-----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, RooqX2VAsEuS+v+rFJIxbjvL9M41t4ngYVm3UM2w5TXaBBM3jdv2OBNmNUjjJhDO 2VDHwSzI8FDr9G+mvViG3A== 0000071023-98-000005.txt : 19980629 0000071023-98-000005.hdr.sgml : 19980629 ACCESSION NUMBER: 0000071023-98-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980626 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NELSON THOMAS INC CENTRAL INDEX KEY: 0000071023 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 620679364 STATE OF INCORPORATION: TN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13788 FILM NUMBER: 98654499 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, 1998 Commission file number 0-4095 --------------------------- THOMAS NELSON, INC. (Exact name of Registrant as specified in its charter) Tennessee 62-0679364 (State or other jurisdiction of (I.R.S. employer 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 New York Stock Exchange $1.00 per share Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES [ X ] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of June 25, 1998, the Registrant had outstanding 15,660,729 shares of common stock and 1,111,924 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 $178.4 million. The market value calculation was determined using the closing sale price of the Registrant's common stock and Class B common stock on June 25, 1998, as reported on The New York Stock Exchange, and assumes that all shares beneficially held by executive officers and the 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 33 of Annual Report to Common Equity and Shareholders for year ended Related Shareholder March 31, 1998 (market Matters price and dividend information only) Item 6 - Selected Financial Page 11 of Annual Report to Data Shareholders for year ended March 31, 1998 Item 7 - Management's Dis- Pages 12 to 15 of Annual cussion and Analysis Report to Shareholders for of Financial Con- year ended March 31, 1998 dition and Results of Operations Item 8 - Financial Statements Pages 16 to 31 of Annual and Supplementary Report to Shareholders for Data year ended March 31, 1998 PART III Item 10 - Directors and To be included in Company's Executive Officers Proxy Statement for the of the Company Annual Meeting of Share- holders to be held August 20, 1998, 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 To be included in Company's Compensation Proxy Statement for the Annual Meeting of Share- holders to be held August 20, 1998, 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 To be included in Company's of Certain Bene- Proxy Statement for the ficial Owners and Annual Meeting of Share- Management holders to be held August 20, 1998, 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 Share- holders to be held August 20, 1998, 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 in the United States and is a major producer of gift and stationery items. 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 $15.8 million (net of a goodwill write-off 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:
Years Ended March 31, ------------------------------------------------- 1998 1997 1996 ------------------------------------------------- Amount % Amount % Amount % ------------------------------------------------- Publishing $163,842 64.8 $153,317 63.0 $165,048 75.1 Gift 89,116 35.2 90,119 37.0 54,790 24.9 ------------------------------------------------- $252,958 100.0 $243,436 100.0 $219,838 100.0 =================================================
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 several imprints including Nelson, Word, J. Countryman(Trademark symbol) and Tommy Nelson(Trademark symbol), and consist generally of inspirational, trade, gift, children's and reference books emphasizing Christian and family value themes. The Company distributes books primarily through Christian bookstores, general bookstores, mass merchandisers and direct sales to consumers. The Company also distributes books published by other companies to complement their marketing and distribution capabilities. In fiscal 1998, approximately 7% of the book net revenues related to the distribution of books published by other companies. In fiscal 1998, 1997 and 1996, the Company released over 200 new book titles annually. The Company publishes some of the most well-known communicators in the Christian and inspirational field, including James Dobson, Billy Graham, Barbara Johnson, Max Lucado, John Maxwell, Frank Peretti, Pat Robertson, Robert Schuller, Gary Smalley, Charles Stanley and Charles Swindoll. 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 1,100 titles which provide a stable base of recurring revenues as many popular titles continue to generate significant sales from year to year. Backlist titles accounted for approximately 48% of the book division's net revenues in fiscal 1998. Authors and titles are supported through the use of radio, television, cooperative advertising, author appearances, in-store promotions, print advertising and other means. The Company's book publishing business is enhanced by the breadth and development of its marketing and distribution channels. In addition to enhancing sales of its products, the Company believes its ability to sign and renew contracts with popular authors is improved because the Company's marketing and distribution capabilities provide exposure for the authors' books to a broader audience than its competitors. See "Marketing, Distribution and Production." The Company believes it is the largest commercial publisher of English translations of the Bible. The Bible is based on ancient manuscripts which are the surviving reproductions of the original writings. These manuscripts, written in Hebrew, Aramaic or Greek, have been translated into English and other modern languages by biblical scholars and theologians, generally under the auspices of a major Bible society or translation organization. Each of the many English translations available differs in some degree from the others, primarily because of different translation guidelines and principles used as the basis for each translation. The distinctiveness of each translation is also, in part, a result of the evolution of the meaning and use of words within the English language. Virtually all Bibles and Bible products currently published in the United States are based on one of 13 major translations. Of these 13 translations, 12 are protected by copyright laws which grant the copyright owner the exclusive right, for a limited term, to control the publication of such translation. The Company publishes Bibles and Bible products based on nine of the 13 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 63% of the Company's net revenues from Bible publishing in fiscal 1998 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 1,200 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 during fiscal 1997. In fiscal 1998, gift revenues declined slightly due to a change in product focus away from the mass merchandisers stationery category. 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. Gibson(Registered symbol), Creative Papers(Registered symbol), C.R. Gibson(Registered symbol) Kids Kollection(Trademark symbol), Toccata(Trademark symbol), Tomorrow's Treasures(Trademark symbol), Stepping Stones(Trademark symbol) and Inspirations(Registered symbol) brand names, the latter of which incorporates Christian and inspirational text or themes. Certain product lines are marketed as collections, with each collection including a variety of products featuring a common design or theme. Designs include original artwork designed in- house as well as licensed from artists or design groups such as Dena, Beatrix Potter, Carter's Infant Apparel, Echo, Warner Brothers and Dreamworks. 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 both a dedicated sales force of more than 100 representatives experienced in marketing to the general gift, department and specialty stores and C.R. Gibson's manufacturing and distribution facilities. 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, Wal-Mart 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 150,000 customers consisting of churches, other religious organizations, pastors and other individuals by direct mail and telemarketing. Retail sales also are made during the summer months on a door-to-door, cash sales basis through a student sales organization operated by the Company. As of March 31, 1998, the Company employed a sales force of approximately 225 people and maintained 24-hour-a-day telemarketing capability. These employees service over 50,000 retail accounts and 150,000 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 1998. The Company contracts with a number of foreign publishers to translate the Company's English titles into foreign languages. The Company typically retains ownership rights to the titles translated. The Company distributes its products internationally in South America, Europe, Australia, New Zealand, South Africa, the Far East, Mexico and Canada. In fiscal 1998, the Company's export operations accounted for approximately $20.1 million, or 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 books and Bible editions in order to protect its publishing rights. Almost all of the Company's book products are published under royalty agreements with their respective authors or other copyright proprietors. Many of the Company's gift products incorporate copyrighted 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 certain 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, 1998, the Company employed approximately 1,250 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 68 Chairman of the Board, Chief Executive Officer, President and Director S. Joseph Moore 35 Executive Vice President and Director; President, Thomas Nelson Gift Division Joe L. Powers 52 Executive Vice President and Secretary Byron D. Williamson 52 President, NelsonWord Publishing Division Ray Capp 45 Senior Vice President, Operations Charles Z. Moore 64 Senior Vice President, International and Diversified Markets Vance Lawson 39 Vice President, Finance Phyllis E. Williams 50 Treasurer Eric Heyden 44 Vice President and Deputy General Counsel
