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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997Commission file number 0-4095
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THOMAS NELSON, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 62-0679364
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
501 Nelson Place, Nashville, Tennessee 37214-1000
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (615) 889-9000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, Par Value $1.00 per share New York Stock Exchange
Class B Common Stock, Par Value $1.00 New York Stock Exchange
per share
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90
days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
As of June 25, 1997, the Registrant had outstanding
15,997,798 shares of common stock and 1,112,071 shares of
Class B common stock. On such date the aggregate market
value of shares of common stock and Class B common stock
held by nonaffiliates was approximately $192.8 million. The
market value calculation was determined using the closing
sales price of the Registrant's common stock and Class B
common stock on June 25, 1997, as reported on The New York
Stock Exchange, and assumes that all shares beneficially
held by executive officers and the Board of Directors of the
Registrant are shares owned by "affiliates", a status which
each of such officers and directors individually disclaims.
=================================================================
DOCUMENTS INCORPORATED BY REFERENCE
Documents from which portions
Part of Form 10-K are incorporated by reference
- - ------------------------------- -----------------------------
PART II
Item 5 - Market for Company's Page 31 of Annual Report to
Common Equity and Shareholders for year ended
Related Shareholder March 31, 1997 (market price
Matters and dividend information
only)
Item 6 - Selected Financial Page 10 of Annual Report to
Data Shareholders for year ended
March 31, 1997
Item 7 - Management's Dis- Pages 11 to 13 of Annual Report
cussion and Analysis to Shareholders for year
of Financial Condition ended March 31, 1997
and Results of
Operations
Item 8 - Financial Statements Pages 14 to 29 of Annual
and Supplementary Report to Shareholders Data
for year ended March 31, 1997
PART III
Item 10- Directors and To be included in Company's
Executive Officers Proxy Statement for the
of the Company Annual Meeting of
Shareholders to be held
August 21, 1997, to be filed
with the Securities and
Exchange Commission pursuant
to Regulation 14A under the
Securities Exchange Act of
1934, as amended.
Item 11- Executive Compen- To be included in Company's
sation Proxy Statement for the
Annual Meeting of
Shareholders to be held
August 21, 1997, to be filed
with the Securities and
Exchange Commission pursuant
to Regulation 14A under the
Securities Exchange Act of
1934, as amended.
Item 12- Security Ownership of To be included in Company's
Certain Beneficial Proxy Statement for the
Owners and Management Annual Meeting of
Shareholders to be held
August 21, 1997, to be filed
with the Securities and
Exchange Commission pursuant
to Regulation 14A under the
Securities Exchange Act of
1934, as amended.
Item 13- Certain Relation- To be included in Company's
ships and Related Proxy Statement for the
Transactions Annual Meeting of
Shareholders to be held
August 21, 1997, to be filed
with the Securities and
Exchange Commission pursuant
to Regulation 14A under the
Securities Exchange Act of
1934, as amended.
PART I
Item 1. BUSINESS
Thomas Nelson, Inc. (the "Company") is a leading publisher,
producer and distributor of books emphasizing Christian,
inspirational and family value themes, and believes it is the
largest commercial publisher of the Bible in English language
translations. The Company also designs, manufactures and markets
a broad line of gift and stationery products. The Company
believes it is the largest publisher of Christian and
inspirational books and a major producer of gift and stationery
items in the world.
The Company, incorporated under the laws of the State of
Tennessee in 1961, has grown significantly over the last five
years through a combination of internal product development,
expanded product distribution and acquisitions. In November
1992, the Company acquired Word, Incorporated, a leading producer
and publisher of Christian music with complementary operations in
Christian and inspirational book publishing. The Company also
has enhanced its position in the gift products market and related
distribution channels through the acquisition of The C.R. Gibson
Company ("C.R. Gibson"), effective October 31, 1995. C.R.
Gibson, based in Norwalk, Connecticut, is a leading designer,
manufacturer and distributor of paper gift products, including
baby and wedding memory books, stationery, gift wrap and other
products.
During fiscal 1997, the Company analyzed various strategic
alternatives for maximizing value from its music division and in
the third quarter determined to sell the music division, which
included the production of recorded music and related products,
the distribution of recordings for other companies and music
publishing, including songwriter development, print music
publishing and copyright administration. On January 6, 1997, the
Company sold the assets, subject to certain liabilities, of the
music division ("Music Business") for $120 million and realized a
net gain of $16 million (net of goodwill of $17 million).
