-----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, Us3VUO4+PSkNl/xFqiZue7bv3JtECTbJMMJZSxnjlTzqa88I5MsZaw5BXN1249OO KRnY5ZOp/j/1XNvcAgFmuA== 0000071023-99-000006.txt : 19990629 0000071023-99-000006.hdr.sgml : 19990629 ACCESSION NUMBER: 0000071023-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990628 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: 99653987 BUSINESS ADDRESS: STREET 1: 501 NELSON PLACE CITY: NASHVILLE STATE: TN ZIP: 37214-1000 BUSINESS PHONE: 6158899000 MAIL ADDRESS: STREET 1: P O BOX 141000 CITY: NASHVILLE STATE: TN ZIP: 37214-1000 FORMER COMPANY: FORMER CONFORMED NAME: ROYAL PUBLISHERS INC DATE OF NAME CHANGE: 19721019 10-K 1 ================================================================= 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, 1999 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 $1.00 New York Stock Exchange 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, 1999, the Registrant had outstanding 13,123,260 shares of common stock and 1,101,524 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 $119.7 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, 1999, as reported on The New York Stock Exchange, and assumes that all shares beneficially held by executive officers and the directors of the Registrant and shares held in the Thomas Nelson Employee Stock Ownership Plan 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 I Business Page 28 of Annual Report to Shareholders for year ended March 31, 1999 PART II Item 5 - Market for Company's Page 29 of Annual Report to Common Equity and Shareholders for year ended Related Shareholder March 31, 1999 (market price Matters and dividend information only) Item 6 - Selected Financial Page 9 of Annual Report to Data Shareholders for year ended March 31, 1999 Item 7 - Management's Dis- Pages 10 to 13 of Annual Report cussion and Analysis to Shareholders for year of Financial Condition ended March 31, 1999 and Results of Operations Item 7A - Quantitative and Page 12 of Annual Report to Qualitative Dis- Shareholders for year ended closures about March 31, 1999 Market Risk Item 8 - Financial Statements Pages 14 to 28 of Annual Report and Supplementary to Shareholders for year Data ended March 31, 1999 PART III Item 10 - Directors and Execu- To be included in Company's tive Officers of the Proxy Statement for the Company Annual Meeting of Share- holders to be held August 19, 1999, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Item 11 - Executive Compensation To be included in Company's Proxy Statement for the Annual Meeting of Share- holders to be held August 19, 1999, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Item 12 - Security Ownership of To be included in Company's Certain Beneficial Proxy Statement for the Owners and Management Annual Meeting of Share- holders to be held August 19, 1999, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Item 13 - Certain Relationships To be included in Company's and Related Trans- Proxy Statement for the actions Annual Meeting of Share- holders to be held August 19, 1999, 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 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 supplier 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 and distributor of paper gift products, including baby and wedding memory books, stationery, scrapbooks, gift wrap and other products. In fiscal 1999, the Company decided to cease the manufacturing activities at C.R. Gibson. The products formerly produced at its manufacturing facilities will continue to be designed and distributed by the Company, but will be manufactured by outside vendors. 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). 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 segments for the periods indicated:
Years Ended March 31, ---------------------------------------------------- 1999 1998 1997 ---------------------------------------------------- Amount % Amount % Amount % ---------------------------------------------------- Publishing $168,325 64.3 $163,480 64.6 $153,317 63.0 Gift 93,320 35.7 89,478 35.4 90,119 37.0 ---------------------------------------------------- $261,645 100.0 $252,958 100.0 $243,436 100.0 ====================================================
Additional information regarding the Company's product segments is incorporated by reference to Note R on page 28 of Annual Report to Shareholders for year ended March 31, 1999. PUBLISHING The Company's book publishing division publishes and distributes hardcover and trade paperback books emphasizing Christian, inspirational and family value themes. The Company believes it is the largest publisher of Christian and inspirational books in the United States. Books are published by the Company under several imprints including Thomas Nelson, Word, J. Countryman(R) and Tommy Nelson(TM), and consist generally of inspirational, trade, gift, children's and reference books emphasizing Christian and family value themes. The Company distributes books primarily through Christian bookstores, general bookstores, mass merchandisers and direct sales to consumers. The Company also distributes books published by other companies to complement their marketing and distribution capabilities. In fiscal 1999, publishing net revenues realized from the distribution of books published by other companies was immaterial. In fiscal 1999, 1998 and 1997, 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, John Hagee, Barbara Johnson, Ann Graham Lotz, Max Lucado, John MacArthur, John Maxwell, Frank Peretti, 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 Evander Holyfield, artist Thomas Kinkade, Bill McCartney, Nolan Ryan, Deion Sanders, Reggie White and Zig Ziglar. 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 42% of the book division's net revenues in fiscal 1999. 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 71% of the Company's net revenues from Bible publishing in fiscal 1999 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 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 New Living Translation (NLT) 1996 No
The KJV, currently published in its fourth revision, is the most widely distributed of all English translations of the Bible. In 1975, the Company commissioned the fifth revision of the KJV resulting in the publication of the 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. Electronic Bibles and biblical reference books are published under the Nelson Electronic Publishing imprint. These products include electronic collections centered on Bible study; electronic libraries featuring well-known authors, such as Jack Hayford, John MacArthur, John Maxwell and Charles Stanley; and software for preparing Bible study lessons. The Company has achieved a leadership position in the industry with its electronic publications, and is aggressively pursuing new digital formats of publication and distribution as they develop, such as the Internet, and emerging portable book technologies. The Company continually seeks to expand its Bible product line by developing or aiding in the development of new translations and editions and seeking new publishing opportunities. The Company also continually makes editorial, design and other changes to its existing line of Bibles and other Bible products in an effort to increase their marketability. The Company currently publishes over 1,100 different Bibles and biblical reference products such as commentaries, study guides and other popular Bible help texts. Styles range from inexpensive paperbacks to deluxe leather-bound Bibles to CD-Rom. Different editions of a particular Bible translation are created by incorporating 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. In fiscal 1999, the increase in gift revenues was primarily due to the increased sales of a special selection of products, including scrapbooks, to mass merchandisers. Current product lines offered by the Company include journals and gift books, photo albums, baby and wedding memory books, scrapbooks, kitchen accessories and stationery. Products are marketed under the C.R. Gibson(R), Creative Papers(R), C.R. Gibson(R) Kids Kollection(TM), Toccata(R), Tomorrow's Treasures(TM), Stepping Stones(TM) and Inspirations(R) 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 artwork licensed from artists or design groups such as Dena, Beatrix Potter, Carter's Infant Apparel, Echo and Warner Brothers. 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 experienced in marketing to the general gift, department and specialty stores and C.R. Gibson's distribution facilities. MARKETING, DISTRIBUTION AND PRODUCTION The principal market channels through which the Company markets its products domestically are Christian bookstores, which are primarily independently owned; general bookstores, including national chains such as Barnes & Noble and Borders; specialty gift and department stores, such as SteinMart and May Company; mass merchandisers such as Target, K-Mart, Wal-Mart and Sam's Wholesale Club; and directly to consumers through direct mail, telemarketing and the Internet. The Company services these market channels through its sales force and through wholesalers or jobbers servicing bookstores, gift stores, other retail outlets and libraries. 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 100,000 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, 1999, the Company employed a sales force of approximately 190 people and maintained 24-hour-a-day telemarketing capability. These employees service over 55,000 retail accounts and 100,000 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 1999. 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 1999, the Company's export operations accounted for approximately $22.9 million, or 9%, of the Company's total net revenues. Substantially all of the Company's products are manufactured by domestic and foreign commercial printers, binders and manufacturers which are selected on the basis of competitive bids. The Company may contract separately for paper and certain other supplies used by its manufacturers. 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 designer 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 design 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 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 sale of stationery products, gift wrap and paper tableware. EMPLOYEES As of March 31, 1999, the Company employed approximately 1,130 persons. In connection with the recently announced restructuring at C.R. Gibson, the Company's total employees will be reduced by approximately 300 persons. The Company has not suffered any work stoppages as a result of labor disputes in recent years and considers relations with its employees to be good. MANAGEMENT Officers of the Company are elected by the Board of Directors and serve at the pleasure of the Board of Directors. Following is certain information regarding the executive officers of the Company:
Name Age Position with the Company -------- ----- ------------------------- Sam Moore 69 Chairman of the Board, Chief Executive Officer, President and Director S. Joseph Moore 36 Executive Vice President and Director; President, Thomas Nelson Gift Division Joe L. Powers 53 Executive Vice President and Secretary Ray Capp 46 Senior Vice President, Operations Charles Z. Moore 65 Senior Vice President Vance Lawson 40 Vice President, Finance Phyllis E. Williams 51 Treasurer Eric Heyden 45 Vice President and 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. 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 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 General Counsel of the Company since 1998, Vice President and Deputy General Counsel of the Company since 1997 and 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, 1999 of $1,525,000. 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 $1,667,000 at March 31, 1999. The Company maintains offices and other 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 anticipates selling its Norwalk facilities during fiscal 2000 due to the restructuring at C.R. Gibson. The Company leases properties as described below:
Square Annual Lease Location Use/Segment Feet Rent Expiration - --------------------------------------------------------------------- Miami, FL Editorial office/ publishing 1,400 $ 26,340 08/2000 Atlanta, GA Editorial office/ publishing 800 $ 11,900 10/1999 Carmel, IN Retail store/gift 12,500 $ 79,300 09/1999 Clifton, NJ Manufacturing/gift 11,000 $ 46,800 10/2001 Nashville, TN Creative and sales office/publishing and gift 37,400 $642,700 11/2001 Nashville, TN Creative office/ publishing 13,700 $250,600 09/2000 Nashville, TN Warehousing/ publishing 84,700 $273,300 11/2002 Nashville, TN Warehousing/ publishing 84,700 $306,900 12/2005 Norwalk, CT Warehousing/gift 32,000 $144,000 07/1999 Shelton, CT Warehousing/gift 152,000 $612,500 03/2000 Ontario Warehousing and (Canada) office/gift 25,700 $151,000 08/2003