Except as indicated below, each executive officer has been an employee of the Company as his/her principal occupation for more than the past five years. Sam Moore has been Chairman of the Board, Chief Executive Officer, President and a Director of the Company since its founding in 1961. Sam Moore is the father of S. Joseph Moore and the brother of Charles Z. Moore. S. Joseph Moore was appointed Executive Vice President and Director of the Company in 1995 and President of the Thomas Nelson Gift Division in 1996, and prior to such appointments, he served as Divisional Vice President of the Company in various capacities since 1991. S. Joseph Moore is the son of Sam Moore and the nephew of Charles Z. 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 and the uncle of S. Joseph Moore. Vance Lawson has been the Vice President, Finance of the Company since 1993. Mr. Lawson was formerly Senior 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. Eric Heyden has been the Vice President and Deputy General Counsel of the Company since 1997 and was the Assistant General Counsel of the Company since 1995. Mr. Heyden was previously Vice President and General Counsel with Knoedler Publishing, Inc. from 1985 to 1995. Item 2. Properties The Company's executive, editorial, sales and production offices are primarily located at its corporate headquarters at 501 Nelson Place in Nashville, Tennessee. These facilities are housed in a 74,000 square foot building completed in 1981, which is owned by the Company subject to a mortgage securing a debt with an outstanding balance at March 31, 1998 of $1,725,000. 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 $2,332,000 at March 31, 1998. The Company maintains other offices and warehouse facilities 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 office 1,400 $ 23,800 08/2000 Atlanta, GA Editorial office 800 $ 11,700 09/1998 Carmel, IN Retail store 12,500 $ 79,300 09/1999 Clifton, NJ Manufacturing 11,000 $ 46,800 10/1998 Nashville, TN Creative and sales office 37,400 $ 313,000 11/2001 Nashville, TN Creative office 13,700 $ 241,600 09/2000 Nashville, TN Warehousing 84,700 $ 236,200 11/2002 Nashville, TN Warehousing 84,700 $ 271,800 12/2005 Norwalk, CT Warehousing 8,000 $ 72,000 monthly Shelton, CT Warehousing 152,000 $ 559,200 03/2000 Scarborough, Ontario Warehousing and (Canada) office 25,700 $ 151,000 08/2003 Kobe, Japan Sales office 2,500 $ 69,500 06/1998
All building improvements on the properties are brick veneer, metal or block construction and are considered adequate and suitable by the Company for the purposes for which they are used. The Company's machinery and equipment are located in Nashville, Tennessee; Guilford and Norwalk, Connecticut and Waco, Texas; and consist 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 that 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 Matters to a Vote of Security Holders The Company did not submit any matter to a vote of its security holders during the last quarter of its fiscal year ended March 31, 1998. PART II Item 5. Market for the Company's Common Equity and Related Shareholder Matters Incorporated by reference to the Annual Report to Shareholders for the year ended March 31, 1998 (the "Annual Report"). Item 6. Selected Financial Data Incorporated by reference to the Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated by reference to the Annual Report. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Not Applicable. 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, 1998 and 1997. 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 20, 1998 (the "Proxy Statement"), to be filed within 120 days of March 31, 1998 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, 1998, 1997 and 1996 Balance sheets -- March 31, 1998 and 1997 Statements of shareholders' equity -- years ended March 31, 1998, 1997 and 1996 Statements of cash flow -- years ended March 31, 1998, 1997 and 1996 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 the Company's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference) 4.5 - Promissory Note dated March 31, 1992, of the Company payable to SunTrust Bank, Nashville, N.A. (filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference) 4.6 - Deed of Trust and Security Agreement dated March 31, 1992, from the Company to SunTrust Bank, Nashville, N.A. (filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference) 4.7 - 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- 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)* 10.2- 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 incor- porated herein by reference)* 10.3- 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)* 10.4- 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)* 10.5- 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)* 10.6- 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)* 10.7- 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)* 10.8- 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)* 10.9- 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)* 10.10-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)* 10.11-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 incor- porated herein by reference)* 10.12-Employment Agreement dated as of June 23, 1993, between the Company and Vance Lawson (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended March 31, 1994 and incorporated herein by reference)* 10.13-Employment Agreement dated as of July 10, 1995, between the Company and Eric Heyden* 11 - Statement Re Computation of Per Share Earnings 13 - Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 1998 (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 No Form 8-K was filed by the Company during the last quarter of its fiscal year ended March 31, 1998. 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 26, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date ---------- -------- ------- /s/ Sam Moore Chairman of the Board of June 26, 1998 - --------------------- Directors, Chief Sam Moore Executive Officer and President (Principal Executive Officer) /s/ S. Joseph Moore Executive Vice President June 26, 1998 - --------------------- and Director S. Joseph Moore /s/ Joe L. Powers Executive Vice President June 26, 1998 - --------------------- and Secretary Joe L. Powers (Principal Financial and Accounting Officer) /s/ Brownlee O. Currey, Jr. Director June 26, 1998 - --------------------- Brownlee O. Currey, Jr. /s/ W. Lipscomb Davis, Jr. Director June 26, 1998 - --------------------- W. Lipscomb Davis, Jr. /s/ Robert J. Niebel Director June 26, 1998 - --------------------- Robert J. Niebel /s/ Millard V. Oakley Director June 26, 1998 - --------------------- Millard V. Oakley /s/ Joe M. Rodgers Director June 26, 1998 - --------------------- Joe M. Rodgers /s/ Cal Turner, Jr. Director June 26, 1998 - --------------------- Cal Turner, Jr. /s/ Andrew Young Director June 26, 1998 - --------------------- 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 June 4, 1998. 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 June 4, 1998 THOMAS NELSON, INC. AND SUBSIDIARIES SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ================================================================================
March 31, 1998 March 31, 1997 March 31, 1996 -------------- -------------- -------------- Reserve for Sales Returns: Balance at beginning of period $ 4,773,000 $ 4,355,000 $ 3,421,000 Additions: 1. Charged to costs and expenses - 418,000 559,000 2. Charged to other accounts - - 375,000 Deductions: charge-offs 839,000 - - ---------------------------------------------- Balance at end of period $ 3,934,000 $ 4,773,000 $ 4,355,000 ============================================== Reserve for Doubtful Accounts: Balance at beginning of period $ 2,227,000 $ 2,714,000 $ 1,968,000 Additions: 1. Charged to costs and expenses 778,000 2,794,000 3,117,000 2. Charged to other accounts - - 500,000 Deductions: charge-offs 777,000 3,281,000 2,871,000 ---------------------------------------------- Balance at end of period $ 2,228,000 $ 2,227,000 $ 2,714,000 ============================================== Discontinued Operations: Balance at beginning of period $ 9,101,000 $ 4,381,000 $ - Additions: 1. Charged to costs and expenses - 12,266,000 4,381,000 2. Charged to other account - - - Deductions: charge-offs 6,055,000 7,546,000 - --------------------------------------------- Balance at end of period $ 3,046,000 $ 9,101,000 $ 4,381,000 ============================================== Reserves acquired in connection with acquisition - C.R. Gibson in 1996.
