respect to one or more of its product lines, but the Company believes there are few competitors who manufacture and distribute all of the Company's gift product lines. The gift division also competes with numerous religious publishers and suppliers, including tax-exempt church-owned organizations, in connection with the sale of its church supply products, and with numerous large and small companies in the production and sale of stationery products, gift wrap and paper tableware. EMPLOYEES As of March 31, 1997, the Company employed approximately 1,300 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. MANAGEMENT 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 67 Chairman of the Board, Chief Executive Officer, President and Director S. Joseph Moore 34 Executive Vice President and Director; President, Thomas Nelson Gift Division Joe L. Powers 51 Executive Vice President and Secretary Byron D. Williamson 51 President, NelsonWord Publishing Division Ray Capp 44 Senior Vice President, Operations Charles Z. Moore 63 Senior Vice President, International and Diversified Markets Vance Lawson 38 Vice President, Finance Phyllis E. Williams 49 Treasurer
Except as indicated below, each executive officer has been an employee of the Company as his/her principal occupation for more than the past five years. Sam Moore has been Chairman of the Board, Chief Executive Officer, President and a Director of the Company since its founding in 1961. S. Joseph Moore was appointed Executive Vice President and Director of the Company in 1995 and President of the Thomas Nelson Gift Division in 1996, and prior to such appointments, he served as Divisional Vice President of the Company in various capacities since 1991. S. Joseph Moore is the son of Sam Moore. Joe L. Powers was appointed Executive Vice President of the Company in 1995. Previously, Mr. Powers served as a Vice President of the Company since 1980. Byron D. Williamson has been the President of the Company's NelsonWord Publishing Division since 1995. Mr. Williamson was formerly President of the Company's Word Publishing Division from 1993 to 1995 and Executive Vice President of the Word Publishing Division of Word from 1988 until Word, Incorporated was acquired by the Company in November 1992. Ray Capp was appointed Senior Vice President, Operations of the Company in 1995. Prior to joining the Company, Mr. Capp was the President and Chief Operating Officer of Ingram Merchandising Services and Assistant to the Chairman of Ingram Distribution, Inc. since 1992 and Executive Vice President and Chief Operating Officer of Ingram Entertainment from 1987 to 1992. Charles Z. Moore has been a Vice President of the Company since 1983 and was appointed Senior Vice President, International and Diversified Markets in 1986. Charles Moore is the brother of Sam Moore. Vance Lawson has been the Vice President, Finance of the Company since 1993. Mr. Lawson was formerly Vice President of Finance and Operations at Word since 1988. Phyllis E. Williams has been the Treasurer of the Company since 1992. Mrs. Williams was previously Controller for the Company 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 subject to a mortgage securing a debt with an outstanding balance at March 31, 1997 of $1,900,000. The Company's major warehouse facilities for its publishing division are located in a building containing approximately 215,000 square feet adjacent to its corporate headquarters in Nashville, Tennessee. This building which was completed in fiscal 1978, is owned by the Company. An addition to the warehouse and distribution center, of approximately 120,000 square feet, was completed during fiscal 1993. This addition was financed by a $5,000,000 construction and term loan secured by a mortgage with an outstanding balance of $3,000,000 at March 31, 1997. The Company maintains other offices and warehouse facilities for its direct marketing division in two locations in Waco, Texas (of approximately 30,000 and 100,000 square feet each) which are owned by the Company. The Company also has offices, manufacturing and warehousing facilities for its gift division in Beacon Falls, Guilford and Norwalk, Connecticut (of approximately 112,000, 74,000 and 147,000 square feet, respectively) which are owned by the Company. The Company leases properties as described below:
Square Annual Lease Location Use Feet Rent Expiration - - ------------------------------------------------------------------------- Miami, FL Editorial and sales office 1,200 $ 16,400 08/1997 Atlanta, GA Editorial office 800 $ 11,100 monthly Carmel, IN Retail Store 12,500 $ 79,300 09/1999 Cherryville, NC Administrative 77,000 $ 78,000 04/1998 Clifton, NJ Manufacturing 11,000 $ 46,800 10/1998 Dallas, TX Editorial office 17,200 $216,000 12/1999 Nashville, TN Creation and sales office 17,486 $309,880 11/1998 Nashville, TN Creation and sales office 34,500 $ 98,800 07/1999 Nashville, TN Warehousing 85,000 $182,000 11/1997 Norwalk, CT Warehousing 10,800 $ 72,000 monthly Shelton, CT Warehousing 78,300 $481,500 03/2000 Scarborough, Warehousing and Ontario office 18,500 $103,300 08/1998 (Canada)
All building improvements on the properties are brick veneer, metal or block construction and are considered adequate and suitable by the Company for the purpose for which they are used. The Company's machinery and equipment are located in Nashville, Tennessee; Guilford and Norwalk, Connecticut and Waco, Texas; and consists primarily of computer equipment, printing and binding equipment, warehousing and shipping racks, conveyors and other material handling equipment located at the various warehousing and manufacturing facilities; and office equipment. Such machinery and equipment are in good repair and adequate for the Company's present operations. All such equipment, other than a portion of the computer equipment which is leased under capital leases, is owned by the Company. The Company's physical properties are operated at approximate capacity. Additional personnel are employed as required. Item 3. Legal Proceedings The Company is subject to various legal proceedings, claims and liabilities which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the Company. Item 4. Submission of Matter to a Vote of Security Holders The Company did not submit any matter to a vote of its security holders during the last quarter of its fiscal year ended March 31, 1997. PART II Item 5. Market for Company's Common Equity and Related Shareholder Matters Incorporated by reference to the Annual Report to Shareholders for the year ended March 31, 1997 (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 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, 1997 and 1996. Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Company Information regarding the directors of the Company and compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on August 21, 1997 (the "Proxy Statement"), to be filed within 120 days of March 31, 1997 with the Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A under the Exchange Act. Information regarding the Company's executive officers is contained in Part 1, Item 1 herein. Item 11. Executive Compensation Incorporated by reference to the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated by reference to the Proxy Statement. Item 13. Certain Relationships and Related Transactions Incorporated by reference to the Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of Report 1. Financial Statements The following consolidated financial statements of the Company included in the Annual Report are incorporated herein by reference as set forth in Part II, Item 8: Statements of operations -- years ended March 31, 1997, 1996 and 1995 Balance sheets -- March 31, 1997 and 1996 Statements of shareholders' equity -- years ended March 31, 1997, 1996 and 1995 Statements of cash flow -- years ended March 31, 1997, 1996 and 1995 Notes to consolidated financial statements Report of Arthur Andersen LLP, Independent Public Accountants 2. Financial Statement Schedules The following consolidated financial statement schedules are included herein: Page Report of Arthur Andersen LLP, Independent Public Accountants............. 18 Schedule VIII -- Valuation and Qualifying Accounts and Reserves.......... 19 Schedules not listed above have been omitted because they are not required, are inapplicable or the required information has been given in the financial statements or notes thereto. 3. Exhibits The following exhibits are included herein or incorporated by reference as indicated. Exhibit numbers refer to Item 601 of Regulation S-K. Exhibit Number 2.1 -- Asset Purchase Agreement, dated as of November 21, 1996 by and among the Company, Word, Incorporated and Word Direct Partners, L.P. as Sellers and Gaylord Entertainment Company as Buyer (filed as Exhibit 2.1 to the Company's Form 8-K dated January 6, 1997 and incorporated herein by reference) 2.2 -- Amendment No. 1 to the Asset Purchase Agreement dated as of January 6, 1997, by and among the Company, Word, Incorporated and Word Direct Partners, L.P. as Sellers and Gaylord Entertainment Company as Buyer (filed as Exhibit 2.2 to the Company's Form 8-K dated January 6, 1997 and incorporated herein by reference) 2.3 -- Asset Purchase Agreement dated as of January 6, 1997, by and between Nelson Word Limited and Word Entertainment Limited (filed as Exhibit 2.3 to the Company's Form 8-K dated January 6, 1997 and incorporated herein by reference) 2.4 -- Subsidiary Asset Purchase Agreement executed on January 6, 1997, and dated as of November 21, 1996 between Word Communications, Ltd. and Word Entertainment (Canada), Inc. (filed as Exhibit 2.4 to the Company's Form 8-K dated January 6, 1997 and incorporated herein by reference) 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(b) to the Company's Annual Report on Form 10-K for the year ended March 31, 1990 and incorporated herein by reference) 4.1 -- Loan Agreement dated May 18, 1990, between the Company and The Industrial Development Board of The Metropolitan Government of Nashville and Davidson County (filed as Exhibit 4(e) to the Company's Annual Report on Form 10-K for the year ended March 31, 1990 and incorporated herein by reference) 4.2 -- Promissory Note dated May 18, 1990, of the Company payable to The Industrial Development Board of the Metropolitan Government of Nashville and Davidson County (filed as Exhibit 4(f) to the Company's Annual Report on Form 10-K for the year ended March 31, 1990 and incorporated herein by reference) 