All building improvements on the properties are brick veneer, metal or block construction and are considered adequate and suitable by the Company for the purposes for which they are used. The Company's machinery and equipment are located in Nashville, Tennessee and Guilford and Norwalk, Connecticut and consist pri- marily of computer equipment, warehousing and shipping racks, conveyors and other material handling equipment located at the various warehousing facilities and office equipment. Such machinery and equipment are in good repair and adequate for the Company's present operations. All such equipment, other than a portion of the computer equipment 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 busi- ness. 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, 1999. PART II Item 5. Market for the Company's Common Equity and Related Shareholder Matters Incorporated by reference to the Annual Report to Share- holders for the year ended March 31, 1999 (the "Annual Report"). Item 6. Selected Financial Data Incorporated by reference to the Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated by reference to the Annual Report. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Incorporated by reference to the Annual Report. Item 8. Financial Statements and Supplementary Data Incorporated by reference to the Annual Report. Includes selected unaudited quarterly financial data for the years ended March 31, 1999 and 1998. 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 com- pliance with Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on August 19, 1999 (the "Proxy Statement"), to be filed within 120 days of March 31, 1999 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, 1999, 1998 and 1997 Balance sheets--March 31, 1999 and 1998 Statements of shareholders' equity--years ended March 31, 1999, 1998 and 1997 Statements of cash flow--years ended March 31, 1999, 1998 and 1997 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 . . . . . . . . . . . . . . . . 17 Schedule VIII -- Valuation and Qualifying Accounts and Reserves . . . . . . . . . . . . . . . . . . . 18 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 - ------ 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 4.1 -- Loan Agreement dated May 18, 1990, between the Company and The Industrial Development Board of The Metropolitan Govern- ment 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 incor- porated 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 -- 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 Corporate Finance, Inc. (formerly 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 incor- porated herein by reference) 4.8 -- 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 Corporate Finance, Inc. (formerly 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) 4.9 -- 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 Corporate Finance, Inc. (formerly Creditanstalt-Bankverein) in New York (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated January 6, 1997 and incorporated herein by reference) 4.10-- 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 Corporate Finance, Inc. (formerly Creditanstalt-Bankverein) in New York (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated January 6, 1997 and incorporated herein by reference) 4.11-- Fourth Amendment to Credit Agreement dated as of March 31, 1998, 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 Corporate Finance, Inc. (formerly Creditanstalt-Bankverein) in New York (filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated September 30, 1998 and incorporated herein by reference) 4.12-- Fifth Amendment to Credit Agreement dated as of November 30, 1998, 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 Corporate Finance, Inc. (formerly Creditanstalt-Bankverein in New York) (filed as Exhibit 4.1 to the Company's Form 10-Q dated December 31, 1998 and incorporated herein by reference) 4.13-- Note Purchase Agreement dated January 3, 1996, among the Company 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) 4.14-- Letter Amendment No. 1 dated June 28, 1996, to Note Purchase Agreement dated January 3, 1996, among the Company 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) 4.15-- 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) 4.16-- 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) 4.17-- 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 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)* 10.2 -- Thomas Nelson, Inc. Amended and Restated 1992 Employee Stock Incentive Plan (filed as Exhibit 4.6 to the Company's Proxy Statement dated July 26, 1995, for the Annual Meeting of Shareholders held on August 24, 1995 and incorporated herein by reference)* 10.3 -- Severance Agreement dated as of May 17, 1991, between the Company and Sam Moore (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended March 31, 1991 and incorporated herein by reference)* 10.4 -- Employment Agreement dated as of May 13, 1996, between the Company and Sam Moore (filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference)* 10.5 -- 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)* 10.6 -- Employment Agreement dated as of May 10, 1996, between the Company and Joe L. Powers (filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference)* 10.7 -- Employment Agreement dated as of 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)* 10.8 -- Employment Agreement dated as of December 22, 1994, between the Company and Raymond T. Capp (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended March 31, 1995 and incorporated herein by reference)* 10.9 -- 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)* 10.10-- Employment Agreement dated as of July 10, 1995, between the Company and Eric Heyden (filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended March 31, 1998 and incorporated herein by reference)* 10.11-- 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) 10.12-- Amendment No. 1 to the Asset Purchase Agreement dated as of January 6, 1997, by and among the Company, Word, Incor- porated 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) 10.13-- 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) 10.14-- 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 Current Report on Form 8-K dated January 6, 1997 and incorporated herein by reference) 11 -- Statement re Computation of Per Share Earnings 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 1999 (to the extent of portions specifically incorporated by reference) 21 -- Subsidiaries of the Company 23 -- Consent of Independent Public Accountants 27 -- Financial Data Schedule (for SEC use only) - ------------------ *Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K A Current Report on Form 8-K dated January 8, 1999 (the "Form 8-K"), was filed by the Company on January 8, 1999. The Form 8-K contained information pursuant to Item 5 thereunder relating to a press release describing the Company's redemption of its 5 3/4% Convertible Subordinated Notes due 1999. 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 28, 1999 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 June 28, 1999 - ----------------------- of Directors, Chief Sam Moore Executive Officer and President (Principal Executive Officer) /s/ S. Joseph Moore Executive Vice President June 28, 1999 - ----------------------- and Director S. Joseph Moore /s/ Joe L. Powers Executive Vice President June 28, 1999 - ----------------------- and Secretary (Prin- Joe L. Powers cipal Financial and Accounting Officer) /s/ Brownlee O. Currey, Jr. Director June 28, 1999 - ----------------------- Brownlee O. Currey, Jr. /s/ W. Lipscomb Davis, Jr. Director June 28, 1999 - ----------------------- W. Lipscomb Davis, Jr. /s/ Robert J. Niebel Director June 28, 1999 - ----------------------- Robert J. Niebel /s/ Millard V. Oakley Director June 28, 1999 - ----------------------- Millard V. Oakley /s/ Joe M. Rodgers Director June 28, 1999 - ----------------------- Joe M. Rodgers /s/ Andrew Young Director June 28, 1999 - ----------------------- 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, 1999. 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, 1999
THOMAS NELSON, INC. AND SUBSIDIARIES SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ============================================================================
March 31, 1999 March 31, 1998 March 31, 1997 ------------------------------------------------ Reserve for Sales Returns: Balance at beginning of period $ 3,934,000 $ 4,773,000 $ 4,355,000 Additions: 1. Charged to costs and expenses 910,000 - 418,000 2. Charged to other accounts - - - Deductions: charge-offs - 839,000 - ------------------------------------------------ Balance at end of period $ 4,844,000 $ 3,934,000 $ 4,773,000 ================================================ Reserve for Doubtful Accounts: Balance at beginning of period $ 2,228,000 $ 2,227,000 $ 2,714,000 Additions: 1. Charged to costs and expenses 2,027,000 1,778,000 2,794,000 2. Charged to other accounts - - - Deductions: charge-offs 2,117,000 1,777,000 3,281,000 ------------------------------------------------ Balance at end of period $ 2,138,000 $ 2,228,000 $ 2,227,000 ================================================ Discontinued Operations: Balance at beginning of period $ 5,197,000 $ 9,101,000 $ 4,381,000 Additions: 1. Charged to costs and expenses - - 12,266,000 2. Charged to other accounts - - - Deductions: charge-offs 2,492,000 3,904,000 7,546,000 ------------------------------------------------ Balance at end of period $ 2,705,000 $ 5,197,000 $ 9,101,000 ================================================ Restructuring: Balance at beginning of period $ - $ - $ - Additions: 1. Charged to costs and expenses 4,666,000 - - 2. Charged to other accounts - - - Deductions: charge-offs 1,599,000 - - ------------------------------------------------ Balance at end of period $ 3,067,000 $ - $ - ================================================
INDEX TO EXHIBITS Exhibit Number - ------- 3.2 -- Thomas Nelson, Inc. Amended Bylaws 11 -- Statement re Computation of Per Share Earnings 13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the year ended March 31, 1999 (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, 1999 1998 1997 1996 1995 (Dollars in thousands, except per share data) - ---------------------------------------------------------------------------- OPERATING RESULTS Net revenues $261,645 $252,958 $243,436 $219,838 $174,609 ===================================================== Operating income $ 20,549 $ 24,780 $ 22,954 $ 5,887 $ 21,212 ===================================================== Income (loss) from continuing operations $ 8,855 $ 12,673 $ 9,522 ($ 923) $ 10,101 Income (loss) from discontinued operations - - 16,555 ( 9,991) 1,609 ----------------------------------------------------- Net income (loss) $ 8,855 $ 12,673 $ 26,077 ($ 10,914) $ 11,710 ===================================================== - ------------------------------------------------------------------------------ FINANCIAL POSITION Total assets $255,330 $287,442 $301,571 $355,083 $232,386 Working capital 118,794 141,342 131,852 197,127 145,860 Long-term debt and other non-current liabilities 85,392 85,217 89,233 185,019 121,797 Shareholders' equity 125,649 156,396 146,812 122,065 72,178 Long-term debt to total capitalization 40.5% 35.3% 37.8% 60.3% 62.8% - ------------------------------------------------------------------------------ PER SHARE DATA Income (loss) per share from continuing operations $ 0.58 $ 0.74 $ 0.56 ($ 0.06) $ 0.76 Income (loss) per share from discontinued operations - - 0.96 ( 0.64) 0.12 ----------------------------------------------------- Net income (loss) per share $ 0.58 $ 0.74 $ 1.52 ($ 0.70) $ 0.88 ===================================================== Dividends declared per share $ 0.16 $ 0.16 $ 0.16 $ 0.16 $ 0.14 Book value per share 8.73 9.14 8.58 7.13 5.37 Weighted average number of shares outstanding (in thousands) 15,279 17,113 17,119 15,580 13,374 - ------------------------------------------------------------------------------ Includes C.R. Gibson operations subsequent to acquisition on October 31, 1995. Per share data has been restated for stock dividends. For fiscal years 1995 through 1997, operating results and per share data have been restated for discontinued operations and, for fiscal 1999, reflects pre-tax restructuring and other related charges of $4.7 million pertaining primarily to severance and reserves for inventory to be liquidated. In fiscal 1996, the Company recorded a loss on disposal and results of operations for its Christian-lifestyle magazines and the radio networks of the Royal Media division. 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 & 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 of new product lines. In fiscal 1999, the Company decided to phase out manufacturing operations at its C.R. Gibson subsidiary ("Gibson") and recorded a charge for restructuring and other related costs of $4.7 million pertaining primarily to severance and reserves for inventory to be liquidated. 