INDEX TO EXHIBITS Exhibit Page Number Number - ------- ------ 10.14 -- Employment Agreement dated as of July 10, 1995, between the Company and Eric Heyden 11 -- Statement re Computation of Per Share Earnings 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 1998 (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) EX-13 2 EXHIBIT 13 Selected Financial Data =============================================================================
YEARS ENDED March 31, 1998 1997 1996 1995 1994 (Dollars in thousands, except per share data) - ----------------------------------------------------------------------------- OPERATING RESULTS Net revenues $252,958 $243,436 $219,838 $174,609 $152,418 ==================================================== Operating income $ 24,780 $ 22,954 $ 5,887 $ 21,212 $ 16,131 ==================================================== Income (loss) from continuing operations $ 12,673 $ 9,522 ($ 923) $ 10,101 $ 7,736 Income (loss) from discontinued operations -- 16,555 ( 9,991) 1,609 1,345 ---------------------------------------------------- Net income (loss) $ 12,673 $ 26,077 ($ 10,914) $ 11,710 $ 9,081 ==================================================== - ----------------------------------------------------------------------------- FINANCIAL POSITION Total assets $285,291 $301,571 $355,083 $232,386 $203,750 Working capital 140,256 131,852 197,127 145,860 119,522 Long-term debt and other non-current liabilities 84,131 89,233 185,019 121,797 106,876 Shareholders' equity 156,396 146,812 122,065 72,178 62,725 Long-term debt to total capitali- zation 35.0% 37.8% 60.3% 62.8% 63.0% - ----------------------------------------------------------------------------- PER SHARE DATA Income (loss) per share from continuing operations $ 0.74 $ 0.56 ($ 0.06) $ 0.76 $ 0.58 Income (loss) per share from discontinued operations -- 0.96 ( 0.64) 0.12 0.10 ---------------------------------------------------- Net income (loss) per share $ 0.74 $ 1.52 ($ 0.70) $ 0.88 $ 0.68 Dividends declared per share $ 0.16 $ 0.16 $ 0.16 $ 0.14 $ 0.13 Book value per share 9.14 8.58 7.13 5.37 4.70 Weighted average number of shares outstanding (in thousands) 17,113 17,119 15,580 13,374 13,355 - -------------------------------------------------------------------------------- Includes C.R. Gibson operations subsequent to acquisition on October 31, 1995. 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 accumulative 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. Represents basic weighted average number of shares outstanding restated per SFAS 128.
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 grew significantly for fiscal 1997 as compared to the prior year. In fiscal 1998, gift revenues declined from fiscal 1997 due to a strategic decision to shift sales focus from high volume, low margin mass merchant segment to higher margin product. 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 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) ---------------------------------------------------- 1998 1997 1996 1997 to 1998 1996 to 1997 ---------------------------------------------------- (%) (%) (%) (%) (%) Net revenues: Publishing 64.8 63.0 75.1 6.9 ( 7.1) Gift 35.2 37.0 24.9 ( 1.1) 64.5 ---------------------------------------------------- Total net revenues 100.0 100.0 100.0 3.9 10.7 Expenses: Cost of goods sold 54.7 54.3 57.6 4.7 4.4 Selling, general and administrative expenses 34.8 35.5 39.2 2.0 -- Amortization of goodwill and non-compete agreements 0.7 0.8 0.5 ( 9.1) 82.3 ---------------------------------------------------- Total expenses 90.2 90.6 97.3 3.5 3.1 ---------------------------------------------------- Operating income 9.8 9.4 2.7 8.0 289.9 ==================================================== Income (loss) from continuing operations 5.0 3.9 ( 0.4) 33.1 -- Income (loss) from discontinued operations -- 6.8 ( 4.6) ( 100.0) -- ---------------------------------------------------- Net income (loss) 5.0 10.7 ( 5.0) ( 51.4) -- ====================================================
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 1999 fiscal year. RESULTS OF OPERATIONS Fiscal 1998 compared to Fiscal 1997. Net revenues for fiscal 1998 increased $9.5 million, or 3.9%, over fiscal 1997. Net revenues from publishing products increased for fiscal 1998 from fiscal 1997 by $10.5 million, or 6.9%, primarily due to favorable acceptance of new product offerings and reductions in product returns. Net revenues from gift products decreased by $1.0 million, or 1.1%, primarily due to the Company's business decision to reduce sales of the stationery category to mass merchandisers. Price increases did not have a material effect on net revenues. The Company's cost of goods sold for fiscal 1998 increased $6.2 million, or 4.7%, and, as a percentage of net revenues, increased from 54.3% to 54.7%. The slight increase in cost of goods sold, as a percentage of net revenues, resulted primarily from lower licensing revenues in fiscal 1998. In fiscal 1997, the Company had higher licensing revenues which have minimal associated cost of goods sold. The Company periodically receives licensing revenues from companies that request permission to reprint the Company's publishing products and market them through a channel that might not otherwise be served. Selling, general and administrative expenses for fiscal 1998 increased $1.7 million over the comparable period in fiscal 1997. These expenses, expressed as a percentage of net revenues, decreased from 35.5% for fiscal 1997 to 34.8% for fiscal 1998 primarily as a result of reduced advertising and fulfillment costs. Interest expense decreased by $2.4 million, or 28.0%, for fiscal 1998 due to decreased borrowings as a result of the use of a portion of the proceeds from the sale of the Music Business to repay indebtedness in fiscal 1997. The Company's effective tax rate in fiscal 1998 was 37.5% compared to 41.0% for fiscal 1997. The prior year tax rate reflects the combined tax rate from continuing and discontinued operations. See Note M of Notes to Consolidated Financial Statements. The Company earned net income of $12.7 million for fiscal 1998. There were no discontinued operations in fiscal 1998. 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. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, the Company had $39.7 million in cash and cash equivalents, primarily cash generated from operations and from the sale of its Music Business in January 1997. 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, 1998, the Company had working capital of $140.3 million. Under its two bank credit facilities, at March 31, 1998, 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 bank credit facilities with a portion of the proceeds from the sale of the Music Business. Net cash provided by (used in) operating activities was $8.1 million, $25.8 million and ($30.3) million in fiscal 1998, 1997 and 1996, respectively. The increase in cash provided by operations during fiscal 1998 was principally attributable to earnings from continuing operations and reductions in accounts receivable and prepaid expenses. Accounts receivable decreased by $1.4 million primarily due to improved collection efforts in the fourth quarter of fiscal 1998 over fiscal 1997. Prepaid expenses decreased by $1.2 million primarily due to decreased royalty advances. During fiscal 1998, capital expenditures totaled approximately $3.3 million. The capital expenditures were primarily for computer, warehousing and manufacturing equipment. In fiscal 1999, the Company anticipates capital expenditures of approximately $3 million, consisting primarily of additional computer, manufacturing and warehousing 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, 1999. 