4.3 -- Deed of Trust and Security Agreement dated May 18, 1990, from the Company to SunTrust Bank, Nashville, N.A. (filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the year ended March 31, 1991 and incorporated herein by reference) 4.4 -- Construction and Term Loan Agreement dated March 31, 1992, between the Company and SunTrust Bank, Nashville, N.A. (filed as Exhibit 4.7 to Company's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference) 4.5 -- Promissory Note dated March 31, 1992, of the Company payable to SunTrust Bank, Nashville, N.A. (filed as Exhibit 4.8 to Company's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference) 4.6 -- Deed of Trust and Security Agreement dated March 31, 1992, from the Company to SunTrust Bank, Nashville, N.A. (filed as Exhibit 4.9 to Company's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference) 4.7 -- Indenture dated as of November 30, 1992, by and between Thomas Nelson, Inc. and Boatmen's Trust Company (filed as Exhibit 4 to the Company's Form 8-K dated December 11, 1992 and incorporated herein by reference) 4.8 -- Amended and Restated Credit Agreement dated as of December 13, 1995, and as amended January 3, 1996, among the Company, SunTrust Bank, Nashville, N.A., National City Bank of Louisville, First American National Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and Creditanstalt-Bankverein in New York (filed as Exhibit 4.1 to the Company's Form 10-Q for the quarter ended December 31, 1995 and incorporated herein by reference) 4.9 -- June 1996 Amendment and Waiver with Respect to Amended and Restated Credit Agreement Dated as of December 13, 1995, among the Company, SunTrust Bank, Nashville, N.A., National City Bank of Louisville, First American National Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and Creditanstalt-Bankverein in New York (filed as Exhibit 4.12 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference) 4.10 -- Second Amendment to Credit Agreement dated as of November 15, 1996, among the Company, SunTrust Bank, Nashville, N.A., National City Bank of Louisville, First American National Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and Creditanstalt-Bankverein in New York (filed as Exhibit 4.1 to the Company's Fom 8-K dated January 6, 1997 and incorporated herein by reference) 4.11 -- Third Amendment to Credit Agreement dated as of January 7, 1997, among the Company, SunTrust Bank, Nashville, N.A., National City Bank of Louisville, First American National Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and Creditanstalt-Bankverein in New York (filed as Exhibit 4.2 to the Company's Fom 8-K dated January 6, 1997 and incorporated herein by reference) 4.12 -- 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 Form 10-Q for the quarter ended December 31, 1995 and incorporated herein by reference) 4.13 -- Letter Amendment No. 1 dated June 28, 1996, to Note Purchase Agreement dated January 3, 1996, among the Company, The Prudential Life 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) 4.14 -- Assumption and Amendment Agreement dated as of May 30, 1996, and as amended June 28, 1996, between the Company and Metropolitan Life Insurance Company (filed as Exhibit 4.15 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference) 4.15 -- Loan Agreement dated as of September 21, 1989 between C.R. Gibson and Metropolitan Life Insurance Company (filed by C.R. Gibson as Exhibit 4(c) to The C.R. Gibson Company's Registration Statement on Form S-2 (No. 33-43644) dated November 4, 1991 and incorporated herein by reference) 4.16 -- Loan Agreement dated as of June 23, 1994 between C.R. Gibson and Metropolitan Life Insurance Company (filed by C.R. Gibson (Commission File No. 0-4855) as Exhibit 4(b) to C.R. Gibson's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, filed with the commission on March 14, 1995 and incorporated herein by reference) 10.1 -- Tender Offer and Merger Agreement, dated as of September 13, 1995, as amended by Amendment No.1, dated as of October 16, 1995, among the Company, Nelson Acquisition Corp. and C.R. Gibson (filed as Exhibits (c)(1) and (c)(14) to the Company's joint Tender Offer Statement on Schedule 14D-1/ Schedule 13D filed September 19, 1995, as amended, and is incorporated herein by reference) 10.2 -- Thomas Nelson, Inc. Amended and Restated 1986 Stock Incentive Plan (filed as Exhibit 4.4 to the Company's Registration Statement on Form S-8 (No. 33-80086) dated June 13, 1994 and incorporated herein by reference)* 10.3 -- 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)* 10.4 -- 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)* 10.5 -- Thomas Nelson, Inc. Sales Managers' Stock Plan for the Varsity Company (filed as Exhibit 4.7 to the Company's Registration Statement on Form S-8 (No. 33-80086) dated June 13, 1994 and incorporated herein by reference)* 10.6 -- Severance Agreement dated as of May 17, 1991, between the Company and Sam Moore (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended March 31, 1991 and incorporated herein by reference)* 10.7 -- 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)* 10.8 -- Employment Agreement dated as of May 10, 1996, between the Company and S. Joseph Moore (filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference)* 10.9 -- 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)* 10.10-- Employment Agreement dated as of May 13, 1996, between the Company and Charles Z. Moore (filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference)* 10.11-- Employment Agreement dated as of December 7, 1993, between the Company and Byron Williamson (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended March 31, 1994 and incorporated herein by reference)* 10.12-- Employment Agreement dated as of December 22, 1994, between the Company and Raymond T. Capp (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended March 31, 1995 and incorporated herein by reference)* 10.13-- 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)* 11 -- Statement Re Computation of Per Share Earnings 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 1997 (to the extent of portions specifically incorporated by reference) 21 -- Subsidiaries of the Company 23 -- Consent of Independent Public Accountants 27 -- Financial Data Schedule (for SEC use only) ------------------- *Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K A Current Report on Form 8-K dated January 6, 1997 (the "Form 8-K"), was filed by the Company on January 21, 1997. The Form 8-K included information required pursuant to Item 2 thereunder relating to the disposition by the Company of the assets of its Music Business to Gaylord Entertainment Company. The following pro forma financial information was included in that filing: i. Thomas Nelson, Inc. and Subsidiaries Unaudited Pro Forma Condensed Consolidated Balance Sheet at September 30, 1996 ii. Thomas Nelson, Inc. and Subsidiaries Unaudited Pro Forma Consolidated Statements of Operations for six months ended September 30, 1996 iii.Thomas Nelson, Inc. and Subsidiaries Unaudited Pro Forma Consolidated Statements of Operations for twelve months ended March 31, 1996. (c) Exhibits - The response to this portion of Item 14 is submitted above as a separate section of this report. (d) Financial Statement Schedules - The response to this portion of Item 14 is submitted above as a separate section of this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THOMAS NELSON, INC. By: /s/ Sam Moore ------------------------ Sam Moore, Chief Executive Officer and President Date: June 27, 1997 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 June 27, 1997 - - ------------------ of Directors, Chief Sam Moore Executive Officer and President (Principal Executive Officer) /s/ S. Joseph Moore Executive Vice June 27, 1997 - - -------------------- President and S. Joseph Moore Director /s/ Joe L. Powers Executive Vice June 27, 1997 - - -------------------- President and Joe L. Powers Secretary (Principal Financial and Accounting Officer) /s/ Brownlee O. Currey, Jr. Director June 27, 1997 - - -------------------- Brownlee O. Currey, Jr. /s/ W. Lipscomb Davis, Jr. Director June 27, 1997 - - -------------------- W. Lipscomb Davis, Jr. /s/ Robert J. Niebel Director June 27, 1997 - - -------------------- Robert J. Niebel /s/ Millard V. Oakley Director June 27, 1997 - - -------------------- Millard V. Oakley /s/ Joe M. Rodgers Director June 27, 1997 - - -------------------- Joe M. Rodgers /s/ Cal Turner, Jr. Director June 27, 1997 - - -------------------- Cal Turner, Jr. /s/ Andrew Young Director June 27, 1997 - - -------------------- Andrew Young REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Thomas Nelson, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Thomas Nelson's annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated May 30, 1997. Our audit was made for the purpose of forming an opinion on those consolidated statements taken as a whole. The schedules listed in the index are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP Nashville, Tennessee May 30, 1997
THOMAS NELSON, INC. AND SUBSIDIARIES SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
March 31, 1997 March 31, 1996 March 31, 1995 ------------------------------------------------ Reserve for Sales Returns: Balance at beginning of period $ 4,355,000 $ 3,421,000 $ 2,965,000 Additions: 1. Charged to costs and expenses 418,000 559,000 456,000 2. Charged to other accounts - 375,000 - Deductions: charge-offs - - - ------------------------------------------------- Balance at end of period $ 4,773,000 $ 4,355,000 $ 3,421,000 ================================================= Reserve for Doubtful Accounts: Balance at beginning of period $ 2,714,000 $ 1,968,000 $ 2,523,000 Additions: 1. Charged to costs and expenses 2,794,000 3,117,000 2,300,000 2. Charged to other accounts - 500,000 - Deductions: charge-offs 3,281,000 2,871,000 2,855,000 ------------------------------------------------- Balance at end of period $ 2,227,000 $ 2,714,000 $ 1,968,000 ================================================= Discontinued Operations: Balance at beginning of period $ 4,381,000 $ - $ - Additions: 1. Charged to costs and expenses 12,266,000 4,381,000 - 2. Charged to other accounts - - - Deductions: charge-offs 7,546,000 - - ------------------------------------------------- Balance at end of period $ 9,101,000 $ 4,381,000 $ - ================================================= Reserves acquired in connection with acquisition - C.R. Gibson in 1996.