During the fourth quarter of fiscal 1996, the Company
determined to discontinue its Royal Media division operations as
part of its business strategy to refocus its efforts and
resources on the growth of the Company's core businesses. The
Royal Media division was formed in fiscal 1995 to evaluate and
implement new initiatives in the use of alternative forms of
media and new distribution technologies to further capitalize on
the commercial potential of the Company's intellectual
properties. As a result of the termination of the Royal Media
operations, the Company incurred a net loss of approximately $4.7
million from discontinued operations for the fiscal year ended
March 31, 1996.
The following table sets forth the net revenues (in thousands)
and the percentage of total net revenues for each of the
Company's principal product lines for the periods indicated:
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------
1997 1996 1995
-----------------------------------------------------
Amount % Amount % Amount %
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Publishing $153,318 63.0 $165,048 75.1 $149,272 85.5
Gift 90,118 37.0 54,790 24.9 25,337 14.5
-----------------------------------------------------
$243,436 100.0 $219,838 100.0 $174,609 100.0
=====================================================
</TABLE>
PUBLISHING
The Company's book publishing division
publishes and distributes hardcover and trade paperback
books emphasizing Christian, inspirational and family value
themes. The Company believes it is the largest publisher of
Christian and inspirational books in the United States.
Books are published by the Company under the "Nelson" and
"Word" imprints and consist generally of inspirational and
personal experience books, and educational, trade and
reference books emphasizing Christian, inspirational and
family value themes. The Company distributes books
primarily through Christian bookstores, general bookstores,
mass merchandisers and directly to consumers. The Company
also distributes books published by other companies to
complement their marketing and distribution capabilities.
In fiscal 1997, approximately 12% of the book net revenues
related to the distribution of books published by other
companies.
In fiscal 1997 and 1996, the Company
released over 200 new titles annually. The Company
publishes some of the most well-known communicators in the
Christian and inspirational field, including Charles Colson,
James Dobson, Billy Graham, Franklin Graham, Barbara
Johnson, Max Lucado, Frank Peretti, Pat Robertson, Robert
Schuller, Gary Smalley, Charles Stanley, Charles Swindoll,
and Bodie and Brock Thoene. The Company also publishes
books emphasizing positive and inspirational themes by
famous athletes and celebrities, such as Bobby Bowden, Joe
Gibbs, Evander Holyfield, Bill McCartney, Nolan Ryan, Reggie
White and Zig Ziglar. In each of the last three fiscal
years, the Company published over 50% of the top ten
bestselling Christian and inspirational books based on the
monthly Christian Booksellers' Association Nonfiction
Hardcover bestseller lists. In addition, the Company
maintains a backlist of approximately 1,400 titles which
provide a stable base of recurring revenues as many popular
titles continue to generate significant sales from year to
year. Backlist titles accounted for approximately 50% of
the book division's net revenues in fiscal 1997. Authors
and titles are supported through the use of radio,
television, cooperative advertising, author appearances, in-
store promotions, print advertising and other means.
The Company's book publishing business
is enhanced by the breadth and development of its marketing
and distribution channels. In addition to enhancing sales
of its products, the Company believes its ability to sign
and renew contracts with popular authors is improved because
the Company's marketing and distribution capabilities
provide exposure for the authors' books to a broader
audience than its competitors. See "Marketing, Distribution
and Production."
The Company believes it is the largest commercial
publisher of English translations of the Bible. The Bible
is based on ancient manuscripts which are the surviving
reproductions of the original writings. These manuscripts,
written in Hebrew, Aramaic or Greek, have been translated
into English and other modern languages by biblical scholars
and theologians, generally under the auspices of a major
Bible society or translation organization. Each of the many
English translations available differs in some degree from
the others, primarily because of different translation
guidelines and principles used as the basis for each
translation. The distinctiveness of each translation is
also, in part, a result of the evolution of the meaning and
use of words within the English language.
Virtually all Bibles and Bible products currently
published in the United States are based on one of thirteen
major translations. Of these thirteen translations, twelve
are protected by copyright laws which grant the copyright
owner the exclusive right, for a limited term, to control
the publication of such translation. The Company publishes
Bibles and Bible products based on nine of the thirteen
major translations, of which four are exclusive to the
Company as a result of copyright ownership or licensing
arrangements. See "Copyrights and Royalty Agreements."