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 $24 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 from 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, 1998, 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 1999 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 currently at 101.64% of the principal amount, declining to 100.82% on November 30, 1998, and to 100% on November 30, 1999. 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 1999. The Company has announced its intention to repurchase up to 3 million shares of common stock or Class B common stock from time to time in the open market or through privately negotiated transactions. As of June 12, 1998, the Company has repurchased approximately 1.6 million shares. YEAR 2000 ISSUES The Company has established a task force to coordinate the identification, evaluation and implementation of changes to computer systems and applications necessary to become year 2000 compliant with no material adverse effect on customers or disruption to business operations. These actions are necessary to ensure that the systems and applications will recognize and process the year 2000 and beyond. The Company is also evaluating non-system issues relative to the year 2000. Major areas of potential business impact have been identified and are being evaluated. The Company also is communicating with suppliers, customers, financial institutions and others with which it does business to determine the status of their being year 2000 compliant. The Company expensed approximately $100,000 in costs during fiscal 1998 related to becoming year 2000 compliant and expect to incur additional costs of $1,000,000 and $400,000 for fiscal years 1999 and 2000, respectively. These costs are expected to include programmer costs for modification of software programs, costs for a testing site, software purchases and consulting fees and will be expensed as they are incurred. THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
Years ended March 31, -------------------------------------- 1998 1997 1996 -------------------------------------- Net revenues $ 252,958 $ 243,436 $219,838 Cost of goods sold 138,389 132,199 126,622 -------------------------------------- Gross profit 114,569 111,237 93,216 Selling, general and administrative 87,950 86,259 86,219 Amortization of goodwill and non-compete agreements 1,839 2,024 1,110 -------------------------------------- Operating Income 24,780 22,954 5,887 Other income 1,569 590 595 Interest expense 6,073 8,430 8,018 -------------------------------------- Income (loss) from continuing operations before income taxes 20,276 15,114 ( 1,536) Provision (benefit) for income taxes 7,603 5,592 ( 613) -------------------------------------- Income (loss) from continuing operations 12,673 9,522 ( 923) Discontinued operations: Operating income (loss), net of applicable tax provision (benefit) of $446 and ($4,891), respectively - 728 ( 7,358) Gain (loss) on disposal, net of applicable tax provision (benefit) of $24,096 and ($1,748), respectively - 15,827 ( 2,633) --------------------------------------- Income (loss) from discon- tinued operations - 16,555 ( 9,991) --------------------------------------- NET INCOME (LOSS) $ 12,673 $ 26,077 ($ 10,914) ======================================= Weighted average number of shares outstanding 17,113 17,119 15,580 ======================================= NET INCOME (LOSS) PER SHARE: Basic-- Income (loss) from continuing operations $ 0.74 $ 0.56 ($ 0.06) Income (loss) from discontinued operations - 0.96 ( 0.64) --------------------------------------- Net income (loss) per share $ 0.74 $ 1.52 ($ 0.70) ======================================= Diluted-- Income (loss) from continuing operations $ 0.73 $ 0.56 ($ 0.06) Income (loss) from discontinued operations - 0.81 ( 0.64) --------------------------------------- Net income (loss) per share $ 0.73 $ 1.37 ($ 0.70) ======================================= See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
March 31, ------------------------ 1998 1997 ------------------------ ASSETS Current assets Cash and cash equivalents $ 39,713 $ 43,471 Accounts receivable, less allowances of $6,162 and $7,000, respectively 63,264 64,626 Inventories 70,590 71,550 Prepaid expenses 8,177 9,421 Deferred tax assets 3,276 8,310 ------------------------ Total current assets 185,020 197,378 Property, plant and equipment, net 32,103 32,843 Other assets 9,843 10,466 Deferred charges 1,789 2,785 Goodwill, less accumulated amortization of $4,804 and $3,246, respectively 56,536 58,099 ------------------------ TOTAL ASSETS $ 285,291 $301,571 ======================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 16,701 $ 18,880 Accrued expenses 19,117 22,740 Dividends payable 685 685 Income taxes currently payable 4,286 19,974 Current portion of long-term debt 3,733 2,979 Current portion of capital lease obligations 242 268 ------------------------ Total current liabilities 44,764 65,526 Long-term debt 79,476 83,162 Capital lease obligations 84 377 Deferred tax liabilities 3,364 3,640 Other liabilities 1,207 2,054 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 16,002,817 and 16,001,178 shares, respectively 16,003 16,001 Class B common stock, $1.00 par value, authorized 5,000,000 shares; issued 1,111,924 and 1,112,071 shares, respectively 1,112 1,112 Additional paid-in capital 79,057 79,409 Retained earnings 60,224 50,290 ------------------------ Total shareholders' equity 156,396 146,812 ------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 285,291 $ 301,571 ======================== 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 March 31, 1995 $ 12,362 $ 1,067 $ 18,211 $ 40,538 $ - Net loss ( 10,914) Common stock issued: Option plans -- 26,738 common shares 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 - Net income 12,673 Common stock issued: Retirement of stock awards -- 3,888 common shares ( 4) 4 Stock offering adjustment ( 360) Dividends declared -- $0.16 per share ( 2,739) Incentive plan stock awards -- 5,380 common shares 6 4 ------------------------------------------------- Balance at March 31, 1998 $ 16,003 $ 1,112 $ 79,057 $ 60,224 $ - ================================================= See Notes to Consolidated Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Years ended March 31, ------------------------------------ 1998 1997 1996 ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Income (loss) from continuing operations $ 12,673 $ 9,522 ($ 923) Adjustments to reconcile income (loss) to net cash provided by (used in) operations: Depreciation and amortization 8,577 8,436 7,263 Deferred income taxes 4,758 7,173 ( 2,774) Gain on sale of property, plant and equipment - - ( 449) Deferred compensation - 619 222 Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net 1,362 7,375 2,572 Income tax refunds receivable - 4,440 ( 3,570) Inventories 960 7,758 ( 8,827) Prepaid expenses 1,244 1,800 747 Accounts payable and accrued expenses ( 1,948) ( 9,969) ( 7,338) Income taxes currently payable ( 15,688) 3,707 - ------------------------------------- Net cash provided by (used in) continuing operations 11,938 40,861 ( 13,077) ------------------------------------- Discontinued operations: Income (loss) from discontinued operations - 728 ( 7,358) Gain (loss) on disposal of discontinued operations - 15,827 ( 2,633) Changes in discontinued net assets 488 ( 24,442) 20 Cash used in discontinued operations ( 4,342) ( 7,179) ( 7,237) ------------------------------------- Net cash used in discontinued operations ( 3,854) ( 15,066) ( 17,208) ------------------------------------- Net cash provided by (used in) operating activities 8,084 25,795 ( 30,285) ------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 