INDEX TO EXHIBITS Exhibit Page Number Number - - -------- ------ 11 -- Statement Re-Computation of Per Share Earnings... 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 1997 (to the extent of portions specifically incorporated by reference) 21 -- Subsidiaries of the Company 23 -- Consent of Independent Public Accountants 27 -- Financial Data Schedule (for SEC purposes only) EXHIBIT 11 STATEMENT RE-COMPUTATION OF PER SHARE EARNINGS (Dollars and Shares in thousands, except per share data)
March 31, 1997 March 31, 1996 March 31, 1995 ------------------------------------------------ Primary Earnings Per Share: Weighted average shares outstanding 17,135 15,718 13,374 ================================================ Income (Loss) from continuing operations $ 9,522 ($ 923) $ 10,101 Income (Loss) from discontinued operations 16,555 ( 9,991) 1,609 ------------------------------------------------ Net Income (Loss) $ 26,077 ($ 10,914) $ 11,710 ================================================ Income (Loss) Per Share from continuing operations $ 0.56 ($ 0.06) $ 0.76 Income (Loss) Per Share from discontinued operations 0.96 ( 0.63) 0.12 ------------------------------------------------ Net Income (Loss) Per Share $ 1.52 ($ 0.69) $ 0.88 ================================================ Fully-diluted Earnings Per Share: Weighted average shares outstanding 17,135 15,718 13,374 Convertible Notes 3,235 3,235 3,235 Dilutive stock options - based on treasury stock method using the year-end market price, if higher than the average market price - 76 111 ------------------------------------------------ Total Shares 20,370 19,029 16,720 ================================================ Income (Loss) from continuing operations $ 11,629 $ 1,095 $ 12,232 Income (Loss) from discontinued operations 16,555 ( 9,991) 1,609 ------------------------------------------------ Net Income (Loss) $ 28,184 ($ 8,896) $ 13,841 ================================================ Income (Loss) Per Share from continuing operations $ 0.56 $ 0.05 $ 0.74 Income (Loss) Per Share from discontinued operations 0.81 ( 0.52) 0.09 ------------------------------------------------ Net Income (Loss) Per Share $ 1.37 ($ 0.47) $ 0.83 ================================================ Adjusted for interest on convertible debt Anti-dilutive; use primary earnings per share on Statement of Operations
EX-13 2 EXHIBIT 13 SELECTED FINANCIAL DATA ============================================================================
YEARS ENDED March 31, 1997 1996 1995 1994 1993 (Dollars in thousands, except per share data) - - ------------------------------------------------------------------------------ OPERATING RESULTS Net revenues $243,436 $219,838 $174,609 $152,418 $116,744 ===================================================== Operating income (loss) $ 22,954 $ 5,887 $ 21,212 $ 16,131 $ 13,739 ===================================================== Income (loss) from continuing operations $ 9,522 ($ 923) $ 10,101 $ 7,736 $ 7,846 Income (loss) from discontinued operations 16,555 ( 9,991) 1,609 1,345 ( 1,564) ----------------------------------------------------- Net income (loss) $ 26,077 ($10,914) $ 11,710 $ 9,081 $ 6,282 ===================================================== - - ------------------------------------------------------------------------------ FINANCIAL POSITION Total assets $301,571 $355,083 $232,386 $203,750 $183,523 Working capital 131,852 197,127 145,860 119,522 97,724 Long-term debt and other non-current liabilities 89,233 185,019 121,797 106,876 99,319 Shareholders' equity 146,812 122,065 72,178 62,725 55,292 Long-term debt to total capitalization 37.8% 60.3% 62.8% 63.0% 64.2% - - ------------------------------------------------------------------------------ PER SHARE DATA Income (loss) per share from continuing operations $ 0.56 ($ 0.06) $ 0.76 $ 0.58 $ 0.59 Income (loss) per share from discon- tinued operations 0.96 ( 0.63) 0.12 0.10 ( 0.12) Net income (loss) per share $ 1.52 ($ 0.69) $ 0.88 $ 0.68 $ 0.47 Dividends declared per share 0.16 0.16 0.14 0.13 0.12 Book value per share 8.58 7.13 5.37 4.70 4.14 Weighted average number of shares outstanding (in thousands) 17,135 15,718 13,374 13,355 13,268 - - ------------------------------------------------------------------------------ Includes C.R. Gibson operations subsequent to acquisition on October 31, 1995 and Word, Incorporated operations subsequent to acquisition on November 30, 1992. All financial information has been restated to reflect the pooling of interests with PPC, Inc. Per share data has been restated for stock dividends. Operating results and per share data have been restated for discontinued operations. For 1994 net income and per share data from continuing operations includes $336,000 and $0.03, respectively, for accumulated effects of change in accounting principle. During March 1996, the Company adopted plans to sell the Christian-lifestyle magazines and the radio networks of the Royal Media division and the projected loss on disposal and results of operations for this discontinued operation are included herein. On January 6, 1997, the Company consummated a transaction to sell certain assets of the music division, net of certain liabilities assumed, and the gain on disposal and results of operations for this discontinued operation are included herein.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================== OVERVIEW The Company's net revenues from continuing operations have grown in recent years as a result of increased sales of existing product lines and through the development and acquisition of new product lines. In October 1995, the Company acquired The C.R. Gibson Company ("Gibson") for approximately $67 million in cash, which expanded its gift product lines and distribution network. As a result, the Company's gift revenues have grown significantly for fiscal 1997 as compared to the prior year. On January 6, 1997, the Company sold the assets, subject to certain liabilities, of the music division ("Music Business") for $120 million and realized a net gain of $16 million (net of goodwill of $17 million). The proceeds from the sale were used primarily to retire long-term debt. The operating results of the Music Business are reported as discontinued operations for all years presented. As a result of operating trends and the softness of the retail markets for the Company's products, which began to adversely affect operating results in the second quarter of fiscal 1996, the Company decided during the fourth quarter of fiscal 1996 to discontinue the operations of its Royal Media division, a division which published magazines and operated radio networks directed toward Christian markets. The disposal of the Royal Media division has been consummated. The operating results of the Royal Media division for fiscal 1996 and 1995 are reported as a loss from discontinued operations. The following table sets forth for the periods indicated certain selected statements 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) ------------------------------------------------------- 1997 1996 1995 1996 to 1997 1995 to 1996 ------------------------------------------------------- (%) (%) (%) (%) (%) Net revenues Publishing 63.0 75.1 85.5 ( 7.1) 10.6 Gift 37.0 24.9 14.5 64.5 116.3 ------------------------- Total net revenues 100.0 100.0 100.0 10.7 25.9 Expenses: Cost of goods sold 54.3 57.6 51.8 4.4 39.9 Selling, general and administrative expenses 35.5 39.2 35.5 -- 39.0 Amortization of goodwill and non-compete agreements 0.8 0.5 0.5 82.3 34.4 -------------------------- Total expenses 90.6 97.3 87.8 3.1 39.5 -------------------------- Operating income 9.4 2.7 12.2 289.9 ( 72.3) ========================== Income (loss) from continuing operations 3.9 ( 0.4) 5.8 -- -- Income (loss) from discontinued operations 6.8 ( 4.6) 0.9 -- -- -------------------------- Net income (loss) 10.7 ( 5.0) 6.7 -- -- ==========================
The Company's net revenues fluctuate seasonally, with net revenues in the second and third fiscal quarters historically being greater than those in the first and fourth fiscal quarters. This seasonality is the result of increased consumer purchases of the Company's products during the traditional year-end holidays. Due to this seasonality, the Company has historically incurred a loss during the first quarter of each fiscal year. In addition, the Company's quarterly operating results may fluctuate significantly due to the seasonality of new product introductions, the timing of selling and marketing expenses and changes in sales and product mixes. See Note N of Notes to Consolidated Financial Statements. The following discussion includes certain forward-looking statements. Actual results could differ materially from those reflected by the forward-looking statements and a number of factors may affect future results, liquidity and capital resources. These factors include softness in the general retail environment, the timing of products being introduced to the market, the level of returns experienced by the operating divisions, the level of margins achievable in the marketplace and the ability to minimize operating expenses. Although the Company believes it has the business strategy and resources needed for improved operations, future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its business strategy during the 1998 fiscal year. RESULTS OF OPERATIONS Fiscal 1997 compared to Fiscal 1996. Net revenues for fiscal 1997 increased $23.6 million, or 10.7%, over fiscal 1996 primarily due to the volume increases arising from introduction of new products and the acquisition of Gibson which was included in fiscal 1996 revenues for only five months subsequent to its October 1995 acquisition. Net revenues from publishing products decreased for fiscal 1997 from fiscal 1996 by $11.7 million, or 7.1%. The decline in publishing product revenues from fiscal 1996 was due to a 26% increase in the rate of returns and fewer major product releases than fiscal 1996 when a new Bible translation and a major hardcover fiction title were introduced. Net revenues from gift products, including Gibson, increased by $35.3 million, or 64.5%. Price increases did not have a material effect on net revenues. The Company's cost of goods sold for fiscal 1997 increased $5.6 million, or 4.4%, and, as a percentage of net revenues, decreased from 57.6% to 54.3%. The decrease in cost of goods sold, as a percentage of net revenues was due to a lower percentage of publishing and gift revenues being derived from mass market sales in fiscal 1997 as compared to fiscal 1996. Mass Market sales generally have higher cost of goods sold as a percentage of revenues than other market channels. In addition, cost of goods sold, as a percentage of net revenues, decreased from fiscal 1996, when additional provisions for obsolescence and unearned royalty advances were made. Selling, general and administrative expenses for fiscal 1997 increased only $40,000 over the comparable period in fiscal 1996. These expenses, expressed as a percentage of net revenues, decreased from 39.2% for fiscal 1996 to 35.5% for fiscal 1997 primarily as a result of the consolidation of two publishing sales forces, staff reductions implemented in the last half of fiscal 1996 and reduced advertising and direct to consumer marketing expenditures. Interest expense increased 5.1% for fiscal 1997 due to increased average borrowings primarily due to the acquisition of Gibson. The Company's effective tax (benefit) rate in fiscal 1997 was 41.0% compared to (39.9%) for fiscal 1996. The current tax rate reflects the combined tax rate from continuing and discontinued operations. Prior year rate shows the rate of tax recovery from operating losses carried to earlier periods. See Note M of Notes to Consolidated Financial Statements. The Company earned net income of $26.1 million for fiscal 1997. Included in net income is income from discontinued operations of $16.6 million as a result of the sale of the Music Business, including net operating income of $0.7 million. See Note Q of Notes to Consolidated Financial Statements. Fiscal 1996 compared to Fiscal 1995. Net revenues for fiscal 1996 increased $45.2 million, or 25.9%, over fiscal 1995 primarily due to volume increases arising from the