Approximately 80% of the Company's net revenues from Bible
publishing in fiscal 1997 were generated through sales of
its proprietary Bible products.
The following table sets forth the nine major Bible
translations currently published by the Company:
<TABLE>
<CAPTION>
Date First Proprietary
Translation Published to the Company
----------- ----------- ---------------
<S> <C> <C>
King James Version (KJV) 1611 No
New American Bible (NAB) 1970 No
The Living Bible (TLB) 1971 No
New American Standard Bible (NAS) 1972 No
Today's English Version (TEV) 1976 Yes
New King James Version (NKJV) 1982 Yes
New Century Version (NCV) 1984 Yes
New Revised Standard Version (NRSV) 1990 No
Contemporary English Version (CEV) 1995 Yes
</TABLE>
The KJV, currently published in its fourth revision, is
the most widely distributed of all English translations of
the Bible. In 1975, the Company commissioned the fifth
revision of the KJV resulting in the publication of the NKJV
in 1982. Among the Company's newer products is the CEV,
translated under the auspices of the American Bible Society,
which is designed to be easy to read and understandable at
virtually any reading level. The new testament portion of
the CEV was first published by the Company in 1991 and the
complete CEV Bible was released in June 1995.
The Company continually seeks to expand its Bible
product line by developing or aiding in the development of
new translations and editions and seeking new publishing
opportunities. The Company also continually makes
editorial, design and other changes to its existing line of
Bibles and other Bible products in an effort to increase
their marketability. The Company currently publishes over
1,300 different Bibles and biblical reference products such
as commentaries, study guides and other popular Bible help
texts. Styles range from inexpensive paperbacks to deluxe
leather-bound Bibles. Different editions of a particular
Bible translation are created by incorporating extra
material, such as study helps, concordances, indices and
Bible outlines, or artwork, into the biblical text. These
editions (which are generally proprietary to the Company
regardless of whether or not the Company holds proprietary
rights to the underlying Bible translation) are targeted to
the general market or positioned for sale to specific market
segments.
GIFT
The Company's gift division more than doubled in size
during fiscal 1996 through the acquisition of C.R. Gibson
and nearly doubled in size again in fiscal 1997, and the
Company believes it now is a major producer of gift and
stationery products in the world. Current product lines
offered by the Company include journals and gift books,
photo albums, baby and wedding memory books, kitchen
accessories, and stationery.
Products are marketed under the C.R. Gibsonr, Pretty
Paperr, Creative Papersr, Stepping Stonesr and Inspirationsr
brand names, the latter of which incorporates Christian and
inspirational text or themes. Certain product lines are
marketed as collections, with each collection including a
variety of products featuring a common design or theme.
Designs include original art work designed in-house as well
as licensed from artists or design groups such as Carol
Endres, Shelly Hely, Disneyr and Gearr.
The Company believes the gift division has significant
opportunities for growth as a result of the range of
complementary gift categories not currently offered and the
breadth of the Company's existing and potential distribution
channels. In addition to its product lines, the C.R. Gibson
acquisition provided the Company access to a dedicated sales
force of more than 100 representatives experienced in
marketing to the general gift, department and specialty
stores and access to C.R. Gibson's manufacturing and
distribution facilities, which allows the Company greater
control over product quality and production schedules.
MARKETING, DISTRIBUTION AND PRODUCTION
The principal market channels through which the Company
markets its publishing products domestically are Christian
bookstores, which are primarily independently owned; general
bookstores, including national chains such as Barnes & Noble
and Borders; specialty gift and department stores, such as
Carlton Cards and the Federated Department Store group; mass
merchandisers such as Target, K-Mart, WalMart and Sam's
Wholesale Club; and directly to consumers through direct
mail and telemarketing. The Company services these market
channels through its sales force, and through wholesalers or
jobbers servicing bookstores, gift stores, other retail
outlets and libraries. In addition, the Company sells
certain of its products for promotional purposes and sells
specially designed or imprinted products to certain
customers.
The Company's direct marketing operations sell
publishing products directly to approximately 200,000
customers consisting of churches, other religious
organizations and pastors by direct mail and telemarketing.
Retail sales also are made during the summer months on a
door-to-door, cash sales basis through a student sales
organization operated by the Company.