3,319) ( 1,876) ( 3,996) Proceeds from sales of property, plant and equipment - 49 854 Proceeds from sales of business and discontinued net assets - 120,368 - Purchase of net assets of acquired companies - net of cash received - ( 122) ( 70,217) Changes in other assets and deferred charges ( 1,336) ( 2,817) 3,241 ------------------------------------- Net cash provided by (used in) investing activities ( 4,655) 115,602 ( 70,118) ------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments under line of credit - ( 57,800) ( 1,000) Proceeds from issuance of long-term debt - - 50,000 Payments under capital lease obligations ( 308) ( 231) ( 901) Payments on long-term debt ( 2,975) ( 37,968) ( 9,375) Dividends paid ( 2,739) ( 2,739) ( 2,524) Changes in other liabilities ( 1,175) 178 ( 193) Proceeds from issuance of common stock 14 84 64,449 Common stock retired ( 4) ( 122) ( 148) ------------------------------------- Net cash provided by (used in) financing activities ( 7,187) ( 98,598) 100,308 ------------------------------------- Net increase (decrease) in cash and cash equivalents ( 3,758) 42,799 ( 95) Cash and cash equivalents at beginning of year 43,471 672 767 ------------------------------------- Cash and cash equivalents at end of year $ 39,713 $ 43,471 $ 672 ===================================== Supplemental disclosures of noncash investing and financing activities: Dividends accrued and unpaid $ 685 $ 685 $ 685 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 Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). 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: 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 adopted the provisions of SFAS 128 in the third quarter of fiscal 1998 and restated earnings per share for all periods presented. Such adoption did not have a material effect on the Company's results of operations or financial position. Basic 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. Diluted earnings per share reflects the dilutive effect of stock options outstanding during the period and common shares contingently issuable upon conversion of convertible debt securities in periods in which such exercise would cause dilution and the effect on net income of converting the debt securities. 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 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 adopted SFAS 129 in the third quarter of fiscal 1998. The Company did not experience a material impact on its results of operations, financial conditions or cash flows as a result of adoption. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires public companies to report financial and descriptive information about its reportable operating segments in annual financial statements and in interim financial reports issued to shareholders. The statement will be effective for fiscal year ended March 31, 1999. Management is evaluating this standard and determining if it will be required to revise its current methods of reporting financial data. 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. Gibson and Creative Papers 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, 1995, 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. Year Ended March 31, -------------------- 1996 ---------- (In thousands, except per share data) (Unaudited) Net revenues $ 260,367 Loss from continuing operations ($ 7,102) Loss per share from continuing operations ($ 0.46) NOTE C-INVENTORIES Inventories consisted of the following at March 31 (in thousands):
1998 1997 ----------------------- Finished goods $ 54,503 $ 53,634 Work in process and raw materials 16,087 17,916 ----------------------- $ 70,590 $ 71,550 =======================
NOTE D-PREPAID EXPENSES Prepaid expenses consisted of the following at March 31 (in thousands):
1998 1997 ----------------------- Royalties $ 6,888 $ 7,648 Other 1,289 1,773 ----------------------- $ 8,177 $ 9,421 =======================
NOTE E-PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at March 31 (in thousands):
1998 1997 ----------------------- Land $ 5,109 $ 4,948 Buildings 20,483 20,353 Machinery and equipment 26,851 29,762 Furniture and fixtures 6,056 3,620 Other 380 737 ----------------------- 58,879 59,420 Less allowance for depreciation and amortization ( 26,776) ( 26,577) ----------------------- $ 32,103 $ 32,843 =======================
NOTE F-OTHER ASSETS Other assets consisted of the following at March 31 (in thousands):
1998 1997 ----------------------- Prepaid royalties $ 5,509 $ 6,654 Other 4,334 3,812 ----------------------- $ 9,843 $ 10,466 =======================
NOTE G-ACCRUED EXPENSES Accrued expenses consisted of the following at March 31 (in thousands):
1998 1997 ----------------------- Accrued royalties $ 4,152 $ 4,535 Accrued payroll 6,552 4,708 Accrued integration costs 1,568 2,904 Accrued interest 1,510 1,541 Net liability of discontinued operations 3,046 6,900 Other 2,289 2,152 ----------------------- $ 19,117 $ 22,740 =======================
Cash payments for interest were $6.1 million in 1998, $10.2 million in 1997 and $9.6 million in 1996. NOTE H-LONG-TERM DEBT Long-term debt consisted of the following at March 31 (in thousands):
1998 1997 ----------------------- Industrial Revenue Bonds, 7.95% to 8.35%, due through 2005 $ 1,725 $ 1,900 Loan Agreement 2,332 3,000 Senior Notes 24,000 26,000 Convertible Subordinated Notes 55,000 55,000 Other 152 241 ----------------------- 83,209 86,141 Less current portion ( 3,733) ( 2,979) ----------------------- $ 79,476 $ 83,162 =======================
At March 31, 1998, Industrial Revenue Bonds were secured by property, plant and equipment with a net book value of approximately $1.6 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%, for a total rate of 6.9375% at March 31, 1998. Semi- annual principal payments are due through March 2002. The Company has Credit Agreements with borrowing limits totaling $85 million as of March 31, 1998. 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 1999 are $16.8 million. Additionally, the Company has a $10 million credit facility which matures July 31, 1999, and bears interest at the lender's prime rate, with covenants which are the same as the Credit Facility. At March 31, 1998, the Company was in compliance with all covenants of the Credit Agreements. At March 31, 1998, the Company had $85 million available under its Credit Agreements. The Company has outstanding $24 million of Senior Notes, which bear interest at rates from 6.68% to 9.5% and are due through fiscal 2006. The Company retired $35 million of the Senior Notes in January 1997, subsequent to the sale of the Music Business. 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 1999 are $16.8 million. At March 31, 1998, 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 currently at 101.64% of the principal amount, declining to 100.82% on November 30, 1998, and 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): 1999 $ 3,733 2000 59,734 2001 3,888 2002 3,581 2003 3,322 2004 and thereafter 8,951 ------------ $ 83,209 ============ NOTE I-LEASES Total rental expense for all operating leases, including short-term leases of less than a year, amounted to approximately $4.0 million in 1998, $3.2 million in 1997, and $2.5 million in 1996. 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 ----------------------- 1999 $ 2,952 $ 266 2000 1,784 52 2001 886 22 2002 498 11 2003 454 -- 2004 and thereafter 238 -- ----------------------- Total minimum lease payments $ 6,812 351 Less amount representing ========== interest ( 25) ---------- Present value of net lease payments 326 Less current portion ( 242) ---------- $ 84 ==========