introduction of new products and the acquisition of Gibson on October 31, 1995. Net revenues increased for fiscal 1996 over fiscal 1995 in each of the Company's product lines, as follows: gift products increased by $29.5 million, or 116.3%, and publishing products increased by $15.7 million, or 10.6%. Of the increase in net revenues derived from gift products, approximately $26 million was attributed to Gibson for fiscal 1996. Price increases did not have a material effect on net revenues. The Company's cost of goods sold for fiscal 1996 increased by $36.1 million, or 39.9%, over fiscal 1995 and, as a percentage of net revenues, increased from 51.8% to 57.6%. The increase of cost of goods sold, as a percentage of net revenues, was the result of a change in sales mix of market channels as well as additional provisions for obsolescence and unearned royalty advances. Sales through the gift market channels more than doubled from the prior year as a result of the Gibson acquisition while sales through the direct market channels decreased as a percentage of total sales. Sales made through the direct marketing to consumers channel approximate retail prices while sales through the gift market channel are at wholesale prices. Therefore, as gift market channel sales increased and direct marketing sales decreased as a percentage of the total Company's revenues, cost of sales as a percent of revenues increased for fiscal 1996 over 1995. During the fourth quarter of fiscal 1996, the Company provided for additional product obsolescence and anticipated unearned royalty advances of approximately $6 million greater than in fiscal 1995. These provisions were made as a result of an increase in actual return rates from domestic sales, which primarily occurred during the fourth quarter. Selling, general and administrative expenses for fiscal 1996 increased by $24.2 million, or 39.0%, over the comparable period in fiscal 1995. These expenses, expressed as a percentage of net revenues, increased to 39.2% for fiscal 1996 from 35.5% for fiscal 1995. This increase resulted from a weaker trade market channel environment which led to higher marketing expenses as a percentage of revenues compared to fiscal 1995 and to staffing costs related to handling the higher publishing product returns. Interest expense increased 27.7% for fiscal 1996 due to increased average borrowings for the first quarter of the fiscal year for working capital needs and for the third and fourth quarter to fund the Gibson acquisition. The Company's effective tax (benefit) rate in fiscal 1996 was (39.9)% compared to 36.2% for fiscal 1995. This increased rate resulted primarily from higher effective state tax rates. The acquisition of Gibson and expanded sales in states with higher tax rates were contributing factors. See Note M of Notes to Consolidated Financial Statements. The Company had a net loss of $10.9 million for fiscal 1996. Included in that net loss is a loss from discontinued operations of $4.7 million as a result of the Company's decision during the fourth quarter to discontinue the Christian-lifestyle magazines and the radio networks of the Royal Media division, including an operating loss of $2 million and a net loss on the disposal of these operations, which was completed during fiscal 1997, of $2.7 million. Also included in that net loss is $5.3 million for the operating loss of the Music Business that has been reclassified as discontinued operations. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company had $43.5 million in cash and cash equivalents primarily from the sale of its Music Business for $120 million, with $84 million of the proceeds from the sale used to retire long-term debt. 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, 1997, the Company had working capital of $131.9 million. Under its two credit facilities, at March 31, 1997, the Company had no borrowings outstanding, and $85 million available for borrowing. In January 1997, the Company retired all the existing borrowings under its two credit facilities with a portion of the proceeds of the sale of the Music Business. Net cash provided by (used in) operating activities was $25.8 million, ($30.3) million and ($11.7) million in fiscal 1997, 1996 and 1995, respectively. The increase in cash provided by operations during fiscal 1997 was principally attributable to earnings from continuing operations and reductions in inventories and accounts receivable. Inventories decreased by $7.8 million primarily due to improved inventory management and reduction in product offerings in all divisions. Accounts receivable decreased by $7.4 million primarily due to the revenue decline in the fourth quarter of fiscal 1997 from fiscal 1996. During fiscal 1997, capital expenditures totaled approximately $1.9 million. The capital expenditures were primarily for warehousing and manufacturing equipment and computer equipment. In fiscal 1998, the Company anticipates capital expenditures of approximately $5 million, consisting primarily of computer equipment and warehousing and manufacturing equipment. The Company's bank credit facilities are unsecured and consist of a $75 million credit facility and a $10 million credit facility (collectively, the "Credit Agreements"). The $75 million credit facility bears interest at either the prime rate or, at the Company's option, LIBOR plus a percentage, subject to adjustment based on certain financial ratios and matures on December 13, 2002. The $10 million credit facility bears interest at the prime rate and matures on July 31, 1998. Due to the seasonality of the Company's business, borrowings under the Credit Agreements typically peak during the third quarter of the fiscal year. The Company has outstanding $26 million of senior notes ("Senior Notes") which are unsecured. The Senior Notes bear interest at rates from 6.68% to 9.5% due through fiscal 2006. In January 1997, the Company retired $35 million of previously held Senior Notes with a portion of the proceeds of the sale of the Music Business. Under the terms of the Credit Agreements and Senior Notes, the Company has agreed to limit the payment of dividends and to maintain certain interest coverage and debt-to-total-capital ratios which are similarly calculated for each debt agreement. At March 31, 1997, the Company was in compliance with all covenants of these debt agreements. The Company expects to be in compliance with all of its covenants for each quarter of fiscal 1998 although no assurance can be given that such compliance will be maintained. The Company also has outstanding $55 million of 5.75% convertible subordinated notes ("Convertible Subordinated Notes") due November 30, 1999. The Convertible Subordinated Notes presently are convertible into common stock at $17.00 per share and are redeemable at the Company's option after November 30, 1995, at 103.29% of the principal amount, declining annually thereafter to 100% on November 30, 1999. On July 18, 1995, the Company consummated the sale of 2,875,000 shares of its common stock with net proceeds to the Company of approximately $54.4 million. The net proceeds were used to repay a portion of the borrowings under the Credit Agreements in fiscal 1996. Management believes cash generated by operations and borrowings available under the Credit Agreements will be sufficient to fund anticipated working capital requirements for existing operations through fiscal 1998. THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
Years ended March 31, --------------------------------------------- 1997 1996 1995 --------------------------------------------- Net Revenues $243,436 $ 219,838 $ 174,609 Cost of goods sold 132,199 126,622 90,522 --------------------------------------------- Gross Profit 111,237 93,216 84,087 Selling, general and administrative 86,259 86,219 62,049 Amortization of goodwill and non-compete agreements 2,024 1,110 826 --------------------------------------------- Operating Income 22,954 5,887 21,212 Other income 590 595 897 Interest expense 8,430 8,018 6,281 --------------------------------------------- Income (loss) from continuing operations before income taxes 15,114 ( 1,536) 15,828 Provision (benefit) for income taxes 5,592 ( 613) 5,727 --------------------------------------------- Income (loss) from continuing operations 9,522 ( 923) 10,101 Discontinued operations: Operating income (loss), net of applicable tax provision (benefit) of $446, ($4,891) and $912, respectively 728 ( 7,358) 1,609 Gain (loss) on disposal, net of applicable tax provision (benefit) of $24,096 and ($1,748), respectively 15,827 ( 2,633) -- --------------------------------------------- Income (loss) from discontinued operations 16,555 ( 9,991) 1,609 --------------------------------------------- NET INCOME (LOSS) $ 26,077 ($ 10,914) $ 11,710 ============================================= Weighted average number of shares outstanding 17,135 15,718 13,374 ============================================= NET INCOME (LOSS) PER SHARE: Primary-- Income (loss) from continuing operations $ 0.56 ($ 0.06) $ 0.76 Income (loss) from discontinued operations 0.96 ( 0.63) 0.12 --------------------------------------------- Net income (loss) per share $ 1.52 ($ 0.69) $ 0.88 ============================================= Fully diluted-- Income (loss) from continuing operations $ 0.56 ($ 0.06) $ 0.74 Income (loss) from discontinued operations 0.81 ( 0.63) 0.09 --------------------------------------------- Net income (loss) per share $ 1.37 ($ 0.69) $ 0.83 ==============================================
See Notes to Consolidated Financial Statements THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
March 31, ---------------------------- 1997 1996 ---------------------------- ASSETS Current assets Cash and cash equivalents $ 43,471 $ 672 Accounts receivable, less allowances of $7,000 and $7,069, respectively 64,626 72,001 Income tax refunds receivable - 4,440 Inventories 71,550 79,308 Prepaid expenses 9,421 11,221 Deferred tax asset 8,310 14,970 Net assets of discontinued operations - 62,514 ---------------------------- Total current assets 197,378 245,126 Property, plant and equipment, net 32,843 35,357 Other assets 10,466 10,201 Deferred charges 2,785 3,284 Goodwill, less accumulated amortization of $3,246 and $1,967, respectively 58,099 61,115 ---------------------------- TOTAL ASSETS $301,571 $355,083 ============================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 18,880 $23,187 Accrued expenses 22,740 21,502 Dividends payable 685 685 Income taxes currently payable 19,974 - Current portion of long-term debt 2,979 2,376 Current portion of capital lease obligations 268 249 --------------------------- Total current liabilities 65,526 47,999 Long-term debt 83,162 179,489 Capital lease obligations 377 527 Deferred tax liability 3,640 3,127 Other liabilities 2,054 1,876 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 16,001,178 and 16,004,368 shares, respectively 16,001 16,004 Class B common stock, $1.00 par value, authorized 5,000,000 shares; issued 1,112,075 and 1,112,075 shares, respectively 1,112 1,112 Additional paid-in capital 79,409 78,825 Retained earnings 50,290 26,952 Deferred compensation - ( 828) ---------------------------- Total shareholders' equity 146,812 122,065 ---------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $301,571 $355,083 ============================
See Notes to Consolidated Financial Statements THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except per share data)