As of March 31, 1997, the Company employed a sales
force of approximately 210 people and maintains 24-hour-a-
day telemarketing capability. These employees service over
50,000 retail accounts and 200,000 church related accounts.
Customer orders are usually shipped through a variety of
common carriers, as well as by UPS, RPS and parcel post. No
single customer accounted for more than 10% of net revenues
during fiscal 1997.
The Company contracts with a number of foreign
publishers to translate the Company's English titles to
foreign languages. The Company typically retains ownership
rights to the titles translated.
The Company distributes its products internationally in
South America, Europe, Australia, New Zealand, South Africa,
the Far East, Mexico and Canada. In fiscal 1997, the
Company's international and export operations accounted for
approximately 8% of the Company's total net revenues.
Substantially all of the Company's publishing products
are manufactured by domestic and foreign commercial
printers, binders and manufacturers which are selected on
the basis of competitive bids. The Company may contract
separately for paper and certain other supplies used by its
manufacturers. The Company manufactures a significant
portion of its gift products and purchases its raw materials
(e.g. paper, film and boxes) from a wide group of suppliers.
COPYRIGHTS AND ROYALTY AGREEMENTS
The Company customarily secures copyrights on its
publishing editions in order to protect its publishing
rights. Almost all of the Company's book products are
published under royalty agreements with their respective
authors or other copyright proprietors. Many of the
Company's gift products incorporate copyrighted art work,
which is licensed directly from the artist or the owning
entity under a royalty agreement.
COMPETITION
The Company believes that it is the largest publisher
of Christian and inspirational books, the largest commercial
publisher of Bibles in English language translations and a
major producer of gift and stationery items. The publishing
and gift divisions each compete with numerous other
companies that publish and distribute Christian and
inspirational books or manufacture and distribute gift
products, many of which have significantly longer operating
histories and larger revenue bases than the Company and
certain of which are tax-exempt organizations. While the
Company's prices are comparable to those of its competitors,
the Company believes that its breadth of product line,
established market channels, established sales forces and
customer service, give it a competitive advantage.
The most important factor with respect to the
competitive position of the Company's publishing division is
the contractual relationships it establishes and maintains
with authors. The Company competes with other book
publishing companies, both Christian and secular, for
signing top authors. The Company's ability to sign and re-
sign popular authors depends on a number of factors,
including distribution and marketing capabilities, the
Company's management team and the royalty and advance
arrangements offered. The Company believes its
relationships with its authors, which are based on its
reputation in the book publishing industry, its marketing
experience and its management expertise give it a
competitive advantage in signing and maintaining contracts
with top Christian and inspirational authors.
The Company's gift division has many competitors with
respect to one or more of its product lines, but the Company
believes there are few competitors who manufacture and
distribute all of the Company's gift product lines. The
gift division also competes with numerous religious
publishers and suppliers, including tax-exempt church-owned
organizations, in connection with the sale of its church
supply products, and with numerous large and small companies
in the production and sale of stationery products, gift wrap
and paper tableware.
EMPLOYEES
As of March 31, 1997, the Company employed
approximately 1,300 persons. The Company has not suffered
any work stoppages as a result of labor disputes in recent
years and considers relations with its employees to be good.
MANAGEMENT
Officers of the Company are elected by the Board of
Directors and serve at the pleasure of the Board of
Directors. Following is certain information regarding the
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position with the Company
---------------------------------------------------------
<S> <C> <C>
Sam Moore 67 Chairman of the Board, Chief
Executive Officer, President
and Director
S. Joseph Moore 34 Executive Vice President and
Director; President, Thomas
Nelson Gift Division
Joe L. Powers 51 Executive Vice President and
Secretary
Byron D. Williamson 51 President, NelsonWord
Publishing Division
Ray Capp 44 Senior Vice President,
Operations
Charles Z. Moore 63 Senior Vice President,
International and
Diversified Markets
Vance Lawson 38 Vice President, Finance
Phyllis E. Williams 49 Treasurer
</TABLE>
Except as indicated below, each executive officer has
been an employee of the Company as his/her principal
occupation for more than the past five years.
Sam Moore has been Chairman of the Board, Chief
Executive Officer, President and a Director of the Company
since its founding in 1961.