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 fiscal 1997. 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) ---------------------------------------------------- 1999 1998 1997 1998 to 1999 1997 to 1998 ---------------------------------------------------- (%) (%) (%) (%) (%) Net revenues: Publishing 64.3 64.6 63.0 3.0 6.9 Gift 35.7 35.4 37.0 4.3 ( 1.1) --------------------- Total net revenues 100.0 100.0 100.0 3.4 3.9 Expenses: Cost of goods sold 55.1 54.7 54.3 4.2 4.7 Selling, general and administrative expenses 35.7 34.8 35.5 6.2 2.0 Restructuring charges 0.7 - - - - Amortization of goodwill and non- compete agreements 0.6 0.7 0.8 ( 12.2) ( 9.1) --------------------- Total expenses 92.1 90.2 90.6 5.7 3.5 --------------------- Operating income 7.9 9.8 9.4 ( 17.1) 8.0 ===================== Income from continuing operations 3.4 5.0 3.9 ( 30.1) 33.1 Income from discontinued operations - - 6.8 - (100.0) --------------------- Net income 3.4 5.0 10.7 ( 30.1) ( 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, even though fiscal years 1999 and 1998 varied somewhat from this pattern. The typical 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 or recognized a small profit 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. In fiscal 1999 and 1998, timing of new product releases caused atypical revenue results by quarter, which are not expected to be repeated in the foreseeable future. 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 2000 fiscal year. The Company disclaims any intent or obligation to update forward-looking statements. RESULTS OF OPERATIONS Fiscal 1999 compared to Fiscal 1998. Net revenues for fiscal 1999 increased $8.7 million, or 3.4%, over fiscal 1998. Net revenues from publishing products increased for fiscal 1999 from fiscal 1998 by $4.9 million, or 3.0%, primarily due to favorable acceptance of new product offerings. Publishing results would have been more favorable were it not for absence of revenues from certain agreements which had expired April 1, 1998, whereby the Company acted as a distributor of publishing products. The Company does not plan to enter into any material distribution agreements in the near future. Net revenues from gift products increased by $3.8 million, or 4.3%, primarily due to the increased sales of a special selection of products, including scrapbooks, to mass merchandisers. Price increases did not have a material effect on net revenues. The Company's cost of goods sold for fiscal 1999 increased $5.8 million, or 4.2%, and, as a percentage of net revenues, increased from 54.7% to 55.1%. The increase in cost of goods sold, as a percentage of net revenues, resulted primarily from the portion of the fiscal 1999 one-time restructuring charge related to reserves in the gift division for inventory to be liquidated in the amount of $2.8 million, or 1.1% of net revenues. The absence of revenues from the above mentioned publishing distribution agreements, which carry a higher cost of sales percentage, somewhat offset other increases in the cost of sales percentage. Selling, general and administrative expenses for fiscal 1999 increased $5.4 million over the comparable period in fiscal 1998. These expenses, expressed as a percentage of net revenues, increased from 34.8% for fiscal 1998 to 35.7% for fiscal 1999 primarily as a result of increased marketing costs in the Company's direct-to-consumer market. In addition, the increase is due to a decline in fees charged for operations services provided to the purchaser of the Company's Music Business, which was sold in January 1997. The fees for these services were credited to selling, general and administrative expenses and have declined as certain services were discontinued. All services were discontinued as of December 31, 1998. The operating expenses restructuring charge for fiscal 1999 was $1.9 million. This charge relates to costs for discontinuation of manufacturing and certain administrative functions at Gibson. The costs primarily include employee severance benefits reduced by a gain on the sale of the manufacturing equipment. Interest expense increased by $0.6 million, or 9.6%, for fiscal 1999. The Company's effective tax rate in fiscal 1999 was 36.5% compared to 37.5% for fiscal 1998. See Note M of Notes to Consolidated Financial Statements. The Company earned net income of $8.9 million for fiscal 1999. There were no discontinued operations in fiscal 1999. 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 37.0% 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. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1999, the Company had $0.6 million in cash and cash equivalents, primarily cash generated from operations. 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, 1999, the Company had working capital of $118.8 million. Under its two bank credit facilities, at March 31, 1999, the Company had $59.8 million of borrowings outstanding, and $50.2 million available for borrowing. Net cash provided by operating activities was $1.6 million, $7.0 million and $25.8 million in fiscal 1999, 1998 and 1997, respectively. The cash provided by operations during fiscal 1999 was principally attributable to earnings from continuing operations and reductions in inventories with an offsetting increase in accounts receivable. Inventories decreased by $4.8 million due primarily to lower publishing inventories, as well as additions to the reserve for inventory to be liquidated of $2.8 million from restructuring. Accounts receivable increased by $11.9 million due, in part, to a shift from selling directly to one major mass merchandiser account to distributors with longer payment terms, who service the account. During fiscal 1999, capital expenditures totaled approximately $4.2 million. The capital expenditures were primarily for computer, warehousing and manufacturing equipment. In fiscal 2000, the Company anticipates capital expenditures of approximately $2.5 million, consisting primarily of additional computer and warehousing equipment. The Company's bank credit facilities are unsecured and consist of a $100 million credit facility and a $10 million credit facility (collectively, the "Credit Agreements"). The $100 million credit facility bears interest at either the prime rate or, at the Company's option, the London Interbank Offered Rate ("LIBOR") plus a percentage, subject to adjustment based on certain financial ratios. The $100 million credit facility was amended on November 30, 1998, to increase the aggregate amount available for borrowing from $75 million to $100 million and to extend the maturity from December 13, 2002 to December 13, 2005. The $10 million credit facility bears interest at LIBOR plus a percentage subject to adjustment based on certain financial ratios and matures on July 31, 2000. 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 $21.3 million of senior notes ("Senior Notes") which are unsecured. The Senior Notes bear interest at rates from 6.68% to 9.50% due through fiscal 2006. 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, 1999, 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 2000, although no assurance can be given that such compliance will be maintained. On March 1, 1999, the Company redeemed the remaining outstanding $39.9 million of 5.75% convertible subordinated notes ("Convertible Subordinated Notes") due November 30, 1999. The Convertible Subordinated Notes were redeemed at $1,008.20 per $1,000 principal amount, together with accrued and unpaid interest. During the first nine months of fiscal 1999, the Company had purchased $15.1 million in principal amount of the Convertible Subordinated Notes. 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 2000. On June 10, 1998, the Company announced its intention to repurchase up to three million shares of common stock and/or Class B common stock from time to time in the open market or through privately negotiated transactions. At March 31, 1999, the Company had repurchased approximately 2.7 million shares of common stock at an aggregate cost to the Company of $37.5 million. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk from exposure to changes in interest rates based on its financing, investing and cash management activities. The Company utilizes a mix of debt maturities along with both fixed-rate and variable-rate debt to manage its exposures to changes in interest rates. See Note H of Notes to Consolidated Financial Statements. The Company does not expect changes in interest rates to have a material effect on income or cash flows in fiscal 2000, although there can be no assurances that interest rates will not significantly change. YEAR 2000 ISSUES The Company has established a task force to coordinate the assessment and implementation of changes to computer systems and applications necessary to become year 2000 compliant. These actions are necessary to ensure that the systems and applications will recognize and process the year 2000 and beyond with no material adverse effect on customers or disruption to business operations. The task force has also evaluated non-systems issues, e.g. security, elevators, timekeeping, etc., relative to the year 2000. In addition, the task force has been actively communicating with third parties, with whom the Company has material relationships, concerning the status of their year 2000 readiness. These third parties include the Company's financial institutions, as well as selected customers, vendors, landlords and suppliers of telecommunication services and other utilities. As part of the process of attempting to mitigate third party risks, the task force is collecting and analyzing information from these third parties. To date, no third party has advised the Company that it anticipates specific problems regarding non- performance risk for the year 2000. As of March 31, 1999, the Company has completed all known programming revisions required in its computer systems and has completed initial testing of its systems for receipt of electronic orders, customer invoicing and other processes for transactions dated in year 2000. The Company anticipates that further compliance tests will include electronic and other communications with appropriate customers. The Company has also engaged consultants to test that specific systems are year 2000 compliant. In addition, the Company has also completed remediation necessary for its non-systems issues. The effect of year 2000 non-compliance on the business of the Company is difficult to predict. The Company believes that possible risks if compliance is not accomplished could include delays in receiving and/or shipping of products and in invoicing to and/or receiving payments from customers in the days immediately after January 1, 2000. The Company considers that its primary risk relates to third parties with whom the Company has material relationships, and over which the Company has no control. At this time, the Company does not believe its year 2000 risks will have a material adverse effect on the Company's results of operations, liquidity or financial condition. The Company expensed approximately $429,000 in costs during fiscal 1999, primarily for programmer costs and software upgrades related to becoming year 2000 compliant, and expects to incur additional costs of $300,000 for fiscal 2000. These fiscal 2000 costs will include costs for a testing site and consulting fees, and will be expensed as they are incurred. As of March 31, 1999, the task force has completed a contingency plan to address financial and operational problems that might arise on and around January 1, 2000. This contingency plan identifies alternate vendors and back-up processes that do not rely on computers, whenever possible. The following areas have been addressed in the contingency plan: purchasing, product development, distribution, collections, royalties, marketing, sales, facilities and telecommunications. The task force will reevaluate this plan on a quarterly basis particularly to address risks that may be identified in communications with third parties. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