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 option grant date 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, 1998, there were 92,718 shares of common stock and 46,875 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, 1998, was one year. 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, 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 Canceled -- ( 25,312) -- -- 14.40 -------------------------------------------------------- March 31, 1998 -- 123,625 -- 62,500 14.67 ========================================================
1990 DEFERRED COMPENSATION OPTION PLAN FOR OUTSIDE DIRECTORS: The Company adopted the 1990 Deferred Compensation Option Plan for Outside Directors (the "Outside Directors Plan"), which is administered by the Company's Compensation Committee. Options were awarded, on or prior to the annual meeting of shareholders or on initial election to the Board of Directors ("Board"), to each Director of the Company who filed with the Company an irrevocable election to receive options in lieu of not less than fifty percent (50%) of the retainer fees to be earned during each fiscal year. The option price was $1.00 per share with the number of shares being determined by dividing the amount of the annual retainer fee by the fair market value of the shares on the option date less $1.00 per share. The amount of annual retainer fee for options was expensed by the Company as earned. The options in the Outside Directors Plan vest on the first anniversary date of the option grant and, at March 31, 1998, there were 13,050 shares of common stock exercisable. The Outside Directors Plan terminated in August 1995 and options outstanding remain in effect until exercised or expired. The weighted average life of the options outstanding in the Outside Directors Plan at March 31, 1998, was one year. Options granted and outstanding under this plan are as follows:
COMMON STOCK -------------------------- Remaining Weighted Shares Outstanding Average Reserved Optioned Exercise For Grant Shares Price ------------------------------------- April 1, 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 Exercised -- ( 4,802) 0.53 -------------------------- March 31, 1998 -- 13,050 0.85 ==========================
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 earned 50% of the award in fiscal years 1995 and 1996 based upon achieving performance goals in each year provided the employee did not terminate his or her employment for two years subsequent to when an award was earned. The Company recognizes expense associated with restricted stock awards as the awards are earned. During fiscal 1998, the Company issued 333 shares of common stock pursuant to such restricted stock awards. 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, 1998, there were 123,835 shares of common stock and 115,000 shares of Class B common stock exercisable. The weighted average life of the options outstanding in the Stock Incentive Plan at March 31, 1998, was six years.
Outstanding Outstanding Remaining Award Shares Optioned Shares Weighted Weighted Shares ---------------------------------- Average Average Reserved Common Class B Common Class B Exercise Fair For Grant Stock Stock Stock Stock Price Value ----------------------------------------------------------------- April 1, 1995 750,416 132,084 55,000 -- -- Awards canceled 21,136 ( 17,804) ( 3,332) -- -- Awards issued -- ( 51,376) ( 24,168) -- -- Options granted ( 635,500) -- -- 305,500 330,000 $19.48 $11.70 Additional shares author- ized 1,202,500 -- -- -- -- --------------------------------------------------------------- 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 issued -- ( 1,083) ( 2,082) -- -- Options granted ( 320,000) -- -- 185,000 135,000 14.34 8.52 Stock incentive issued ( 1,815) -- -- -- -- --------------------------------------------------------------- March 31, 1997 1,301,976 -- -- 307,500 450,000 17.91 Options canceled 80,000 -- -- ( 70,000)( 10,000) 14.00 Options granted (1,319,000) -- -- 319,000 1,000,000 14.60 4.64 Stock incentive issued ( 580) -- -- -- -- --------------------------------------------------------------- March 31, 1998 62,396 -- -- 556,500 1,440,000 15.88 ===============================================================
STOCK-BASED COMPENSATION PLANS: The Company accounts for options issued to employees and directors under APB Opinion No. 25. All options are granted with exercise prices equal to or greater than market value of the Company's common stock on the date of grant. As a result, no compensation cost has been recognized. SFAS 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 1998, 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 1998, 1997 and 1996 fiscal years:
1998 1997 1996 ------------------------------------ Net income (loss): As reported $ 12,673 $ 26,077 ($ 10,914) ==================================== Pro forma $ 10,967 $ 24,683 ($ 12,309) ==================================== Net income (loss) per share: Basic-- As reported $ 0.74 $ 1.52 ($ 0.70) ==================================== Pro forma $ 0.64 $ 1.44 ($ 0.79) ==================================== Diluted-- As reported $ 0.73 $ 1.37 ($ 0.70) ==================================== Pro forma $ 0.64 $ 1.31 ($ 0.79) ====================================
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:
1998 1997 1996 ------------------------------- Expected dividend payment $ 0.16 $ 0.16 $ 0.16 Expected stock price volatility 53.69% 45.96% 54.49% Risk free interest rate 6.29% 6.55% 6.36% Expected life of options 6 years 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 were released and allocated to the participants as the loan was 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 $2.9 million, $3.1 million and $1.5 million in 1998, 1997 and 1996, respectively. NOTE L-COMMON STOCK 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 $54.0 million, after taking into account a voluntary return of proceeds of $0.4 million to the purchasers in the stock offering, 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):
1998 1997 1996 --------------------------- Current: U.S. federal $ 2,126 $ 19,180 ($ 3,604) State 544 1,692 150 Foreign 175 2,089 126 --------------------------- Total current 2,845 22,961 ( 3,328) Deferred 4,758 7,173 ( 3,924) --------------------------- Total tax provision $ 7,603 $ 30,134 ($ 7,252) ============================
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):
1998 1997 --------------------- Accelerated depreciation ($ 2,735) ($ 2,571) Deferred charges ( 576) ( 571) Contributions 1,774 -- Inventory obsolescence reserve 1,843 1,877 Bad debt and returns reserves 2,252 2,303 Inventory-unicap tax adjustment 1,155 1,129 Advances and prepaid expenses 560 92 Accrued liabilities 812 2,127 Other -- 5,457 Valuation allowance ( 5,173) ( 5,173) -------------------- Net deferred tax asset ($ 88) $ 4,670 ====================
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:
1998 1997 1996 --------------------------- U.S. federal statutory tax rate provision (benefit) 34.0% 34.0% ( 34.0%) State taxes on income 3.5% 3.0% ( 6.7%) Other -- -- .8% --------------------------- Effective tax rate 37.5% 37.0% ( 39.9%) ===========================
Cash payments for income taxes were $20.0 million, $1.0 million, and $0.9 million in 1998, 1997 and 1996, respectively. NOTE N-QUARTERLY RESULTS (UNAUDITED) Summarized results for each quarter in the fiscal years ended March 31, 1998 and 1997 are as follows (dollars in thousands, except per share data):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter -------------------------------------------------- 1998 - ----- Net revenues $ 54,459 $ 68,618 $ 64,658 $ 65,223 Gross profit 24,873 30,800 29,494 29,402 Net income 991 4,603 4,417 2,662 Net income per share 0.06 0.27 0.26 0.16 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 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