S. Joseph Moore was appointed Executive Vice President
and Director of the Company in 1995 and President of the
Thomas Nelson Gift Division in 1996, and prior to such
appointments, he served as Divisional Vice President of the
Company in various capacities since 1991. S. Joseph Moore
is the son of Sam Moore.
Joe L. Powers was appointed Executive Vice President of
the Company in 1995. Previously, Mr. Powers served as a
Vice President of the Company since 1980.
Byron D. Williamson has been the President of the
Company's NelsonWord Publishing Division since 1995. Mr.
Williamson was formerly President of the Company's Word
Publishing Division from 1993 to 1995 and Executive Vice
President of the Word Publishing Division of Word from 1988
until Word, Incorporated was acquired by the Company in
November 1992.
Ray Capp was appointed Senior Vice President,
Operations of the Company in 1995. Prior to joining the
Company, Mr. Capp was the President and Chief Operating
Officer of Ingram Merchandising Services and Assistant to
the Chairman of Ingram Distribution, Inc. since 1992 and
Executive Vice President and Chief Operating Officer of
Ingram Entertainment from 1987 to 1992.
Charles Z. Moore has been a Vice President of the
Company since 1983 and was appointed Senior Vice President,
International and Diversified Markets in 1986. Charles
Moore is the brother of Sam Moore.
Vance Lawson has been the Vice President, Finance of
the Company since 1993. Mr. Lawson was formerly Vice
President of Finance and Operations at Word since 1988.
Phyllis E. Williams has been the Treasurer of the
Company since 1992. Mrs. Williams was previously Controller
for the Company since 1988.
Item 2. Properties
The Company's executive, editorial, sales and
production offices are primarily located at its corporate
headquarters at 501 Nelson Place in Nashville, Tennessee.
These facilities are housed in a 74,000 square foot building
completed in 1981, which is owned by the Company subject to
a mortgage securing a debt with an outstanding balance at
March 31, 1997 of $1,900,000.
The Company's major warehouse facilities for its
publishing division are located in a building containing
approximately 215,000 square feet adjacent to its corporate
headquarters in Nashville, Tennessee. This building which
was completed in fiscal 1978, is owned by the Company. An
addition to the warehouse and distribution center, of
approximately 120,000 square feet, was completed during
fiscal 1993. This addition was financed by a $5,000,000
construction and term loan secured by a mortgage with an
outstanding balance of $3,000,000 at March 31, 1997. The
Company maintains other offices and warehouse facilities for
its direct marketing division in two locations in Waco,
Texas (of approximately 30,000 and 100,000 square feet each)
which are owned by the Company. The Company also has
offices, manufacturing and warehousing facilities for its
gift division in Beacon Falls, Guilford and Norwalk,
Connecticut (of approximately 112,000, 74,000 and 147,000
square feet, respectively) which are owned by the Company.
<TABLE>
The Company leases properties as described below:
<CAPTION>
Square Annual Lease
Location Use Feet Rent Expiration
- - -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Miami, FL Editorial and sales
office 1,200 $ 16,400 08/1997
Atlanta, GA Editorial office 800 $ 11,100 monthly
Carmel, IN Retail Store 12,500 $ 79,300 09/1999
Cherryville, NC Administrative 77,000 $ 78,000 04/1998
Clifton, NJ Manufacturing 11,000 $ 46,800 10/1998
Dallas, TX Editorial office 17,200 $216,000 12/1999
Nashville, TN Creation and sales
office 17,486 $309,880 11/1998
Nashville, TN Creation and sales
office 34,500 $ 98,800 07/1999
Nashville, TN Warehousing 85,000 $182,000 11/1997
Norwalk, CT Warehousing 10,800 $ 72,000 monthly
Shelton, CT Warehousing 78,300 $481,500 03/2000
Scarborough, Warehousing and
Ontario office 18,500 $103,300 08/1998
(Canada)
</TABLE>
All building improvements on the properties are brick
veneer, metal or block construction and are considered
adequate and suitable by the Company for the purpose for
which they are used.
The Company's machinery and equipment are located in
Nashville, Tennessee; Guilford and Norwalk, Connecticut and
Waco, Texas; and consists primarily of computer equipment,
printing and binding equipment, warehousing and shipping
racks, conveyors and other material handling equipment
located at the various warehousing and manufacturing
facilities; and office equipment. Such machinery and
equipment are in good repair and adequate for the Company's
present operations. All such equipment, other than a
portion of the computer equipment which is leased under
capital leases, is owned by the Company.