Years ended March 31, ---------------------------------------------- 1999 1998 1997 ---------------------------------------------- Net revenues $ 261,645 $ 252,958 $ 243,436 Cost of goods sold 144,221 138,389 132,199 ---------------------------------------------- Gross profit 117,424 114,569 111,237 Selling, general and administrative 93,394 87,950 86,259 Restructuring charge 1,866 - - Amortization of goodwill and non-compete agreements 1,615 1,839 2,024 ---------------------------------------------- Operating Income 20,549 24,780 22,954 Other income 59 1,569 590 Interest expense 6,653 6,073 8,430 ---------------------------------------------- Income from continuing operations before income taxes 13,955 20,276 15,114 Provision for income taxes 5,100 7,603 5,592 ---------------------------------------------- Income from continuing operations 8,855 12,673 9,522 Discontinued operations: Operating income, net of applicable tax provision of $446 - - 728 Gain on disposal, net of applicable tax provision of $24,096 - - 15,827 ---------------------------------------------- Income from discontinued operations - - 16,555 ---------------------------------------------- NET INCOME $ 8,855 $ 12,673 $ 26,077 ============================================== Weighted average number of shares outstanding 15,279 17,113 17,119 ============================================== NET INCOME PER SHARE: Basic-- Income from continuing operations $ 0.58 $ 0.74 $ 0.56 Income from discontinued operations - - 0.96 ---------------------------------------------- Net income per share $ 0.58 $ 0.74 $ 1.52 ============================================== Diluted-- Income from continuing operations $ 0.58 $ 0.73 $ 0.56 Income from discontinued operations - - 0.81 ---------------------------------------------- Net income per share $ 0.58 $ 0.73 $ 1.37 ============================================== See Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
March 31, ---------------------------------- 1999 1998 ---------------------------------- ASSETS Current assets: Cash and cash equivalents $ 609 $ 39,713 Accounts receivable, less allowances of $6,982 and $6,162, respectively 77,298 65,415 Inventories 65,805 70,590 Prepaid expenses 12,656 8,177 Deferred tax assets 6,715 3,276 ---------------------------------- Total current assets 163,083 187,171 Property, plant and equipment, net 25,557 32,103 Other assets 10,260 9,843 Deferred charges 1,421 1,789 Goodwill, less accumulated amortization of $6,361 and $4,804, respectively 55,009 56,536 ---------------------------------- TOTAL ASSETS $ 255,330 $ 287,442 ================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 16,355 $ 16,701 Accrued expenses 19,720 20,182 Dividends payable 576 685 Income taxes currently payable 2,793 4,286 Current portion of long-term debt 4,765 3,733 Current portion of capital lease obligations 80 242 ---------------------------------- Total current liabilities 44,289 45,829 Long-term debt 79,542 79,476 Capital lease obligations - 84 Deferred tax liabilities 4,432 3,364 Other liabilities 1,418 2,293 Shareholders' equity: Preferred stock, $1.00 par value, authorized 1,000,000 shares; none issued - - Common stock, $1.00 par value, authorized 20,000,000 shares; issued 13,286,860 and 16,002,817 shares, respectively 13,287 16,003 Class B common stock, $1.00 par value, authorized 5,000,000 shares; issued 1,103,524 and 1,111,924 shares, respectively 1,104 1,112 Additional paid-in capital 44,537 79,057 Retained earnings 66,721 60,224 ---------------------------------- Total shareholders' equity 125,649 156,396 ---------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 255,330 $ 287,442 ================================== See Notes to Consolidated Financial Statements
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, 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 adjustmen ( 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 - Net income 8,855 Class B stock converted to common 8 ( 8) Common stock issued: Option plans -- 14,449 common shares 15 239 Convertible notes con- verted -- 1,470 common shares 1 24 Common stock repurchased -- 2,741,911 common shares ( 2,742) ( 34,803) Dividends declared -- $0.16 per share ( 2,358) Incentive plan stock awards -- 1,635 common shares 2 20 ----------------------------------------------- Balance at March 31, 1999 $ 13,287 $ 1,104 $ 44,537 $ 66,721 $ - =============================================== See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Years ended March 31, ----------------------------------- 1999 1998 1997 ----------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $ 8,855 $ 12,673 $ 9,522 Adjustments to reconcile income to net cash provided by (used in) operations: Depreciation and amortization 8,965 8,577 8,436 Deferred income taxes ( 2,371) 4,758 7,173 Deferred compensation - - 619 Changes in assets and liabilities, net of acquisitions and disposals: Accounts receivable, net ( 11,883) ( 789) 7,375 Income tax refunds receivable - - 4,440 Inventories 4,785 960 7,758 Prepaid expenses ( 4,479) 1,244 1,800 Accounts payable and accrued expenses 1,684 ( 3,034) ( 9,969) Income taxes currently payable ( 1,493) ( 15,688) 3,707 ------------------------------------- Net cash provided by continuing operations 4,063 8,701 40,861 ------------------------------------- Discontinued operations: Income from discontinued operations - - 728 Gain on disposal of discontinued operations - - 15,827 Changes in discontinued net assets ( 2,492) 488 ( 24,442) Cash used in discontinued operations - ( 2,191) ( 7,179) ------------------------------------- Net cash used in discontinued operations ( 2,492) ( 1,703) ( 15,066) ------------------------------------- Net cash provided by operating activities 1,571 6,998 25,795 ------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 4,173) ( 4,815) ( 1,876) Proceeds from sales of property, plant and equipment 5,346 - 49 Proceeds from sales of business and discontinued net assets - - 120,368 Purchase of net assets of acquired companies - net of cash received - - ( 122) Changes in other assets and deferred charges ( 2,114) 160 ( 2,817) ------------------------------------- Net cash provided by (used in) investing activities ( 941) ( 4,655) 115,602 ------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (payments) under line of credit 59,800 - ( 57,800) Payments under capital lease obligations ( 246) ( 308) ( 231) Payments on long-term debt ( 58,702) ( 2,975) ( 37,968) Dividends paid ( 2,467) ( 2,739) ( 2,739) Changes in other liabilities ( 853) ( 89) 178 Proceeds from issuance of common stock 279 14 84 Common stock retired ( 37,545) ( 4) ( 122) ------------------------------------- Net cash used in financing activities ( 39,734) ( 6,101) ( 98,598) ------------------------------------- Net increase (decrease) in cash and cash equivalents ( 39,104) ( 3,758) 42,799 Cash and cash equivalents at beginning of year 39,713 43,471 672 ------------------------------------- Cash and cash equivalents at end of year $ 609 $ 39,713 $43,471 ===================================== Supplemental disclosures of noncash investing and financing activities: Dividends accrued and unpaid $ 576 $ 685 $ 685 Capital lease obligations incurred to lease new equipment - - 144 Contribution to ESOP using previously funded advances - - 828 See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A-DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS: Thomas Nelson, Inc. (a Tennessee corporation) and subsidiaries (the "Company"), is a publisher, producer and distributor of Bibles 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"). 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 and 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. These convertible debt securities were fully redeemed by March 1, 1999, and are excluded from all calculations from that date forward. STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, the Company considers as cash equivalents all highly liquid debt instruments with an original 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 reporting period. Actual results could differ from those estimates. OTHER NEW PRONOUNCEMENTS: In April 1998, the Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start- up Activities" ("SOP 98-5"). SOP 98-5 requires the costs of start-up activities and organization costs, as defined, to be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The Company will adopt the pronouncement during the first quarter of fiscal 2000. The Company does not expect the adoption to have a material impact on its results of operations, financial condition or cash flows. Effective March 31, 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires a public company to report financial and descriptive information about its reportable operating segments in annual financial statements and in interim financial reports issued to shareholders. The Company has two reportable segments: Publishing products and Gift products. See Note R for disclosure on segment reporting. Effective April 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income encompasses all changes in shareholders' equity and includes net income, net unrealized capital gains or losses on available for sale securities and foreign currency translation adjustments. Adoption of this pronouncement has not had a material impact on the Company's results of operations, as comprehensive income for fiscal 1999 was the same as net income for the Company. RECLASSIFICATIONS: Certain reclassifications of prior period amounts have been made to conform to the current year's presentation. NOTE B-RESTRUCTURING CHARGE During fiscal 1999, the Company recorded a restructuring charge, including related asset write-downs of $4.7 million ($3 million or $0.19 per basic share, after-tax). The restructuring initiatives involve the Company's gift manufacturing operations located in Connecticut and include two plant closings and reduction of certain administrative functions. During the third quarter of fiscal 1999, certain machinery and equipment at one of the Connecticut plants were sold and the related manufacturing activities were outsourced to a third party. During the fourth quarter of fiscal 1999, management decided to cease all remaining manufacturing activities in Connecticut. The restructuring is expected to result in workforce reductions of approximately 300 employees, of which approximately 100 were terminated during the third quarter of fiscal 1999. The products formerly produced at these manufacturing facilities will continue to be designed and distributed by the Company, but will be manufactured by outside vendors. This restructuring charge is recorded in the accompanying 1999 consolidated statements of operations as cost of goods sold ($2.8 million) and operating expenses ($1.9 million). The remaining liability as of March 31, 1999 ($3.1 million) is recorded in the accompanying consolidated balance sheets as accrued expenses. The restructuring charge and its utilization are summarized as follows:
(In thousands) 1999 Original Accrual 1999 Utilized Balance at ---------------------------------------------- March 31, 3rd Qtr 4th Qtr Total Cash Noncash 1999 ----------------------------------------------------------- Employee severance and termination $ 727 $2,050 $2,777 $ 727 $ - $ 2,050 Gain on sale of long-lived assets ( 1,928) - ( 1,928) ( 1,928) - - Other facility shutdown costs - 1,017 1,017 - - 1,017 ---------------------------------------------------------- Operating expenses ( 1,201) 3,067 1,866 ( 1,201) - 3,067 Inventory write- down 600 2,200 2,800 - 2,800 - ---------------------------------------------------------- Total charge ( $601) $5,267 $4,666 ($1,201) $2,800 $ 3,067 ==========================================================
For plants and buildings to be closed, the tangible assets have been recorded at the lesser of their net book value or their estimated fair value, less cost of disposal. It is expected that restructuring actions will be substantially completed by the end of the third quarter of fiscal 2000. NOTE C-INVENTORIES Inventories consisted of the following at March 31 (in thousands):
1999 1998 ------------------------ Finished goods $ 56,610 $ 54,503 Work in process and raw materials 9,195 16,087 ------------------------ $ 65,805 $ 70,590 ========================
NOTE D-PREPAID EXPENSES Prepaid expenses consisted of the following at March 31 (in thousands):
1999 1998 ------------------------ Royalties $ 10,124 $ 6,888 Other 2,532 1,289 ------------------------ $ 12,656 $ 8,177 ========================
NOTE E-PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at March 31 (in thousands):
1999 1998 ------------------------ Land $ 3,798 $ 5,109 Buildings 18,170 20,483 Machinery and equipment 23,216 26,851 Furniture and fixtures 3,604 6,056 Other 616 380 ------------------------ 49,404 58,879 Less allowance for depreciation and amortization ( 23,847) ( 26,776) ------------------------ $ 25,557 $ 32,103 ========================
NOTE F-OTHER ASSETS Other assets consisted of the following at March 31 (in thousands):
1999 1998 ------------------------ Prepaid royalties $ 5,740 $ 5,509 Other 4,520 4,334 ------------------------ $ 10,260 $ 9,843 ========================
NOTE G-ACCRUED EXPENSES Accrued expenses consisted of the following at March 31 (in thousands):
1999 1998 ------------------------ Accrued royalties $ 5,210 $ 4,152 Accrued payroll 5,623 6,552 Accrued integration costs 135 1,568 Accrued interest 700 1,510 Net liability of discontinued operations 2,705 5,197 Restructuring reserve 3,067 0 Other 2,280 1,203 ------------------------ $ 19,720 $ 20,182 ========================