Class B Additional Deferred Common Common Paid-In Retained Compen- Stock Stock Capital Earnings sation --------------------------------------------------- Balance at April 1, 1994 $ 9,891 $ 800 $20,982 $30,651 $ - Net income 11,710 Common stock issued: Option plans -- 10,500 common and 60,000 Class B common shares 11 60 306 Retirement for option payments 15,038 common and 180 Class B common shares ( 15) ( 348) Dividends declared - $0.136 per share ( 1,823) Executive Stock Purchase Plan Retired 2,255 common shares ( 2) ( 26) Stock dividend - 25% 2,471 213 ( 2,703) Class B common stock converted to common stock 6 ( 6) --------------------------------------------------- Balance at March 31, 1995 12,362 1,067 18,211 40,538 - Net loss (10,914) Common stock issued: Option plans -- 26,738 common and 18,750 Class B common shares 27 19 153 Retirement for option payments 7,349 common shares ( 7) ( 141) Incentive plan stock awards -- 49,294 common shares and 26,250 Class B common shares 49 26 614 Common stock offering 2,875 51,521 C.R. Gibson ESOP - 698,308 common shares 698 8,467 Dividends declared - $0.16 per share ( 2,672) Deferred compensation ( 828) --------------------------------------------------- Balance at March 31, 1996 16,004 1,112 78,825 26,952 ( 828) Net income 26,077 Common stock issued: Option plans -- 8,841 common shares 9 75 Retirement of stock awards -- 12,031 common shares ( 12) ( 110) Dividends declared - $0.16 per share ( 2,739) Incentive plan stock awards 619 Deferred compensation 828 --------------------------------------------------- Balance at March 31, 1997 $ 16,001 $ 1,112 $79,409 $50,290 $ - ===================================================
See Notes to Consolidated Financial Statements THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Years ended March 31, ---------------------------------- 1997 1996 1995 ---------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Income (loss) from continuing operations $ 9,522 ($ 923) $ 10,101 Adjustments to reconcile income to net cash provided by (used in) operations: Depreciation and amortization 8,436 7,263 4,191 Deferred income taxes 7,173 ( 2,774) 5,601 Gain on sale of property, plant and equipme - ( 449) ( 702) Deferred compensation 619 222 - Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net 7,375 2,572 ( 19,548) Income tax refunds receivable 4,440 ( 3,570) ( 870) Inventories 7,758 ( 8,827) ( 399) Prepaid expenses 1,800 747 ( 6,522) Accounts payable and accrued expenses ( 9,969) ( 7,338) 9,513 Income taxes currently payable 3,707 - ( 4,471) ----------------------------------- Net cash provided by (used in) continuing operations 40,861 ( 13,077) ( 3,106) ------------------------------------ Discontinued operations: Income (loss) from discontinued operations 728 ( 7,358) 1,609 Gain (loss) on disposal of discontinued operations 15,827 ( 2,633) - Changes in discontinued assets ( 24,442) 20 1,819 Cash used in discontinued operations ( 7,179) ( 7,237) ( 12,002) ----------------------------------- Net cash used in discontinued operations ( 15,066) ( 17,208) ( 8,574) ----------------------------------- Net cash provided by (used in) operating activities 25,795 ( 30,285) ( 11,680) ----------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 1,876) ( 3,996) ( 1,342) Proceeds from sale of property, plant and equipment 49 854 23 Proceeds from sales of business and discontinued assets 120,368 - 2,823 Purchase of net assets of acquired companies - net of cash received ( 122) ( 70,217) ( 187) Changes in other assets and deferred charges ( 2,817) 3,241 ( 3,344) ----------------------------------- Net cash provided by (used in) investing activities 115,602 ( 70,118) ( 2,027) ----------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (payments) under line of credit ( 57,800) ( 1,000) 18,300 Proceeds from issuance of long-term debt - 50,000 - Payments under capital lease obligation ( 231) ( 901) ( 723) Payments on long-term debt ( 37,968) ( 9,375) ( 892) Dividends paid ( 2,739) ( 2,524) ( 1,713) Changes in other liabilities 178 ( 193) ( 1,246) Proceeds from issuance of common stock 84 64,449 377 Common stock retired ( 122) ( 148) ( 391) ----------------------------------- Net cash provided by (used in) financing activities ( 98,598) 100,308 13,712 ----------------------------------- Net increase (decrease) in cash and cash equivalents 42,799 ( 95) 5 Cash and cash equivalents at beginning of year 672 767 762 ------------------------------------ Cash and cash equivalents at end of year $ 43,471 $ 672 $ 767 ==================================== Supplemental disclosures of noncash investing and financing activities: Dividends accrued and unpaid $ 685 $ 685 $ 537 Capital lease obligations incurred to lease new equipment $ 144 $ 674 $ - Contribution to ESOP using previously funded advances $ 828 $ - $ -
See Notes to Consolidated Financial Statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ==================================================================== Thomas Nelson, Inc. and Subsidiaries NOTE A-DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS: Thomas Nelson, Inc. (a Tennessee corporation) and subsidiaries (the "Company"), is a publisher, producer and distributor of Bibles and books emphasizing Christian, inspirational and family value themes. The Company also designs and markets a broad line of gift and stationery products. The principal markets for the Company's products are Christian bookstores, general bookstores, mass merchandisers, gift stores and direct marketing to consumers in English-speaking countries. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements consist of the accounts of the Company including its subsidiaries, Worthy, Incorporated (formerly Word, Incorporated) and The C.R. Gibson Company ("Gibson"). See Note B for additional information. The consolidated statement of operations for the year ended March 31, 1996, includes Gibson operations for the five months ended March 31, 1996. All intercompany transactions and balances have been eliminated. SALES RETURNS: Provision is made for the estimated effect of sales returns where right-of-return privileges exist. Returns of products from customers are accepted in accordance with standard industry practice. The full amount of the returns allowance (estimated returns to be received net of inventory and royalty costs) is shown, along with the allowance for doubtful accounts, as a reduction of accounts receivable in the accompanying financial statements. INVENTORIES: Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) valuation method. Costs of the production and publication of products are included in inventory and charged to operations when sold or when otherwise disposed. Costs of abandoned publishing projects and appropriate provisions for inventory obsolescence and decreases in market value are charged to operations on a current basis. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Depreciation and amortization are provided for principally on the straight-line method over the estimated useful lives of the individual assets. GOODWILL: Goodwill is being amortized on a straight-line basis over 40 years. Subsequent to acquisitions, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. In the evaluation of possible impairment, the Company uses the most appropriate method of evaluation given the circumstances surrounding the particular acquisition, which has generally been an estimate of the related business unit's undiscounted operating income before interest and taxes over the remaining life of the goodwill. PREPAID EXPENSES: Prepaid expenses consist primarily of royalty advances. These costs are expensed over the expected benefit periods. DEFERRED CHARGES: Deferred charges consist primarily of loan issuance costs which are being amortized over the average life of the related debt. Also included are publication costs that are expected to be of significant benefit to future periods and other deferred charges, all of which are amortized over periods not to exceed 60 months. OTHER ASSETS: Other assets consist primarily of prepaid royalty costs for works and projects which are not expected to be released within the next fiscal year. STOCK-BASED COMPENSATION: Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for employee stock-based compensation using the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"), and related Interpretations. Under APB Opinion No. 25, no compensation cost related to employee stock options has been recognized because all options are issued with exercise prices equal to or greater than the fair market value at the date of grant. See Note J for further discussion. INCOME TAXES: Income taxes are accounted for in accordance with SFAS 109, "Accounting for Income Taxes." Deferred income taxes are provided for temporary differences between the financial statement and income tax bases of assets and liabilities. COMPUTATION OF NET INCOME PER SHARE: Net income per share is computed by dividing net income by the weighted average number of common and Class B common shares outstanding during the year, which includes the additional dilution related to stock options. The fully diluted per share computation reflects the effect of common shares contingently issuable upon conversion of convertible debt securities in periods in which such exercise would cause dilution and the effect on net income of converting the debt securities. Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") has been issued effective for interim and annual fiscal periods ending after December 15, 1997. SFAS 128 establishes standards for computing and presenting earnings per share. The Company is required to adopt the provisions of SFAS 128 in the third quarter of fiscal 1998. Management does not believe that adoption of SFAS 128 will have a material effect on the Company's financial statements, taken as a whole. STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, the Company considers as cash equivalents all highly liquid debt instruments with a maturity of three months or less. ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. OTHER NEW PRONOUNCEMENTS: In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS 121"). This statement imposes stricter criteria for long-term assets by requiring that such assets be probable of future recovery at each balance sheet date. The Company adopted SFAS 121 effective April 1, 1996. The Company did not experience a material impact on its results of operations, financial conditions or cash flows as a result of adoption. In February 1997, the FASB issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS 129"). SFAS 129 establishes standards for disclosing information about an entity's capital structure. The Company will be required to adopt SFAS 129 in the third quarter of fiscal 1998. Management does not expect the adoption to have a material impact on the Company's financial position, results of operation or cash flows. RECLASSIFICATIONS: Certain reclassifications of prior period amounts have been made to conform to the current year's presentation. NOTE B-ACQUISITIONS The Company completed its $9.00 per share cash tender offer effective October 31, 1995, for the outstanding shares of common stock of Gibson for approximately $67 million. The purchase price was funded by the Company's issuance of $50 million of the Company's Senior Notes and by borrowings under the Company's Credit Agreements. See Note H for additional information. Gibson, headquartered in Norwalk, Connecticut, manufactures and markets a wide range of paper, gift and stationery products, primarily under the C.R. Gibsonr and Creative Papersr brand names. Products include baby and wedding memory books, stationery, giftwrap and paper tableware. The Gibson acquisition has been accounted for as a purchase, and Gibson's results of operations are included in the Company's consolidated financial statements since the date of acquisition. The total acquisition cost has been allocated to the net assets acquired based on the estimated fair values. The purchase price has been allocated to the purchased assets and assumed liabilities as follows (in thousands): Working capital, net $ 7,428 Property, plant and equipment, net 20,138 Goodwill 45,974 Other assets 9,607 Other liabilities ( 15,743) ---------- $ 67,404 ========== The following unaudited pro forma information combines the consolidated results of operations of the Company and Gibson as if the acquisition had occurred on April 1, 1994, after giving effect to amortization of goodwill and interest expense on borrowings to finance the acquisition. The pro forma information is not necessarily indicative of the results of operations which would have actually been obtained during such periods. While the Company believes that it will realize certain long-term synergies through the integration of certain operating functions, there can be no assurances that such synergies can be realized, and no amounts have been reflected in the pro forma adjustments to reflect such anticipated synergies.