The Company's physical properties are operated at
approximate capacity. Additional personnel are employed as
required.
Item 3. Legal Proceedings
The Company is subject to various legal proceedings,
claims and liabilities which arise in the ordinary course of
its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not
materially affect the financial position or results of
operations of the Company.
Item 4. Submission of Matter to a Vote of Security Holders
The Company did not submit any matter to a vote of its
security holders during the last quarter of its fiscal year
ended March 31, 1997.
PART II
Item 5. Market for Company's Common Equity and Related
Shareholder Matters
Incorporated by reference to the Annual Report to
Shareholders for the year ended March 31, 1997 (the "Annual
Report").
Item 6. Selected Financial Data
Incorporated by reference to the Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Incorporated by reference to the Annual Report.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Annual Report.
Includes selected unaudited quarterly financial data for the
years ended March 31, 1997 and 1996.
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Company
Information regarding the directors of the Company and
compliance with Section 16(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") is incorporated by
reference to the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held on August 21, 1997 (the
"Proxy Statement"), to be filed within 120 days of March 31,
1997 with the Securities and Exchange Commission (the
"Commission") pursuant to Regulation 14A under the Exchange
Act. Information regarding the Company's executive officers
is contained in Part 1, Item 1 herein.
Item 11. Executive Compensation
Incorporated by reference to the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Incorporated by reference to the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) Documents filed as part of Report
1. Financial Statements
The following consolidated financial statements of the
Company included in the Annual Report are incorporated
herein by reference as set forth in Part II, Item 8:
Statements of operations -- years ended March 31,
1997, 1996 and 1995
Balance sheets -- March 31, 1997 and 1996
Statements of shareholders' equity -- years ended
March 31, 1997, 1996 and 1995
Statements of cash flow -- years ended March 31, 1997,
1996 and 1995
Notes to consolidated financial statements
Report of Arthur Andersen LLP, Independent Public
Accountants
2. Financial Statement Schedules
The following consolidated financial statement schedules
are included herein:
Page
Report of Arthur Andersen LLP,
Independent Public Accountants............. 18
Schedule VIII -- Valuation and
Qualifying Accounts and Reserves.......... 19
Schedules not listed above have been omitted because they
are not required, are inapplicable or the required
information has been given in the financial statements or
notes thereto.
3. Exhibits
The following exhibits are included herein or
incorporated by reference as indicated. Exhibit numbers
refer to Item 601 of Regulation S-K.
Exhibit
Number
2.1 -- Asset Purchase Agreement, dated as of November 21,
1996 by and among the Company, Word, Incorporated
and Word Direct Partners, L.P. as Sellers and
Gaylord Entertainment Company as Buyer (filed as
Exhibit 2.1 to the Company's Form 8-K dated
January 6, 1997 and incorporated herein by
reference)
2.2 -- Amendment No. 1 to the Asset Purchase Agreement
dated as of January 6, 1997, by and among the
Company, Word, Incorporated and Word Direct
Partners, L.P. as Sellers and Gaylord Entertainment
Company as Buyer (filed as Exhibit 2.2 to the
Company's Form 8-K dated January 6, 1997 and
incorporated herein by reference)
2.3 -- Asset Purchase Agreement dated as of January 6,
1997, by and between Nelson Word Limited and
Word Entertainment Limited (filed as Exhibit 2.3
to the Company's Form 8-K dated January 6, 1997
and incorporated herein by reference)
2.4 -- Subsidiary Asset Purchase Agreement executed on
January 6, 1997, and dated as of November 21,
1996 between Word Communications, Ltd. and Word
Entertainment (Canada), Inc. (filed as Exhibit
2.4 to the Company's Form 8-K dated January 6,
1997 and incorporated herein by reference)
3.1 -- Thomas Nelson, Inc. Amended and Restated Charter
(filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (No. 33-80086)
and incorporated herein by reference)