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 $14.4 million at March 31, 1998. 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, 1998 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, 1998 and 1997, respectively. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market transaction (in thousands):
1998 1997 ---------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ---------------------------------------- CASH AND CASH EQUIVALENTS $ 39,713 $ 39,713 $ 43,471 $ 43,471 LONG-TERM DEBT: Industrial Revenue Bonds $ 1,725 $ 1,725 $ 1,900 $ 1,900 Capital Lease Obligations 326 326 645 645 Loan Agreement 2,332 2,332 3,000 3,000 Senior Notes 24,000 23,325 26,000 24,720 Convertible Sub- ordinated Notes 55,000 55,275 55,000 50,600
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 quoted prices from financial institutions. The carrying value of the Company's 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 Obligations approximates the fair value. Outstanding letters of credit totaled $1.8 million and $1.4 million as of March 31, 1998 and 1997, 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, 1998 and 1997. 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 certain 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 ------------------------- Net revenues $ 74,687 $ 91,830 ========================= Income (loss) from operations before income tax provision (benefit) $ 1,174 ($ 12,249) Income tax provision (benefit) 446 ( 4,891) ------------------------- Income (loss) from operations 728 ( 7,358) ------------------------- 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) =========================
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, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1998. 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 consolidated financial position of Thomas Nelson, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Nashville, Tennessee June 4, 1998 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. The following table sets forth, for the periods indicated, the high and low closing sales prices as reported on the NYSE composite tape:
Common Class B Stock Common Stock Dividends --------------------------------------- Paid High Low High Low Per Share -------------------------------------------------- Fiscal 1998 - ----------- First Quarter $14.0000 $ 8.8750 $20.2500 $16.2500 $ .04 Second Quarter 14.0000 12.0000 18.7500 17.3750 .04 Third Quarter 14.0000 10.2500 18.0000 12.0000 .04 Fourth Quarter 14.1875 10.5000 16.0000 11.2500 .04 --------- $ .16 ========= Fiscal 1997 - ----------- First Quarter $15.1250 $11.5000 $19.3750 $16.0000 $ .04 Second Quarter 13.2500 10.2500 16.7500 12.5000 .04 Third Quarter 14.8750 9.3750 21.0000 13.2500 .04 Fourth Quarter 15.2500 10.5000 23.0000 18.8750 .04 --------- $ .16 =========
As of June 19, 1998, there were 1,076 record holders of the common stock and 708 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 21, 1998, the Company declared a cash dividend of $.04 per share on its common stock and Class B common stock to be paid on August 17, 1998 to shareholders of record on August 3, 1998. EX-21 3 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY
Percentage Jurisdiction of Ownership of Subsidiary Incorporation Capital Stock =========================================================== Worthy, Incorporated Delaware 100% Nelson Direct Marketing Services, Inc. Delaware 100% Nelson Direct, Inc. Texas 100% Nelson Direct Partners, LP Texas 100% Editorial Caribe, Inc. Florida 100% The C.R. Gibson Company Delaware 100% 855763 Ontario Limited Ontario, Canada 100% C.R. Gibson (UK) Limited (formerly Nelson Media [U.K.] Limited) United Kingdom 100% Nelson Media (Canada) Limited British Columbia, 100% Canada Elm Hill Press, Inc. Tennessee 100% PPC, Inc. North Carolina 100% C.R. Gibson, Japan Japan 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 reports dated June 4, 1998 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 25, 1998 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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-31-1998 APR-01-1997 MAR-31-1998 39,713 0 69,426 6,162 70,590 185,020 58,879 26,776 285,291 44,764 79,560 0 0 17,115 139,281 285,291 250,366 252,958 138,389 226,339 1,839 1,725 6,073 20,276 7,603 12,673 0 0 0 12,673 0.74 0.73
EX-11 6 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (Dollars and Shares in thousands, except per share data)
March 31, 1998 March 31, 1997 March 31, 1996 --------------- -------------- -------------- BASIC EARNINGS PER SHARE: Weighted average shares outstanding 17,113 17,119 15,580 ========== ========== ========== Income (loss) from continuing operations $ 12,673 $ 9,522 ($ 923) Income (loss) from discontinued operations - 16,555 ( 9,991) ---------- ---------- ---------- Net income (loss) $ 12,673 $ 26,077 ($10,914) ========== ========== ========== Income (loss) per share from continuing operations $ 0.74 $ 0.56 ($ 0.06) Income (loss) per share from discontinued operations - 0.96 ( 0.64) ---------- ---------- ---------- Net income (loss) per share $ 0.74 $ 1.52 ($ 0.70) ========== ========== ========== DILUTED EARNINGS PER SHARE: Weighted average shares outstanding 17,113 17,119 15,580 Convertible notes 3,235 3,235 3,235 Dilutive stock options - based on treasury stock method using the average market price 40 16 214 ---------- ---------- ---------- Total shares 20,388 20,370 19,029 ========== ========== ========== Income from continuing operations $ 14,793 $ 11,629 $ 1,095 Income (loss) from discontinued operations - 16,555 ( 9,991) ---------- ---------- ---------- Net income (loss) $ 14,793 $ 28,184 ($ 8,896) ========== ========== ========== Income (loss) per share from continuing operations $ 0.73 $ 0.56 ($ 0.06) Income (loss) per share from discontinued operations - 0.81 ( 0.64) ---------- ---------- ---------- Net income (loss) per share $ 0.73 $ 1.37 ($ 0.70) ========== ========== ========== Adjusted for interest on convertible debt Anti-dilutive; use basic earnings per share on Statement of Operations
EX-10.14 7 EXHIBIT 10.14 EMPLOYMENT AGREEMENT ---------------------- This contract of employment is made and entered into by and between Thomas Nelson, Inc., a Tennessee corporation, hereinafter referred to as "Employer", and Eric D. Heyden, hereinafter referred to as "Employee". Employer desires to employ Employee in the capacity of Assistant General Counsel, with all principal powers, duties and responsibilities attendant thereto, and such other duties as shall be requested of Employee by the Company, and Employee desires to be so employed by Employer. In consideration therefore, the parties mutually agree as follows: A. TERM OF AGREEMENT The term of this contract shall be for a period of one (1) year commencing on July 10, 1995 and thereafter shall automatically renew for additional thirty (30) day periods unless 1) cancelled upon thirty (30) days written notice by either party or 2) superseded by a new employment agreement. B. EMPLOYEE COMPENSATION Employee's remuneration shall be as set forth in Schedule A attached to this Agreement and incorporated herein. C. EMPLOYEE CONDUCT As Assistant General Counsel, Employee recognizes and understands his fiduciary relationship with and responsibilities to Employer and Employee therefore promises to act always in good faith and in the best interests of Employer in the discharge of his duties and obligations. Further, Employee agrees to devote his full time and efforts to his employment with Employer. Should Employee during the term of this Agreement fail to so devote his full working time and efforts to the benefit of