Cash payments for interest were $7.5 million in 1999, $6.1 million in 1998 and $10.2 million in 1997. NOTE H-LONG-TERM DEBT Long-term debt consisted of the following at March 31 (in thousands):
1999 1998 ------------------------ Credit Agreements $ 59,800 $ 0 Industrial Revenue Bonds 1,525 1,725 Loan Agreement 1,667 2,332 Senior Notes 21,285 24,000 Convertible Subordinated Notes 0 55,000 Other 30 152 ------------------------ 84,307 83,209 Less current portion ( 4,765) ( 3,733) ------------------------ $ 79,542 $ 79,476 ========================
The Company has Credit Agreements with borrowing limits totaling $110 million as of March 31, 1999. On November 30, 1998, the primary credit facility ("Credit Facility") was amended to increase the aggregate amount available for borrowing from $75 million to $100 million and to extend the maturity from December 13, 2002 to December 13, 2005. 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 2000 are $18.7 million. Additionally, the Company has a $10 million credit facility which matures July 31, 2000, and bears interest at LIBOR plus a percentage, with covenants which are the same as the Credit Facility. At March 31, 1999, the Company was in compliance with all covenants of the Credit Agreements. At March 31, 1999, the Company had $50.2 million available for borrowing under its Credit Agreements. The Company has outstanding Industrial Revenue Bonds, which bear interest at rates from 8.05% to 8.35% and are due through 2005. At March 31, 1999, the Industrial Revenue Bonds were secured by property, plant and equipment with a net book value of approximately $1.4 million. The Company has outstanding indebtedness of $1.7 million in a loan agreement which 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 LIBOR plus 1.25%, for a total rate of 6.2125% at March 31, 1999. Semi-annual principal payments are due through March 2002. The Company has outstanding $21.3 million of Senior Notes, which bear interest at rates from 6.68% to 9.50% and are due through fiscal 2006. Under the terms of the Senior Notes, the Company has agreed, among other things, to limit the payment of cash dividends and to maintain certain interest coverage and debt- to-total-capital ratios. The maximum dividends which the Company may pay for fiscal 2000 are $18.7 million. At March 31, 1999, the Company was in compliance with all covenants of the Senior Notes. On March 1, 1999, the Company redeemed the remaining outstanding $39.9 million of 5.75% Convertible Subordinated Notes due November 30, 1999. The Convertible Subordinated Notes were redeemed at $1,008.20 per $1,000 principal amount, together with accrued and unpaid interest. During the first nine months of fiscal 1999, the Company purchased $15.1 million in principal amount of the Convertible Subordinated Notes. Maturities of long-term debt for the years ending March 31 are as follows (in thousands): 2000 $ 4,765 2001 3,889 2002 3,580 2003 3,322 2004 3,322 2005 and thereafter 65,429 ------------ $ 84,307 ============ NOTE I-LEASES Total rental expense for all operating leases, including short-term leases of less than a year, amounted to approximately $4.3 million in 1999, $4.0 million in 1998 and $3.2 million in 1997. 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 ------------------------ 2000 $ 2,872 $ 85 2001 1,982 0 2002 1,474 0 2003 757 0 2004 354 0 2005 and thereafter 0 0 ------------------------ Total minimum lease payments $ 7,439 85 ============== Less amount representing interest ( 5) ---------- Present value of net lease payments 80 Less current portion ( 80) ---------- $ 0 ==========
NOTE J-STOCK PLANS 1992 EMPLOYEE STOCK INCENTIVE PLAN: The Company has adopted the 1992 Amended and Restated Employee Stock Incentive Plan (the "Stock Incentive Plan"), which is administered by the Company's Compensation Committee. Stock options, stock appreciation rights, restricted stock, deferred stock, stock purchase rights and other stock-based awards may be granted to employees under this plan. In addition, 140,000 shares of common stock have been authorized for issuance under this plan for annual stock option grants to each of the Company's outside directors for the purchase of 2,000 shares of common stock. Stock options have been granted under this plan as indicated in the table below. The options in the Stock Incentive Plan vest over one to three year periods beginning on the first or fourth anniversary date of the option grant, and at March 31, 1999, there were 266,669 shares of common stock and 1,140,000 shares of Class B common stock exercisable. The weighted average life of the options outstanding in the Stock Incentive Plan at March 31, 1999, was five years.
Remaining Outstanding Outstanding Weighted Weighted Shares Award Shares Optioned Shares Average Average Reserved Common Class B Common Class B Exercise Fair For Grant Stock Stock Stock Stock Price Value ------------------------------------------------------------------ April 1, 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 Options canceled 151,500 - - ( 91,500) ( 60,000) 15.55 Options granted ( 74,000) - - 49,000 25,000 14.29 6.01 Options exercised - - - ( 7,000) - 11.25 Stock incentive reversed 2,395 - - - - ------------------------------------------------------------------ March 31, 1999 142,291 - - 507,000 1,405,000 15.86 ==================================================================
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 1999, 1998 and 1997 consistent with the provisions of SFAS 123, the Company's net income and net income per share would have been reduced to the following pro forma amounts for the 1999, 1998 and 1997 fiscal years:
1999 1998 1997 ----------------------------------- Net income: As reported $ 8,855 $ 12,673 $ 26,077 =================================== Pro forma $ 6,445 $ 10,967 $ 24,683 =================================== Net income per share: Basic-- As reported $ 0.58 $ 0.74 $ 1.52 =================================== Pro forma $ 0.42 $ 0.64 $ 1.44 =================================== Diluted-- As reported $ 0.58 $ 0.73 $ 1.37 =================================== Pro forma $ 0.42 $ 0.64 $ 1.31 ===================================
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:
1999 1998 1997 ---------------------------------- Expected dividend payment $ 0.16 $ 0.16 $ 0.16 Expected stock price volatility 33.17% 53.69% 45.96% Risk free interest rate 5.43% 6.29% 6.55% Expected life of options 5 years 6 years 8 years
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 ("FMV") 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, 1999, there were 6,600 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, 1999, was less than 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, 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 Exercised - ( 6,450) 0.82 ----------------------- March 31, 1999 - 6,600 0.87 =======================
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 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, 1999, there were 101,125 shares of common stock and 62,500 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, 1999, was less than 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, 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 Canceled - ( 20,000) - - 14.40 --------------------------------------------------------------- March 31, 1999 - 103,625 - 62,500 14.64 ===============================================================
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 $2.7 million, $2.9 million and $3.1 million in 1999, 1998 and 1997, respectively. NOTE L-COMMON STOCK On June 10, 1998, the Company announced its intention to repurchase up to three million shares of common stock and/or Class B common stock from time to time in the open market or through privately negotiated transactions. As of March 31, 1999, the Company has repurchased approximately 2.7 million shares of common stock at an aggregate cost to the Company of $37.5 million. NOTE M-INCOME TAXES The income tax provision is comprised of the expense as follows at March 31 (in thousands):
1999 1998 1997 ---------------------------------- Current: U.S. federal $ 6,018 $ 2,126 $ 19,180 State 1,278 544 1,692 Foreign 175 175 2,089 ---------------------------------- Total current 7,471 2,845 22,961 Deferred ( 2,371) 4,758 7,173 ---------------------------------- Total tax provision $ 5,100 $ 7,603 $ 30,134 ==================================
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):
1999 1998 ----------------------- Accelerated depreciation ($ 3,728) ($ 2,735) Deferred charges ( 1,021) ( 576) Contributions 3,944 1,774 Inventory obsolescence reserve 3,138 1,843 Bad debt and returns reserves 1,308 2,252 Inventory-unicap tax adjustment 1,138 1,155 Advances and prepaid expenses 278 560 Accrued liabilities 3,074 812 Valuation allowance ( 5,848) ( 5,173) ----------------------- Net deferred tax asset (liability) $ 2,283 ($ 88) =======================
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:
1999 1998 1997 ------------------------- U.S. federal statutory tax rate provision 34.0% 34.0% 34.0% State taxes on income, net of federal 2.5% 3.5% 3.0% ------------------------- Effective tax rate 36.5% 37.5% 37.0% =========================
Cash payments for income taxes were $2.8 million, $20.0 million and $1.0 million in 1999, 1998 and 1997, respectively. NOTE N-QUARTERLY RESULTS (UNAUDITED) Summarized results for each quarter in the fiscal years ended March 31, 1999 and 1998 are as follows (dollars in thousands, except per share data):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter --------------------------------------------------- 1999 - ---- Net revenues $ 55,994 $ 70,445 $ 66,584 $ 68,622 Gross profit 25,660 33,295 30,394 28,075 Net income (loss) 1,256 4,383 4,157 ( 941) Net income (loss) per share 0.08 0.29 0.28 ( 0.06) 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 0.06 0.27 0.26 0.16 share
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 $12.5 million at March 31, 1999. 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 has been named as a defendant in a lawsuit in which the plaintiff is seeking damages relating to a dispute involving an acquired company. The case is scheduled to go to trial during fiscal 2000 and the Company intends to defend its position vigorously. Despite the uncertainties associated with any litigation, management believes, after consultation with counsel, that this matter is without merit. Further, management believes that resolution of this matter will not have a material adverse effect on the Company's financial position, although an unfavorable decision could have a material adverse effect on results of operations. The Company is subject to various other legal proceedings, claims and liabilities, which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the Company. NOTE P-FINANCIAL INSTRUMENTS The following disclosure of estimated fair value of financial instruments as of March 31, 1999 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, 1999 and 1998, respectively. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market transaction (in thousands):
1999 1998 ----------------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ----------------------------------------------- CASH AND CASH EQUIVALENTS $ 609 $ 609 $ 39,713 $ 39,713 LONG-TERM DEBT: Credit Agreements $ 59,800 $ 59,800 $ 0 $ 0 Industrial Revenue Bonds 1,525 1,525 1,725 1,725 Capital Lease Obli- gations 80 80 326 326 Loan Agreement 1,667 1,667 2,332 2,332 Senior Notes 21,285 21,799 24,000 23,325 Convertible Subordinated Notes 0 0 55,000 55,275
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 $1.0 million and $1.8 million as of March 31, 1999 and 1998, 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, 1999 and 1998. 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. 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 and income tax provisions associated with the discontinued operations were as follows at March 31 (in thousands): 1997 --------- Net revenues $ 74,687 ========= Income from operations before income tax provision $ 1,174 Income tax provision 446 --------- Income from operations 728 --------- Gain on disposal before income tax provision 39,923 Income tax provision 24,096 --------- Gain on disposal 15,827 --------- Total income from discontinued operations $ 16,555 ========= NOTE R-OPERATING SEGMENTS The Company adopted SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," at March 31, 1999, which changes the way the Company reports information about its operating segments. The Company is organized and managed based upon its products. The Company has two reportable business segments, identified as publishing and gift. The publishing segment primarily creates and markets Bibles, inspirational books and videos. The gift segment primarily designs and markets stationery items including albums, journals, etc. Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column includes corporate related items not allocated to reportable segments (in thousands).