Years Ended March 31, --------------------------- 1996 l995 --------------------------- (In thousands, except per share data) (Unaudited) (Unaudited) Net revenues $260,367 $ 225,030 Income (loss) from continuing operations ($ 7,102) $ 9,244 Income (loss) per share from continuing operations ($ 0.45) $ 0.69
NOTE C-INVENTORIES Inventories consisted of the following at March 31 (in thousands):
1997 l996 ------------------------- Finished goods $ 53,634 $ 61,002 Work in process and raw materials 17,916 18,306 ------------------------- $ 71,550 $ 79,308 =========================
NOTE D-PREPAID EXPENSES Prepaid expenses consisted of the following at March 31 (in thousands):
1997 1996 ------------------------ Royalties $ 7,648 $ 9,650 Other 1,773 1,571 ------------------------ $ 9,421 $ 11,221 ========================
NOTE E-PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at March 31 (in thousands):
1997 l996 ------------------------ Land $ 4,948 $ 4,948 Buildings 20,353 20,152 Machinery and equipment 29,762 29,469 Furniture and fixtures 3,620 3,179 Other 737 348 ------------------------ 59,420 58,096 Less allowance for depreciation and amortization ( 26,577) ( 22,739) ------------------------ $ 32,843 $ 35,357 ========================
NOTE F-OTHER ASSETS Other assets consisted of the following at March 31 (in thousands):
1997 l996 ------------------------ Prepaid royalties $ 6,654 $ 5,018 Other 3,812 5,183 ------------------------ $ 10,466 $ 10,201 ========================
NOTE G-ACCRUED EXPENSES Accrued expenses consisted of the following at March 31 (in thousands):
1997 l996 ------------------------ Accrued royalties $ 4,535 $ 5,558 Accrued payroll 4,708 6,039 Accrued integration costs 2,904 3,296 Accrued interest 1,541 3,263 Net liability of discontinued operations 6,900 - Other 2,152 3,346 ------------------------ $ 22,740 $ 21,502 ========================
Cash payments for interest were $10.2 million in 1997, $9.6 million in 1996 and $8.0 million in 1995. NOTE H-LONG-TERM DEBT Long-term debt consisted of the following at March 31 (in thousands):
1997 1996 ------------------------ Industrial Revenue Bonds, 7.75% to 8.35%, due through 2005 $ 1,900 $ 2,475 Loan Agreement 3,000 3,667 Credit Agreements -- 57,800 Senior Notes 26,000 62,000 Convertible Subordinated Notes 55,000 55,000 Other 241 923 ------------------------ 86,141 181,865 Less current portion ( 2,979) ( 2,376) ------------------------ $ 83,162 $ 179,489 ========================
At March 31, 1997, Industrial Revenue Bonds were secured by property, plant and equipment with a net book value of approximately $1.7 million. The Loan Agreement indebtedness is secured by property, plant and equipment related to the Company's Nashville warehouse and distribution center expansion completed in June 1992. Interest payable monthly is at the London Interbank Offered Rate ("LIBOR") plus 1.25%, which was 6.6875% at March 31, 1997. Semi-annual principal payments are due through March 2002. The Company has Credit Agreements with borrowing limits totaling $85 million as of March 31, 1997. In January 1997, the primary credit facility ("Credit Facility") was amended, in connection with the sale of the Company's Music Business, to decrease the Credit Facility borrowing limit to $75 million maturing in fiscal 2003. The Credit Facility bears interest at either the lender's prime rate or, at the Company's option, the LIBOR plus a percentage, based on certain financial ratios. The Credit Facility is guaranteed by all of the Company's material subsidiaries and the Company has agreed, among other things, to limit the payment of cumulative cash dividends and to maintain certain interest coverage and debt-to-total-capital ratios. The maximum dividends which the Company may pay for fiscal 1998 are $13.2 million. Additionally, the Company has a $10 million credit facility which matures July 31, 1998, and bears interest at the lender's prime rate, with covenants which are the same as the Credit Facility. At March 31, 1997, the Company was in compliance with all covenants of the Credit Agreements. At March 31, 1997, the Company had $85 million available under its Credit Agreements. The Company has outstanding $26 million of Senior Notes, which bear interest at rates from 6.68% to 9.5% and are due through fiscal 2006. The Company in January 1997, subsequent to the sale of the Music Business, retired $35 million of the Senior Notes. See Note Q for further discussion. Under the terms of the Senior Notes, the Company has agreed, among other things, to limit the payment of cash dividends and to maintain certain interest coverage and debt-to-total-capital ratios. The maximum dividends which the Company may pay for fiscal 1998 are $13.2 million. At March 31, 1997, the Company was in compliance with all covenants of the Senior Notes. The Company has issued $55 million of Convertible Subordinated Notes due November 30, 1999, priced at par to yield 5.75%. The notes presently are convertible into common stock at $17.00 per share and are redeemable at the Company's option after November 30, 1995, at 103.29% of the principal amount, declining thereafter to 100% on November 30, 1999. This conversion would result in 3,235,294 additional shares outstanding. Maturities of long-term debt for the years ending March 31 are as follows (in thousands): 1998 $ 2,979 1999 3,684 2000 59,735 2001 3,888 2002 3,581 2003 and thereafter 12,274 ------------ $ 86,141 ============ NOTE I-LEASES Total rental expense for all operating leases, including short-term leases of less than a year, amounted to approximately $3.2 million in 1997, $2.5 million in 1996, and $1.5 million in 1995. 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 leases for the years ending March 31 are as follows (in thousands):
Operating Capital Leases Leases ------------------------- 1998 $ 2,506 $ 325 1999 2,010 294 2000 850 52 2001 96 22 2002 30 19 2003 and thereafter -- -- ------------------------- Total minimum lease payments $ 5,492 712 =========== Less amount representing interest ( 67) ---------- Present value of net lease payments 645 Less current portion ( 268) ---------- $ 377 ==========
NOTE J-STOCK PLANS 1986 STOCK INCENTIVE PLAN: The Company adopted the 1986 Stock Incentive Plan (the "1986 Plan"), which is administered by the Company's Compensation Committee. Stock options were granted under the 1986 Plan at a price not less than the fair market value ("FMV") of the stock on the date the option is granted and must be exercised not later than five years after the date of grant. Stock options issued to a person then owning more than 10% of the voting power in all classes of the Company's outstanding stock were granted at a purchase price of not less than 110% of the FMV and must be exercised within five years from the date of grant. The options vest 1/4 each year for four years beginning on the first anniversary date of the option grant and, at March 31, 1997, there were 74,768 shares of common stock and 31,250 shares of Class B common stock exercisable in the 1986 Plan. The weighted average life of the options outstanding in the 1986 Plan at March 31, 1997, was two years. The 1986 Plan terminated in March 1996 and options outstanding remain in effect until exercised or expired. Options outstanding under this plan are as follows:
COMMON STOCK CLASS B COMMON STOCK ------------------------------------------------ Remaining Remaining Weighted Shares Outstanding Shares Outstanding Average Reserved Optioned Reserved Optioned Exercise For Grant Shares For Grant Shares Price ------------------------------------------------------------- April 1, 1994 58,238 36,000 190,487 75,000 $ 5.50 Granted ( 60,238) 200,000 (189,762) 50,000 18.20 Stock dividend -- 54,750 181 16,250 ( 3.32) Exercised -- ( 15,000) -- ( 60,000) 5.74 Canceled 2,000 ( 2,000) -- -- 4.00 ------------------------------------------------------------- March 31, 1995 -- 273,750 906 81,250 13.22 Exercised -- ( 21,094) -- ( 18,750) 4.44 Canceled 29,344 ( 29,344) -- -- 11.97 Plan terminated ( 29,344) -- ( 906) -- -- ------------------------------------------------------------- March 31, 1996 -- 223,312 -- 62,500 14.58 Canceled -- ( 74,375) -- -- 14.40 ------------------------------------------------------------- March 31, 1997 -- 148,937 -- 62,500 $ 14.64 =============================================================
COMMON STOCK -------------------------- Remaining Weighted Shares Outstanding Average Reserved Optioned Exercise For Grant Shares Price ----------------------------------------- April 1, 1994 128,265 12,437 $ 0.77 Stock dividend 31,023 4,153 ( 0.17) Granted ( 4,175) 4,175 1.00 ----------------------------------------- March 31, 1995 155,113 20,765 0.66 Granted ( 3,030) 3,030 1.00 ----------------------------------------- March 31, 1996 152,083 23,795 0.71 Exercised -- ( 5,943) 0.53 Plan terminated ( 152,083) -- -- ----------------------------------------- March 31, 1997 -- 17,852 $ 0.76 =========================================
1992 EMPLOYEE STOCK INCENTIVE PLAN: The Company has adopted the 1992 Amended and Restated Employee Stock Incentive Plan, which is administered by the Company's Compensation Committee. Stock options, stock appreciation rights, restricted stock, deferred stock, stock purchase rights and other stock-based awards may be granted to employees under this plan. In addition, 140,000 shares of common stock have been authorized for issuance under this plan for annual stock option grants to each of the Company's outside directors for the purchase of 2,000 shares of common stock. Stock options have been granted under this plan as indicated in the table below. In addition, for fiscal 1995 and 1996, restricted stock awards were granted. Under the provision of the restricted stock awards, employees may earn 50% of the award in fiscal years 1995 and 1996 based upon achieving performance goals in each year provided the employee does not terminate his or her employment for two years subsequent to when an award is earned. During fiscal 1997, the Company issued 1,083 shares of common stock and 2,082 shares of Class B common stock pursuant to such restricted stock awards. Compensation expense of $0.6 million related to this plan was recognized during fiscal 1997. The options in the Stock Incentive Plan vest over one to three year periods beginning on the first or fourth anniversary date of the option grant, and at March 31, 1997, there were 40,833 shares of common stock and 30,000 shares of Class B common stock exercisable. The weighted average life of the options outstanding in the Stock Incentive Plan at March 31, 1997, was eight years.