Employer for any reason other than illness or disability, or should he engage in any activity or business enterprise competing or conflicting with the business or activities of Employer, its subsidiaries, partners, or agents, or should he engage in any illegal or criminal conduct or acts of insubordination or moral turpitude (such as fornication, adultery, theft, embezzlement and/or fraud), or should he violate any of the terms and provisions of Subparagraph D(1) hereunder, then Employer, at its sole discretion, may terminate the employment of Employee immediately. All Employee's rights hereunder shall end upon such termination by Employer and Employee's only rights in such event shall be to receive all salary accrued through the date of termination. D. CONFIDENTIAL CLAUSES AND NON-COMPETITION AGREEMENT Employee further agrees as follows: (1) During Employment by Employer: Confidential Information Employee recognizes and acknowledges that there are certain trade secrets related to Employer's Bible, book, gift, music and audio/video businesses including, but not limited to, the names, royalties, account information and/or business relationships pertaining to Employer's artists, authors, writers, customers, and manufacturers, as well as certain information related to manufacturing schedules and procedures, new products, future plans, marketing practices, sales volumes of various products, and other items of Employer's businesses not specifically mentioned herein. Employee recognizes and understands that he holds a position of fiduciary privilege, and except as authorized in writing by Employer, he agrees during the term of this Agreement and thereafter to refrain from disclosing to any person, firm, corporation, partnership, association or other business entity, or to use for his own benefit, any trade secrets, unique business information, plans, products, manufacturing data, customer lists, author or artist lists, or any other confidential information relating to any and all ongoing business activities of Employer, or its parent company, or its subsidiaries, the disclosure of which he knows, or in the exercise of reasonable care should have reason to know, may, can, or will be damaging or harmful to Employer's business activities or those of its parent company, or subsidiaries, or which disclosure shall serve to direct or divert corporate opportunities, product sales, and/or profits away from Employer, its parent company, its subsidiaries, partners, or agents, to the person, firm, corporation, partnership, association, or the given entity to whom or to which such disclosure is made. (2) Subsequent to Termination of Employment: Non-Competition Employee agrees that for a period extending two (2) years from the date of Employee's termination with Employer for any reason: (i) He will not negotiate or enter into any contract with any songwriter, recording artist, author, writer, editor, designer, packager or other person who, at the time of termination, is under contract to Employer, or its subsidiaries, or with whom Employer or its subsidiaries is negotiating at such time, or with whom Employer or any of its subsidiaries enters into any contract or agreement during the non-compete period hereunder. Employee further agrees not to negotiate or enter into contract with any of the above persons for a period of two (2) years following the expiration of any such person's contract with Thomas Nelson or any of its subsidiaries. (ii)He will not attempt to procure, nor encourage others to procure, the employment of any employees of Employer or its subsidiaries who are employed at the time of execution hereof or such employees as may become employed by Employer or any of its subsidiaries during the non-compete period hereunder. (iii) He will not engage in publishing, producing or distributing Bibles, religious books, religious music, religious audio/video product, or religious or secular gift and stationery products, nor divert to other companies any recording artists, songwriters, authors, writers, editors, designers, packagers, or any other person under contract with Employer or its subsidiaries or with whom Employer is negotiating at the time of termination, in any geographical region in which Employer or any of its subsidiaries conduct such business or sell such products both as of the time of execution hereof and throughout the non-compete period hereunder. (iv)He agrees never to make, utter, write, nor otherwise publish derogatory or defamatory statements which can, may, or do cause harm, whether intended or not, to the relationship between Employer or its parent and any of its customers, personnel, producers, artists, authors, or writers. E. REMEDIES Employee acknowledges that he will receive privileged information from Employer during his employment and that he will have substantial access to Employer's trade secrets, business information and personnel data. In consideration of his employment and the privilege of access to Employer's trade secrets, information, business methods and procedures, and personnel data, Employee acknowledges that the restrictions contained within paragraph D are reasonable and necessary in order to preserve Employer's legitimate interests and that any violation thereof would result in irreparable injury to Employer for which monetary damages would be an inadequate remedy. Therefore, Employee acknowledges and agrees that in the event of any violations thereof, Employer may seek from any court of competent jurisdiction preliminary and permanent injunctive relief as well as an equitable accounting of all Employee's profits or benefits arising out of such violation, which rights shall be cumulative and in addition to any other action or remedies to which Employer may be entitled. In the event that any Non-Competition provision of this Agreement shall be held by a court of competent jurisdiction to be, in any respect, an unreasonable restriction of Employee, then the court so holding may reduce the territory to which it pertains and/or the period of time to which it operates or effect any other change to the extent necessary to render the Non-Competition provisions and the Non- Disclosure of Information provisions of this Contract enforceable by the said court. F. WAIVERABILITY OF PROVISIONS In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected nor impaired thereby and such provisions shall be enforced to the fullest extent possible in accordance with the mutual intent of the parties hereto. G. NON-WAIVER AGREEMENT No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and is signed by the Employee and an executive officer of Employer. No waiver by either party hereto of the other party's compliance with, or breach of, any condition or provision herein to be performed by said party shall constitute a simultaneous waiver of any other terms, provisions or conditions herein nor shall such waiver by either party constitute a continuing waiver of said pertinent term, provision, or condition subsequent thereto unless such continuation of waiver is agreed to in writing by the parties pursuant to the terms of this paragraph. H. WARRANTIES AND REPRESENTATION This Agreement, including attachments, contains the entire agreement between the parties hereto and no agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. I. APPLICABLE LAW The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Tennessee. Agreement is made and entered into this 18th day of May, 1995. ACCEPTED BY THOMAS NELSON, INC. /s/ Eric Heyden 5-17-95 By: /s/ Stuart A. Heaton - ------------------------ --------------------------- Name: Stuart A. Heaton --------------------------- Title: Vice President --------------------------- -----END PRIVACY-ENHANCED MESSAGE-----