Publishing Gift Other Total ------------------------------------------------------ 1999 - ---- Revenues $ 168,325 $ 93,320 $ 0 $ 261,645 Operating income 18,823 1,726 0 20,549 Identifiable assets 126,620 66,986 61,724 255,330 Capital expenditures 2,139 2,034 0 4,173 Depreciation and amortization expense 2,889 6,076 0 8,965 1998 - ---- Revenues $ 163,480 $ 89,478 $ 0 $ 252,958 Operating income 19,732 5,048 0 24,780 Identifiable assets 119,072 70,024 98,346 287,442 Capital expenditures 2,285 2,530 0 4,815 Depreciation and amortization expense 2,964 5,613 0 8,577 1997 - ---- Revenues $ 153,317 $ 90,119 $ 0 $ 243,436 Operating income 15,458 7,496 0 22,954 Identifiable assets 136,536 69,218 95,817 301,571 Capital expenditures 1,555 321 0 1,876 Depreciation and amortization expense 3,353 5,083 0 8,436 For fiscal 1999, reflects pre-tax restructuring and other related charges of $4.7 million pertaining primarily to severance and reserves for inventory to be liquidated.
Additional information regarding the Company's revenue sources follow. No single customer accounted for as much as 10% of consolidated revenues in fiscal 1999, 1998 or 1997. Foreign revenues accounted for less than 10% of consolidated revenues in fiscal 1999, 1998 and 1997. Report of Independent Public Accountants 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, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1999. 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, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 1999, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Nashville, Tennessee June 4, 1999 ================================================================= Other Financial Information (Unaudited) 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 1999 - ----------- First Quarter $14.5000 $11.8750 $16.0000 $13.1875 $ .04 Second Quarter 15.6875 11.5000 15.3750 12.5000 .04 Third Quarter 14.0000 12.0000 14.0000 12.1250 .04 Fourth Quarter 13.5000 10.0000 13.5000 9.2500 .04 ------ $ .16 ====== 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 ======
As of June 18, 1999, there were 975 record holders of the common stock and 650 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 20, 1999, the Company declared a cash dividend of $0.04 per share on its common stock and Class B common stock to be paid on August 16, 1999 to shareholders of record on August 2, 1999. 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 United Kingdom 100% Elm Hill Press, Inc. Tennessee 100%
EX-23 4 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated June 4, 1999 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, 1999 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, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-31-1999 APR-01-1998 MAR-31-1999 609 0 84,280 6,982 65,805 163,083 49,404 23,847 255,330 44,289 79,542 0 0 14,391 111,258 255,330 259,317 261,645 144,221 239,481 1,615 2,734 6,653 13,955 5,100 8,855 0 0 0 8,855 0.58 0.58
EX-11 6 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (Dollars and Shares in thousands, except per share data)
March 31, 1999 March 31, 1998 March 31, 1997 --------------- -------------- -------------- BASIC EARNINGS PER SHARE: Weighted average shares outstanding 15,279 17,113 17,119 ========== ========== ========== Income from continuing operations $ 8,855 $ 12,673 $ 9,522 Income from discontinued operations - - 16,555 ---------- ---------- ---------- Net income $ 8,855 $ 12,673 $ 26,077 ========== ========== ========== Income per share from continuing operations $ 0.58 $ 0.74 $ 0.56 Income per share from discontinued operations - - 0.96 ---------- ---------- ---------- Net income per share $ 0.58 $ 0.74 $ 1.52 ========== ========== ========== DILUTED EARNINGS PER SHARE: Basic weighted average shares outstanding 15,279 17,113 17,119 Convertible notes 2,598 3,235 3,235 Dilutive stock options - based on treasury stock method using the average market price 52 40 16 ---------- ---------- ---------- Total shares 17,929 20,388 20,370 ========== ========== ========== Income from continuing operations $ 10,620 $ 14,793 $ 11,629 Income from discontinued operations - - 16,555 ---------- ---------- ---------- Net income $ 10,620 $ 14,793 $ 28,184 ========== ========== ========== Income per share from continuing operations $ 0.58 $ 0.73 $ 0.56 Income per share from discontinued operations - - 0.81 ---------- ---------- ---------- Net income per share $ 0.58 $ 0.73 $ 1.37 ========== ========== ========== Adjusted for interest on convertible debt Anti-dilutive; use basic earnings per share on Consolidated Statements of Operations
EX-3 7 EX-3(B) Exhibit 3.2 THE BYLAWS OF THOMAS NELSON, INC. AS AMENDED MAY 20, 1999 ARTICLE I Offices -------- The Company shall maintain an office of the Company in the State of Tennessee as required by law. The Company may also have an office or offices, and keep the books and records of the Company, except as may otherwise be required by law, at such other place or places, either within or without the State of Tennessee, as the Board of Directors of the Company (the "Board") may from time to time designate or as the business of the Company may require. ARTICLE II Seal ---- The seal of the Company shall be in such form as may be required by law and as shall be approved by the Board. Until changed by the Board, the seal of the Company shall be in the form impressed immediately following this Article II. The seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or reproduced or otherwise. The absence of the seal shall not affect the validity or enforceability of any corporate document. ARTICLE III Stockholders' Meetings ---------------------- Section 1. Place of Meetings. Meetings of the stockholders of the Company (the "Stockholders") shall be held at such place either within or without the State of Tennessee as may from time to time be designated by the Board and stated in the notice of meeting. Section 2. Annual Meeting of Stockholders. The annual meeting of the Stockholders (the "Annual Meeting") shall be held at such time and on such date, which shall be a business day within one hundred fifty (150) days after the end of each fiscal year of the Company, as may from time to time be fixed by the Board. The purpose of the meeting shall be the election of directors and the transaction of such other business as properly may be brought before the meeting. Section 3. Special Stockholders' Meetings. Except as otherwise required by law, special meetings of the Stockholders for any purpose or purposes shall be called only by (i) the Chief Executive Officer, (ii) on the written request of the holders of shares of stock of the Company representing the minimum percentage allowed by law of the combined voting power of the issued and outstanding shares of stock of all classes of the Company entitled to vote ("Voting Stock"), or (iii) on the written request of a majority of the entire Board. Any request pursuant to clause (ii) or (iii) of this Article III, Section 3 shall state the purposes of the proposed meeting. Section 4. Notices of Meetings. Notices of both special and annual Stockholders' meetings shall be given in writing and shall be signed (originally or by facsimile) by the persons calling the meeting or by the Secretary if called by the Chief Executive Officer. Each such notice shall state the place, date and hour of the meeting, the purpose or purposes for which it is called and, if such purpose is to amend the Charter of the Company as the same may be amended or restated from time to time, shall describe the proposed amendment, the reasons for its proposal and the general effects thereof. Such notices shall be given personally or sent by mail to each Stockholder of record entitled to vote at the meeting. If mailed, such notice shall be delivered not less then ten (10) nor more than sixty (60) days before the date of such meeting and shall be deemed delivered when deposited in the United Stated mail, postage prepaid, directed to the Stockholder at his address as shown on the records of the Company. If delivered personally, such notice shall be delivered not less than five (5) nor more than sixty (60) days before such meeting. Notice need not be given of any adjourned meeting of the Stockholders if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken; provided, however, that if after the adjournment the board fixed a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record on the new record date entitled to notice. Section 5. Notice of Shareholder Business. At an annual meeting of the Shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice (other than a request for inclusion of a proposal in the Corporation's proxy statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934) must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 60 days nor more then 90 days prior to the meeting; provided, however, that in the event that less than 70 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and record address of the shareholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the shareholder, and (d) any material interest of the shareholder in such business. Notwithstanding anything in the bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section. The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. At any special meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. Section 6. Quorum. At any meeting of the Stockholders, the presence, either in person or by proxy, of the holders of a majority in voting power of the Voting Stock shall constitute a quorum; provided, however, that if the vote of a greater percentage shall be required to take any action to be considered at such meeting, the presence at the meeting , either in person or by proxy, of the holders of the percentage so required shall constitute a quorum for purposes of considering such action. If the holders of the number of votes necessary to constitute a quorum for any purpose shall fail to attend the meeting at the time and place fixed in the notice of the meeting, the meeting shall be continued from time to time, until the holders of the number of votes requisite to constitute the quorum shall attend. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 7. Voting. At each meeting of Stockholders, every Stockholder having the right to vote shall be entitled to vote, either in person or by proxy, the number of votes as provided for in or pursuant to the Charter of the Company for each share of Voting Stock registered in his name on the books of the Company of the record date determined for such meeting in accordance with Section 7 of this Article III. When a quorum is present, the affirmative vote of majority of the votes cast by the Stockholders entitled to vote, present in person or represented by proxy at the meeting, shall decide any matter brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Tennessee or of the Charter of the Company, a different vote is required, in which case such express provision shall govern and control the decision of such question. Except as otherwise expressly required by the laws of the State of Tennessee, as then in effect, the holders of the Common Stock of the Company and the holders of the Class B Common Stock of the Company shall vote with the holders of voting shares of the Preferred Stock of the Company, if any, as one class for the election of directors and for all other purposes. Section 8. Record Date. In order to determine the holders of record of the Company's stock who are entitled to notice of meetings, to vote at a meeting or adjournment thereof, and to receive payment of any dividend, or to make a determination of the Stockholders of record for any proper purpose, the Board may fix in advance a date as the record date for any such determination of Stockholders, such date in any case to be not less than ten (10) days prior to the date of the action which requires such determination. If no record date is fixed for the determination of Stockholders entitled to notice of or entitled to vote at a Stockholders' meeting, or Stockholders entitled to receive payment of a dividend, the date on which notice of the Stockholders' meeting is mailed or the date on which the resolution of the Board declaring such dividend is adopted, as the case may be, shall be the record date for such determination. Unless otherwise required by law, a determination of Stockholders of record entitled to notice of or to vote at any meeting shall apply to any adjournment of such meeting, except that the Board may fix a new record date for any adjourned meeting. Section 9. Presiding Officer; Order of Business; Conduct of Meeting. (a) Meetings of the Stockholders shall be presided over by the Chairman of the Board, or if he is not present, by the President, or if the President is not present, by a Vice President. The Secretary of the Company, or, in his absence, an Assistant Secretary, shall act as secretary of every meeting, but in the absence of the Secretary or Assistant Secretary, the chairman of the meeting may choose any person present to act as secretary of the meeting. (b) Subject to the provisions of this Section, meetings of Stockholders shall generally follow accepted rules of parliamentary procedure. 1. The chairman of the meeting shall have absolute authority over matters of procedure and to state the rules under which the voting shall be conducted. 2. If disorder shall arise which prevents continuation of the legitimate business of the meeting, the chairman may quit the chair and announce the adjournment of the meeting; and upon his so doing, the meeting shall be automatically adjourned. 3. The chairman may ask or require that anyone not a bona fide Stockholder or proxy leave the meeting. 4. A resolution or motion shall be considered for a vote only if proposed by a Stockholder or duly authorized proxy, and seconded by an individual, who is a Stockholder or a duly authorized proxy, other than the individual who proposed the resolution or motion. (c) The following order of business shall be observed at all Annual Meetings insofar as is practicable: 1. Calling the roll. 2. Reading, correcting and approving minutes of a previous meeting, unless the same be waived. 