Remaining Outstanding Outstanding Weighted Weighted Shares Award Shares Option Shares Average Average Reserved ---------------------------------- Exercise Fair For Grant Common Class B Common Class B Price Value Stock Stock Stock Stock ---------------------------------------------------------------- Balance at April 1, 1994 750,000 -- -- -- -- Awards granted (187,084) 132,084 55,000 -- -- Stock dividend 187,500 -- -- -- -- ----------------------------------------------------------------- Balance at March 31, 1995 750,416 132,084 55,000 -- -- Awards canceled 21,136 ( 17,804) ( 3,332) -- -- Awards issue -- ( 51,376) (24,168) -- -- Options grante (635,500) -- -- 305,500 330,000 $19.48 $11.94 Additional shares author- ized 1,202,500 -- -- -- -- ------------------------------------------------------------------ Balance at March 31, 1996 1,338,552 62,904 27,500 305,500 330,000 $19.48 Awards canceled 87,239 (61,821) (25,418) -- -- Options canceled 198,000 -- -- (183,000) ( 15,000) $17.19 Awards issue -- ( 1,083) ( 2,082) -- -- Options granted (320,000) -- -- 185,000 135,000 $14.34 $ 8.49 Stock incentive issued ( 1,815) -- -- -- -- ------------------------------------------------------------------ Balance at March 31, 1997 1,301,976 -- -- 307,500 450,000 $17.91 ==================================================================
STOCK-BASED COMPENSATION PLANS: The Company accounts for options issued to employees and directors under APB Opinion No. 25. All options are granted with exercise prices equal to or greater than market value of the Company's common stock on the date of grant. As a result, no compensation cost has been recognized. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 established new financial accounting and reporting standards for stock-based compensation plans. The Company has adopted the disclosure-only provision of SFAS 123. As a result, no compensation cost has been recognized for the Company's employee stock option plans. Had compensation cost for the employee stock option plans been determined based on the fair value at the grant date for awards in fiscal 1997 and 1996 consistent with the provisions of SFAS 123, the Company's net income (loss) and net income (loss) per share would have been reduced (increased) to the following pro forma amounts for the 1997 and 1996 fiscal years:
1997 1996 -------------------------- Net income (loss): As reported $ 26,077 ($ 10,914) ========================== Pro forma $ 24,683 ($ 12,309) ========================== Net income (loss) per share: Primary-- As reported $ 1.52 ($ 0.69) ========================== Pro forma $ 1.44 ($ 0.78) ========================== Fully diluted-- As reported $ 1.37 ($ 0.69) ========================== Pro forma $ 1.31 ($ 0.78) ==========================
Because the SFAS 123 method of accounting has not been applied to options granted prior to April 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option on its date of grant has been estimated for pro forma purposes using the Black-Scholes option pricing model using the following weighted average assumptions:
1997 1996 --------------------------- Expected dividend payment $ 0.16 $ 0.16 Expected stock price volatility 45.96% 54.49% Risk free interest rate 6.55% 6.36% Expected life of options 8 years 8 years
NOTE K-RETIREMENT PLANS The Company has adopted the Thomas Nelson, Inc. Employee Stock Ownership Plan ("Company ESOP") which includes a 401(k) feature. In addition, Gibson maintains The C.R. Gibson Company Employee Stock Ownership Plan ("Gibson ESOP") and The C.R. Gibson Company Savings and Investment Plan ("Gibson 401(k) Plan"). The Company ESOP covers all eligible officers and employees other than those employed by Gibson. The Company, at its discretion, matches each employee's 401(k) contribution annually and, in addition, may make retirement contributions to the ESOP at its discretion. The Gibson ESOP and Gibson 401(k) Plan benefit all eligible Gibson employees. Gibson, at its discretion, matches each Gibson employee's 401(k) contributions annually and contributes 4% of the first $6,600 of a participant's compensation in the Gibson 401(k) Plan. Prior to the Gibson acquisition, Gibson loaned the Gibson ESOP monies to purchase shares and the balance of the loan was $828,000 at March 31, 1996. Annual contributions to the Gibson ESOP are a percentage of compensation in accordance with the plan provisions and are used to repay the loan to the Company and to acquire additional shares of common stock. The shares acquired by the Gibson ESOP through the loan are released and allocated to the participants as the loan is paid by contributions. At March 31, 1997, the Gibson ESOP loan had been retired. The Company's contributions to these retirement plans including matching contributions totaled $3.1 million, $1.5 million and $1.0 million in 1997, 1996 and 1995, respectively. NOTE L-COMMON STOCK On March 24, 1995, the Company effected a five-for-four stock split in the form of a 25% stock dividend. All common stock, Class B common stock, dividends per share and earnings per share data has been restated to reflect this five-for-four stock split. On July 24, 1995, the Company sold 2,875,000 shares of common stock at $20.00 per share to a group of underwriters in a registered public offering. The net proceeds to the Company of approximately $54.4 million were used to repay amounts outstanding under the Company's bank Credit Agreements. NOTE M-INCOME TAXES The income tax provision is comprised of the expense (benefit) as follows at March 31 (in thousands):
1997 1996 1995 ------------------------------- Current: U.S. federal $ 19,180 ($ 3,604) $ 97 State 1,692 150 839 Foreign 2,089 126 102 -------------------------------- Total current 22,961 ( 3,328) 1,038 Deferred 7,173 ( 3,924) 5,601 -------------------------------- Total tax provision $ 30,134 ($ 7,252) $ 6,639 ================================
SFAS 109 permits the recognition of a deferred tax asset if it is more likely than not that the future tax benefit will be realized. The Company believes that, based on its history of profitable operations, the net deferred tax asset will be realized on future tax returns, primarily from the generation of future taxable income. The net deferred tax asset is comprised of the following at March 31 (in thousands):
1997 1996 --------------------- Accelerated depreciation ($ 2,571) ($ 2,913) Deferred charges ( 571) ( 779) Contributions -- 1,663 Inventory obsolescence reserve 1,877 4,748 Bad debt and returns reserves 2,303 4,051 Inventory-unicap tax adjustment 1,129 3,142 Advances and prepaid expenses 92 2,478 Accrued liabilities 2,127 3,559 Other 5,457 1,284 Valuation allowance ( 5,173) ( 5,390) -------------------- Net deferred tax asset $ 4,670 $11,843 ====================
Reconciliation of income tax from continuing operations computed at the U.S. federal statutory tax rate to the Company's effective tax rate is as follows at March 31:
1997 1996 1995 ------------------------------- U.S. federal statutory tax rate provision (benefit) 34.0% ( 34.0%) 34.5% State taxes on income 3.0% ( 6.7%) 4.6% Other -- .8% ( 2.9%) ------------------------------- Effective tax rate 37.0% ( 39.9%) 36.2% ===============================
Cash payments for income taxes were $1.0 million, $0.9 million, and $6.0 million in 1997, 1996 and 1995, respectively. NOTE N-QUARTERLY RESULTS (UNAUDITED) Summarized results for each quarter in the fiscal years ended March 31, 1997 and 1996 are as follows (dollars in thousands, except per share data):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ---------------------------------------------------- 1997 - - ----- Net revenues $ 55,179 $ 65,206 $ 63,557 $ 59,494 Gross profit $ 26,034 $ 30,973 $ 27,958 $ 26,272 Income from continuing operations $ 218 $ 3,571 $ 3,443 $ 2,290 Income (loss) from discontinued operations ($ 1,613) $ 1,538 $ 803 $ 15,827 Net income (loss) ($ 1,395) $ 5,109 $ 4,246 $ 18,117 Income (loss) per share from continuing operations $ 0.01 $ 0.21 $ 0.20 $ 0.14 Income (loss) per share from discontinued operations ($ 0.09) $ 0.09 $ 0.05 $ 0.92 Net income (loss) per share ($ 0.08) $ 0.30 $ 0.25 $ 1.06 1996 - - ----- Net revenues $ 41,986 $ 50,153 $ 62,978 $ 64,721 Gross profit $ 22,167 $ 22,561 $ 28,270 $ 20,218 Income (loss) from continuing operations $ 710 $ 3,247 $ 2,181 ($ 7,061) Income (loss) from discontinued operations ($ 1,066) $ 195 ($ 535) ($ 8,585) Net income (loss) ($ 356) $ 3,442 $ 1,646 ($ 15,646) Income (loss) per share from continuing operations $ 0.05 $ 0.25 $ 0.13 ($ 0.42) Income (loss) per share from discontinued operations ($ 0.08) ($ 0.03) ($ 0.03) ($ 0.51) Net income (loss) per share ($ 0.03) $ 0.22 $ 0.10 ($ 0.93)
NOTE O-COMMITMENTS AND CONTINGENCIES The Company has commitments to provide advances to certain authors in connection with products they are developing for the Company. These commitments totaled approximately $10.2 million at March 31, 1997. 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 five years. The Company is subject to various legal proceedings, claims and liabilities, which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the Company. NOTE P-FINANCIAL INSTRUMENTS The following disclosure of estimated fair value of financial instruments as of March 31, 1997 is made in accordance with SFAS 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, 1997 and 1996, respectively. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market transaction (in thousands):