3. Special business stated in the notice of meeting. 4. Election of directors. 5. New business. At any special meeting of Stockholders, the business transacted shall be confined to the purposes described in the notice of the meeting. Section 10. Proxies. Each Stockholder entitled to vote at any meeting of Stockholders may vote his shares through a proxy or attorney-in-fact appointed by a written instrument signed by the Stockholder and delivered to the secretary of the meeting at or prior to the time designated for holding such meeting, but in any event not later than the time designated in the order of business for so delivering such proxies. No proxy shall be valid after eleven (11) months from the date of its execution unless a longer period is expressly provided therein. No proxy shall be valid and voted on after the meeting of the Stockholders, or any adjournment thereof, to which it applies. Every proxy shall be revocable at the pleasure of the Stockholder executing it, except in those cases where an irrevocable proxy is duly executed and permitted by law. Section 11. Voting List. A complete list of the Stockholders entitled to vote at the ensuing meeting, arranged in alphabetical order, and showing the address of and number and class of shares entitled to vote at such meeting owned by each Stockholder shall be prepared and certified by the Secretary or other officer of the Company or the transfer agent, transfer clerk or registrar of the Company having charge of the stock transfer books. Such list shall be produced and kept available at the time and places required by law. Failure to comply with the requirements of this Section shall not affect the validity of any action taken at such meeting of the Stockholders. ARTICLE IV Board of Directors ------------------ Section 1. General Authority. The property, business and affairs of the Company shall be managed and controlled by the Board, which may exercise all such powers of the Company and do all such lawful acts and things as are not by applicable law or the Charter of the Company or these Bylaws directed or required to be exercised or done by the Stockholders. Section 2. Number and Term of Office. (a) The number of directors shall be not less than three (3) nor more than fifteen (15). The number of directors shall be fixed by the Board from time to time by the affirmative vote of at least three-quarters (75%) of the entire Board; provided that no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Each director shall be of legal age. The directors need not be Stockholders and need not be residents of the State of Tennessee. (b) The directors shall be divided into three classes with each class consisting, as nearly as possible, of one-third of the entire Board. The directors of at least one class shall be elected at each Annual Meeting of Stockholders, as provided by the Charter of the Company, to hold office for a term to expire at the third succeeding Annual Meeting after their election and, subject to their earlier death, resignation or removal in accordance with the Charter of the Company, these Bylaws and the laws of the State of Tennessee, until their respective successors are elected and take office. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain all classes as equal in number as possible. (c) Notwithstanding the foregoing, no Director who did not hold office as such on January 1, 1985, shall retain office after his/her 70th birthday, provided, however, that by vote of the entire Board of Directors, the term of a director may be extended for one year after his/her 70th birthday. For purposes of filling the vacancy created upon such Director reaching his 70th birthday, or 71st birthday if his term is extended, the Director shall be considered to have resigned on such date, so that a successor may be elected in accordance with Section 3 of this Article IV. Section 3. Notice of Shareholder Nominees. Only persons who are nominated in accordance with the procedures set forth in this Section shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Company may be made at a meeting of shareholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board of Directors or by any shareholder of the Company entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Company. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Company which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to be named in the proxy statement as a nominee and to serving as a Director if elected); and (b) as to the shareholder giving the notice (i) the name and record address of such shareholder and (ii) the class and number of shares of the Company which are beneficially owned by such shareholder. No person shall be eligible for election as a Director of the Company unless nominated in accordance with the procedures set forth in this Section. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 4. Vacancies; Newly Created Directorships. Any vacancy occurring in the Board caused by death, resignation, removal (whether such removal is without or for "cause," as such term is defined in Section 48-807 of the Tennessee General Corporation Act as in effect at the time these Bylaws shall have been adopted) or otherwise, and any newly created directorship resulting from an increase in the number of directors, may be filled only by the affirmative vote of three-quarters (75%) of the directors then in office, although such directors are less than a quorum, or by the sole remaining director. Each director chosen to fill a vacancy or a newly created directorship shall hold office until the next election of the class for which such director shall have been chosen, and, subject to his earlier death, resignation or removal in accordance with the Charter of the Company, these Bylaws and applicable law, until his successor shall be duly elected and shall take office. Section 5. Removal of Directors. Any one or more of the directors of the Company may be removed for "cause" (as defined in Section 4 of this Article IV), at any time, by the affirmative vote of at least three-quarters (75%) of the entire Board. Section 6. Place of Meetings. The directors may hold their meetings in such place or places, within or without the State of Tennessee, as the Board may from time to time by resolution determine. Section 7. Regular Meetings. Regular meetings of the Board shall be held at such times and places as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday under the laws of the place where the meeting shall be held, the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. A regular meeting shall follow each Annual Meeting as promptly as is practicable for the purpose of organization, election and appointment of officers and the transaction of other business. Section 8. Special Meetings. Special Meetings of the Board shall be held whenever called by the Chief Executive Officer, or by the Secretary on the written request of a majority of the directors. Section 9. Notice of Meetings. Notice of regular meetings of the Board or of any adjourned meeting thereof need not be given. Notice of each special meeting of the Board shall be mailed to each director, addressed to such director at such director's residence or usual place of business, at least five days before the day on which the meeting is to be held, or shall be sent to such director at such place by telegraph or be given personally or by telephone not later than the day before the meeting is to be held, but notice need not be given to any director who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to such director. Every such notice shall indicate the time and place of the meeting and shall state with reasonable certainty the nature and purposes thereof. Section 10. Quorum and Manner of Acting. Except as otherwise provided by law, the Charter of the Company, or these Bylaws, a majority of the entire Board shall constitute a quorum for the transaction of business at any meeting of the Board and, except as so provided, the vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board. In the absence of a quorum, a majority of the directors present may adjourn the meeting to another time and place. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Section 11. Meetings Held Other Than in Person. Members of the Board or any committee thereof may participate in a meeting of the Board or such committee, as the case may be, by means of a conference telephone network or similar communications method by which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. Each person participating in any meeting in which any director participating by such means shall sign the minutes thereof, and such minutes may be signed in counterpart. Section 12. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board or any committee of the Board may be taken without a meeting if a consent in writing describing the action so taken shall be signed by all of the directors or members of such committee entitled to vote with respect to the subject matter thereof. Each such consent in writing shall be filed with the minutes of the proceedings of the Board. Section 13. Order of Business. At any meeting of the Board, business shall be transacted in such order as the Board may by resolution determine. At all meetings of the Board, the Chairman of the Board, or in his absence the President, or in his absence the director designated as the chairman of the meeting by the majority of the directors present, shall preside. Section 14. Minutes. The Board and each committee thereof shall keep written minutes of its meetings. Section 15. Directors' Compensation. Directors shall receive such compensation for attendance at any meetings of the Board and any expenses incidental to the performance of their duties as the Board shall determine by resolution. Such compensation may be in addition to any compensation received by the members of the Board in any other capacity. ARTICLE V Section 1. Executive Committee. The Board may, by resolution adopted by at least three-quarters (75%) of the entire Board, designate two or more of its members to constitute members or alternate members of an Executive Committee. The Chief Executive Officer shall be an ex officio member of the Executive Committee. Section 2. Powers and Authority of Executive Committee. The Executive Committee shall have and may exercise, between meetings of the Board, all the powers and authority of the Board in the management of the business and affairs of the Company, including, if such Committee is so empowered and authorized by resolution adopted by the affirmative vote of that percentage of the entire Board that would be required for the Board to act in the particular instance, to fill vacancies on any committee of the Board except the Executive Committee, and to submit to the Stockholders any action that requires Stockholders authorization, except that the Executive Committee shall not have such power or authority in reference to: (a) amending the Charter or any provision of the Bylaws of the Company requiring a vote of at least three-quarters (75%) of the entire Board for any purpose; (b) declaring a dividend or other corporate distribution; (c) removing any member of the Board or fill any vacancy on the Board of Directors; (d) adopting an agreement of merger or consolidation of the Company with or into any other corporation; (e) recommending to the Stockholders the sale, lease, or exchange of all, or substantially all, of the property and assets of the Company; (f) recommending to the Stockholders a dissolution of the Company or a revocation of a dissolution; or (g) amending or repealing any resolution of the Board which by its terms may be amended or repealed only by the Board. The Board shall have the power at any time to change the membership of the Executive Committee, to fill all vacancies occurring in it and to discharge it, either for or without cause; provided, however, that no such action shall be taken without the affirmative vote of at least three-quarters (75%) of the entire Board. Section 3. Other Committees. The Board may, by resolution adopted by the affirmative vote of a majority of the entire Board, designate one or more other committees, each of which shall, except as otherwise prescribed by law, have such authority of the Board as shall be specified in the resolution of the Board designating such committee. A majority of all the members of such committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. The Board shall have the power at any time to change the membership of, to fill any vacancies in and to discharge any such committee, either for or without cause. Section 4. Procedure; Meetings; Quorum. Regular meetings of the Executive Committee or any other committee of the Board, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the members thereof. Special meetings of the Executive Committee or any other committee of the Board shall be called at the request of any member thereof. So far as applicable, the provisions of Article IV of these Bylaws relating to notice, quorum and voting requirements applicable to meetings of the Board shall govern meetings of the Executive Committee or any other committee of the Board. The Executive Committee or any other committee of the Board may adopt rules and regulations not inconsistent with the provisions of law, the Charter of the Company or these Bylaws for the conduct of its meetings. The Executive Committee or any other committee of the Board shall keep written minutes of its proceedings and shall report on such proceedings to the Board at the next meeting of the Board. ARTICLE VI Officers -------- Section 1. Number; Tenure; Compensation. The officers of the Company shall be a Chairman of the Board, a President, one or more Vice Presidents, one or more of whom may be designated as Executive, Group or Senior Vice President, a Treasurer, a Secretary and such other officers or agents with such titles and such duties as the Board may from time to time determine, each to have such authority, functions or duties as provided in these Bylaws or as the Board may from time to time determine. The Chairman of the Board and the President Shall be elected from among the Directors at the first meeting of the Board following each Annual Meeting of the Stockholders, and their compensation shall be fixed by the Board. Subject to such directions, if any, as may be given by the Board, the Chief Executive Officer may appoint and fix the compensation of the remaining officers. Each officer of the Company shall hold office for a term of one year and until his successor is chosen and takes office, unless earlier removed from office by the Chief Executive Officer, if such officer was appointed by the Chief Executive Officer, or by the affirmative vote of a majority of the entire Board. One person may hold the offices and perform the duties of any two or more officers; provided, however, that one person shall not hold the offices of both the Chairman of the Board or President and Secretary. Section 2. Vacancies. A vacancy in any office because of death, resignation, removal or otherwise, may be filled for the unexpired portion of the term in the manner prescribed in these Bylaws for election or appointment to such office. In its discretion, the Board, by the vote of a majority of the entire Board, may leave any office un-filled for such period as it may fix by resolution except that the offices of Treasurer and Secretary and either Chairman of the Board or President shall be filled. Section 3. Chairman and President; Chief Executive Officer. The Chairman, or in his absence the President, shall preside at all meetings of the Board and Stockholders, and such officers shall have such additional duties as may be assigned to them by the Board. The Board shall designate either the Chairman or the President as the Chief Executive Officer of the Company who shall have general chare of and control over the affairs of the Company, subject to the directions of the Board of Directors. Section 4. Vice Presidents. The Vice Presidents shall perform such duties as may be assigned to them by the Chief Executive Officer or the Board. In the case of the death, disability or absence of the President, the Executive Vice President shall perform and be vested with all the duties and powers of the President until the Board appoints a new President. Section 5. Secretary. The Secretary shall keep a record of the minutes of the proceedings of the meetings of the Board and Stockholders, and shall give notice of such meetings as required by these Bylaws. He shall have custody of all books, records and papers of the Company, except such as shall be in the custody of the Treasurer, and shall perform and be vested with all other duties and powers assigned to him by the Chief Executive Officer or the Board. Section 6. Treasurer. The Treasurer shall keep account of all moneys of the Company received or disbursed, and shall deposit all moneys and valuables in the name of and to the credit of the Company in such banks and depositories as the Board shall approve or designate. He shall perform and be vested with all other duties and powers assigned to him by the Chief Executive Officer or the Board. Section 7. Bank Accounts. In addition to such bank accounts as may be authorized in the usual manner by resolution of the Board, the Treasurer, with approval of the Chief Executive Officer, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Company as he may deem necessary or appropriate, provided payments from such bank accounts are to be made upon and according to the check of the Company, which may be signed jointly or singly by either the manual or facsimile signature or signatures of such officers or bonded employees of the Company as shall be specified in the written instructions of the Treasurer or Assistant Treasurer of the Company with the approval of the Chief Executive Officer of the Company. Section 8. Proxies. Unless otherwise directed by the Board, the Chief Executive Officer, or his designee, shall have full power and authority on behalf of the Company to attend and to vote upon all matters and resolutions at any meeting of stockholders of any corporation in which the Company may hold stock, and may exercise on behalf of the Company any and all of the rights and powers incident to the ownership of such stock at any such meeting, whether regular or special, and at all adjournments thereof, and shall have power and authority to execute and deliver proxies and consents on behalf of the Company in connection with the exercise by the Company of the rights and powers incident to the ownership of such stock, with full power of substitution or revocation. ARTICLE VII Indemnification of Directors, Officers, Employees and Agents ------------------------------------------------------------ Section 1. Third Party Actions. Except as otherwise provided herein and subject to the limitations of the law, the Company shall indemnify any person who was or is a party or is threatened to be made a party to any action, suit or proceeding (other than by or in the right of the Company), whether civil or criminal, including actions by or in the right of any other corporation which any director or officer of the Company served in any capacity at the request of the Company, by reason of the fact that such person is or was a director or officer of the Company, or is or was serving, at the request of the Company, such other corporation, or any partnership, joint venture, trust or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred by such person in connection with such action, suit or proceeding, or any appeal therein, if such interests of the Company, and, with respect to any criminal action or proceeding, in addition, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by any judgment, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith for a purpose which such person reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, that such person had reasonable cause to believe that his conduct was unlawful. Section 2. Derivative Actions. Except as otherwise provided herein and subject to the limitations of law, the Company shall indemnify any person who is or was a party or is threatened to be made a party to any suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Company, or is or was serving at the request of the Company another corporation, partnership, joint venture, trust or other enterprise in any capacity, against amounts paid in settlement and reasonable expenses, including attorney's fees, actually and necessarily incurred by such person in connection with such action, suit or proceeding, or any appeal therein, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to have breached his duty to the Company under Section 48-813 of the Tennessee General Corporation Act or any successor provision of Tennessee law. Section 3. Determination of Indemnification. Any indemnification under Section 1 or 2 of this Article VII to a person who has not been wholly successful, on the merits or otherwise, in the defense of a civil or criminal action of the character described therein (unless ordered by a court) shall be made by the Company only if authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or 2 of this Article VII. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable with due diligence, by the Board based upon the written opinion by independent legal counsel or (iii) by the Stockholders holding a majority of the combined voting power of the Voting Stock. Section 4. Right to Indemnification. To the extent that a director or officer of the Company has been wholly successful, on the merits or otherwise, in the defense of a civil or criminal action of the character described in Secion 1 or 2 of this Article VII, or in defense of any claim, issue or matter therein, such person shall be indemnified as authorized in said Sections. The provisions of this Article VII shall be deemed to be a contract between the Company and each director and officer who serves in such capacity at any time while this Article VII is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. Section 5. Advance of Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding if authorized in the manner provided in Section 3 of this Article VII and upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the Company as authorized in this Article VII. Section 6. Indemnification Not Exclusive. The indemnification provided by this Article VII shall not be deemed exclusive of any other rights to which any person seeking indemnification may be entitled under any law, agreement, vote of Stockholders or disinterested directors or otherwise, both as to action in such person's official capacity as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7. Indemnification of Employees and Agents. The Company may indemnify any employee or agent of the Company, or any employee or agent serving at the request of the Company as an employee or agent of any other corporation, partnership, joint venture, trust or other enterprise, in the manner and to the extent that it shall indemnify any director or officer under this Article VII. Section 8. Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of this Article VII. ARTICLE VIII Certificates of Stock --------------------- Section 1. Form. (a) The interest of each Stockholder of the Company shall be evidenced by certificates for shares of stock, certifying the class and number of shares represented thereby and in such form, not inconsistent with the Charter of the Company, as the Board may from time to time prescribe. (b) The certificates fo stock shall be signed by the Chairman of the Board, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and sealed with the seal of the Company. Such seal may be a facsimile, engraved or printed. Where any certificate is countersigned or otherwise authenticated by a transfer agent or by a transfer clerk, and by a registrar, the signatures of any such officers upon such certificate may be a facsimile, engraved or printed. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such before the certificate is issued, it may be issued by the Company with the same effect as if such officer, transfer agent or registrar had not ceased to be such at the time of its issue. Section 2. Transfers. (a) Transfers of shares of the capital stock of the Company shall be made only on the books of the Company by the registered owner thereof, or by his duly authorized attorney, and on surrender of the certificate or certificates for shares properly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and with all taxes thereon paid. (b) The person in whose name shares of stock stand on the books of the Company shall be deemed by the Company to be the owner thereof for all purposes, and the Company shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Tennessee. Section 3. Lost or Destroyed Certificates. The Board shall have the power to direct new stock certificates to be issued to any Stockholder in place of any certificates theretofore issued by the Company when such Stockholder proves to the satisfaction of the Board that a stock certificate is lost or destroyed, or upon the posting of an indemnity bond by the owner of such lost or destroyed certificates, or his legal representative, in such amount as the Board shall deem appropriate, to hold the Company harmless from any loss or claim arising out of or in connection with the issuance of a duplicate certificate, unless such requirement be dispensed with by the Board, in its discretion, in any instance or instances. Section 4. Transfer Agent and Registrar. The Board may appoint one or more transfer agents or transfer clerks and one or more registrars, and may require all certificates for shares to bear the manual or facsimile signature or signatures of any of them. The Company's transfer agent and registrar may be the same if the person or entity acting in such dual capacities countersigns certificates for shares required to bear his or its signature in both capacities. ARTICLE IX General Provisions ------------------ Section 1. Fiscal Year. The fiscal year of the Company shall commence on the first day of April of each year, unless otherwise determined by the Board. Section 2. Checks. All checks or demands for the payment of money and all notes and other instruments of a negotiable nature shall be signed by the person designated by appropriate resolution of the Board or these Bylaws. Section 3. Contracts. The Board may authorize any officer or officers or agent or agents to enter into any contract or execute and deliver any instrument in the name and on behalf of the Company, and such authority may be general or confined to specific instances. Section 4. Dividends. Subject to the provisions of the laws of the State of Tennessee and the Charter of the Company, the Board shall have full power in its sole discretion to determine whether any, and if so what part, of the funds legally available for the payment of dividends shall be declared in dividends and paid to the Stockholders of the Company. Dividends upon the shares of stock of the Company, subject always to the mentioned provisions, may be declared by the Board at any regular or special meeting, payable in cash, property or shares of the Company's stock. Section 5. Saving Clause. In the event any provision of these Bylaws is inconsistent with the Charter of this Company or the laws of the State of Tennessee, such provision shall be invalid to the extent only of such conflict; and such conflict shall not affect the validity of any other provision of these Bylaws. -----END PRIVACY-ENHANCED MESSAGE-----