1997 1996 ----------------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ----------------------------------------------- CASH AND CASH EQUIVALENTS $ 43,471 $ 43,471 $ 672 $ 672 LONG-TERM DEBT: Industrial Revenue Bonds $ 1,900 $ 1,900 $ 2,475 $ 2,475 Capital Lease Obligations $ 377 $ 377 $ 776 $ 776 Loan Agreement $ 3,000 $ 3,000 $ 3,667 $ 3,667 Credit Agreements $ -- $ -- $ 57,800 $ 57,800 Senior Notes $ 26,000 $ 24,720 $ 62,000 $ 58,733 Convertible Subordinated Notes $ 55,000 $ 50,600 $ 55,000 $ 57,200
The carrying values of the cash and cash equivalents approximated the fair value based on the short-term nature of the investment instruments. The fair values of the Convertible Subordinated Notes and the Senior Notes are based on the unofficial market for these privately placed instruments. The carrying value of the Company's Credit Agreements and Loan Agreement approximates the fair value. Due to the variable rate nature of the instruments, the interest rate paid by the Company approximates the current market rate demanded by investors; therefore, the instruments are valued at par. The carrying value of the Industrial Revenue Bonds and the Capital Lease Obligation approximates the fair value. Outstanding letters of credit totaled $1.4 million and $3.6 million as of March 31, 1997 and 1996, respectively. The letters of credit guarantee performance to third parties of various trade activities. Fair value estimated on the basis of fees paid to obtain the obligations is not material at March 31, 1997 and 1996. Financial instruments which potentially subject the Company to credit risk consist primarily of trade receivables. Credit risk on trade receivables is minimized as a result of the large and diverse nature of the Company's customer base. NOTE Q-DISCONTINUED OPERATIONS On January 6, 1997, the Company sold the assets, net of liabilities, of the Music Business, which included production of recorded music and related products, the distribution of recordings for other companies and music publishing, including songwriter development, print music publishing and copyright administration, for approximately $120 million. During March 1996, the Company adopted plans to sell the Christian-lifestyles magazines and the radio networks of the Company's Royal Media division, and those sales have been completed. These operations are accounted for as discontinued operations, and accordingly, their assets, liabilities and results of operations are segregated in the accompanying consolidated statements of operations, balance sheets and statements of cash flows. Net revenues, operating costs and expenses, other income and expense, and income taxes for all periods presented have been reclassified for amounts associated with the discontinued operations. Revenues, income (losses) and income tax provisions (benefits) associated with the discontinued operations were as follows at March 31 (in thousands):
1997 1996 1995 ---------------------------------------- Net revenues $ 74,687 $ 91,830 $ 90,498 ======================================== Income (loss) from operations before income tax provision (benefit) $ 1,174 ($ 12,249) $ 2,521 Income tax provision (benefit) 446 ( 4,891) 912 ---------------------------------------- Income (loss) from operations 728 ( 7,358) 1,609 ---------------------------------------- Gain (loss) on disposal before income tax provision (benefit) 39,923 ( 4,381) -- Income tax provision (benefit) 24,096 ( 1,748) -- ---------------------------------------- Gain (loss) on disposal 15,827 ( 2,633) -- ---------------------------------------- Total income (loss) from discontinued operations $ 16,555 ($ 9,991) $ 1,609 ========================================
Assets and liabilities for all periods presented have been reclassified for amounts associated with the discontinued operations. Net liabilities from discontinued operations for fiscal 1997 have been classified as accrued expenses on the consolidated balance sheet. Summarized balance sheet data for the discontinued operations is as follows at March 31 (in thousands):
1997 1996 -------------------------- Current assets $ 2,201 $ 54,382 Property, plant and equipment, net -- 1,277 Other assets -- 9,520 Goodwill -- 15,848 -------------------------- Total assets 2,201 81,027 Current liabilities 9,101 17,578 Other non-current liabilities -- 935 -------------------------- Net assets (liabilities) ($ 6,900) $ 62,514 ========================== REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ================================================================= Thomas Nelson, Inc. and Subsidiaries To the Board of Directors of Thomas Nelson, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Thomas Nelson, Inc. (a Tennessee corporation) and Subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the financial position of Thomas Nelson, Inc. and Subsidiaries as of March 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 1997, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Nashville, Tennessee May 30, 1997 OTHER FINANCIAL INFORMATION ================================================================= The common stock and the Class B common stock are traded on the NYSE under the symbols "TNM" and "TNM.B," respectively. Until June 19, 1995, the common stock and the Class B common stock were quoted on the Nasdaq National Market under the symbols "TNEL" and "TNELB," respectively. The following table sets forth, for the periods indicated, the high and low bid prices of the common stock and Class B common stock as reported on the Nasdaq National Market for each of the quarters indicated through June 16, 1995, and the high and low closing sales prices as reported on the NYSE composite tape from June 19, 1995:
Common Class B Stock Common Stock ------------------------------------- Dividends Paid High Low High Low Per Share ------------------------------------------------------- Fiscal l997 - - ----------- First Quarter $ 15 1/8 $ 11 1/2 $ 19 3/8 $ 16 $ .040 Second Quarter 13 1/4 10 1/4 16 3/4 12 1/2 .040 Third Quarter 14 7/8 9 3/8 21 13 1/4 .040 Fourth Quarter 15 1/4 10 1/2 23 18 7/8 .040 ------------ $ .160 ============ Fiscal l996 - - ----------- First Quarter $ 20 1/4 $ 19 5/8 $ 23 $ 18 1/2 $ .040 Second Quarter 26 3/8 19 1/8 26 20 7/8 .040 Third Quarter 26 1/8 12 1/2 25 3/4 18 3/8 .040 Fourth Quarter 16 3/4 12 3/8 19 1/4 16 1/2 .040 ------------ $ .160 ============
As of June 4, 1997, there were 1,181 record holders of the common stock and 767 record holders of the Class B common stock. Declaration of dividends is within the discretion of the Board of Directors of the Company. The Board considers the payment of dividends on a quarterly basis, taking into account the Company's earnings and capital requirements as well as financial and other conditions existing at the time. Certain covenants of the Company's Credit Agreements and Senior Notes limit the amount of cash dividends payable based on the Company's cumulative consolidated net income. See Note H of Notes to Consolidated Financial Statements. On May 22, 1997, the Company declared a cash dividend of $.04 per share on its common stock and Class B common stock to be paid on August 18, 1997 to shareholders of record on August 4, 1997. EX-21 3 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY
Percentage Jurisdiction of Ownership of Subsidiary Incorporation Capital Stock =========================================================== Worthy, Incorporated Delaware 100% (formerly Word, Incorporated) Nelson Direct Marketing Services, Inc. Delaware 100% Nelson Direct, Inc. Texas 100% (formerly Word Direct, Inc.) Nelson Direct Partners, LP Texas 100% (formerly Word Direct Partners, LP) Editorial Caribe, Inc. Florida 100% The C.R. Gibson Company Delaware 100% 855763 Ontario Limited Ontario, Canada 100% C.R. Gibson Catalogue, Inc. Delaware 100% Nelson Media (U.K.) Limited United Kingdom 100% (formerly NelsonWord, Ltd.) Nelson Media (Canada) Limited British Columbia, 100% (formerly Word Canada Communications Ltd.) Elm Hill Press, Inc. Tennessee 100% PPC, Inc. North Carolina 100%
EX-23 4 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated May 30, 1997 included in Thomas Nelson, Inc.'s annual report to shareholders. In addition, we hereby consent to the incorporation of our reports incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File No. 33-80086 and File No. 333-4503). /s/ ARTHUR ANDERSEN LLP Nashville, Tennessee June 26, 1997 EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF THOMAS NELSON, INC. FOR FISCAL YEAR ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-31-1997 APR-01-1996 MAR-31-1997 43,471 0 71,626 7,000 71,550 197,378 59,420 26,577 301,571 65,526 83,539 0 0 17,113 129,699 301,571 238,769 243,436 132,199 218,458 2,024 2,794 8,430 15,114 5,592 9,522 15,827 0 0 26,077 1.52 1.37
-----END PRIVACY-ENHANCED MESSAGE-----