3.2 -- Thomas Nelson, Inc. Amended Bylaws (filed as
Exhibit 3(b) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1990 and
incorporated herein by reference)
4.1 -- Loan Agreement dated May 18, 1990, between the
Company and The Industrial Development Board of
The Metropolitan Government of Nashville and
Davidson County (filed as Exhibit 4(e) to the
Company's Annual Report on Form 10-K for the year
ended March 31, 1990 and incorporated herein by
reference)
4.2 -- Promissory Note dated May 18, 1990, of the Company
payable to The Industrial Development Board of the
Metropolitan Government of Nashville and Davidson
County (filed as Exhibit 4(f) to the Company's
Annual Report on Form 10-K for the year ended
March 31, 1990 and incorporated herein by reference)
4.3 -- Deed of Trust and Security Agreement dated May 18,
1990, from the Company to SunTrust Bank, Nashville,
N.A. (filed as Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the year ended March 31,
1991 and incorporated herein by reference)
4.4 -- Construction and Term Loan Agreement dated March 31,
1992, between the Company and SunTrust Bank, Nashville,
N.A. (filed as Exhibit 4.7 to Company's Annual
Report on Form 10-K for the year ended March 31,
1992 and incorporated herein by reference)
4.5 -- Promissory Note dated March 31, 1992, of the Company
payable to SunTrust Bank, Nashville, N.A. (filed as
Exhibit 4.8 to Company's Annual Report on Form 10-K
for the year ended March 31, 1992 and incorporated
herein by reference)
4.6 -- Deed of Trust and Security Agreement dated March 31,
1992, from the Company to SunTrust Bank, Nashville,
N.A. (filed as Exhibit 4.9 to Company's Annual
Report on Form 10-K for the year ended March 31,
1992 and incorporated herein by reference)
4.7 -- Indenture dated as of November 30, 1992, by and
between Thomas Nelson, Inc. and Boatmen's Trust
Company (filed as Exhibit 4 to the Company's Form
8-K dated December 11, 1992 and incorporated herein
by reference)
4.8 -- Amended and Restated Credit Agreement dated as of
December 13, 1995, and as amended January 3, 1996,
among the Company, SunTrust Bank, Nashville, N.A.,
National City Bank of Louisville, First American
National Bank in Nashville, Nationsbank of Texas,
N.A. in Dallas, and Creditanstalt-Bankverein in
New York (filed as Exhibit 4.1 to the Company's
Form 10-Q for the quarter ended December 31, 1995
and incorporated herein by reference)
4.9 -- June 1996 Amendment and Waiver with Respect to
Amended and Restated Credit Agreement Dated as of
December 13, 1995, among the Company, SunTrust Bank,
Nashville, N.A., National City Bank of Louisville,
First American National Bank in Nashville,
Nationsbank of Texas, N.A. in Dallas, and
Creditanstalt-Bankverein in New York (filed as
Exhibit 4.12 to the Company's Annual Report on
Form 10-K for the year ended March 31, 1996 and
incorporated herein by reference)
4.10 -- Second Amendment to Credit Agreement dated as of
November 15, 1996, among the Company, SunTrust Bank,
Nashville, N.A., National City Bank of Louisville,
First American National Bank in Nashville,
Nationsbank of Texas, N.A. in Dallas, and
Creditanstalt-Bankverein in New York (filed as
Exhibit 4.1 to the Company's Fom 8-K dated January
6, 1997 and incorporated herein by reference)
4.11 -- Third Amendment to Credit Agreement dated as of
January 7, 1997, among the Company, SunTrust Bank,
Nashville, N.A., National City Bank of Louisville,
First American National Bank in Nashville,
Nationsbank of Texas, N.A. in Dallas, and
Creditanstalt-Bankverein in New York (filed as
Exhibit 4.2 to the Company's Fom 8-K dated
January 6, 1997 and incorporated herein by reference)
4.12 -- Note Purchase Agreement dated January 3, 1996, among
the Company, The Prudential Insurance Company of
America and Metropolitan Life Insurance Company
(filed as Exhibit 4.1 to the Company's Form 10-Q
for the quarter ended December 31, 1995 and
incorporated herein by reference)
4.13 -- Letter Amendment No. 1 dated June 28, 1996, to Note
Purchase Agreement dated January 3, 1996, among the
Company, The Prudential Life Insurance Company of
America and Metropolitan Life Insurance Company
and related waiver, dated as of March 31, 1996
(filed as Exhibit 4.14 to the Company's Annual
Report on Form 10-K for the year ended March 31,
1996 and incorporated herein by reference)
4.14 -- Assumption and Amendment Agreement dated as of
May 30, 1996, and as amended June 28, 1996,
between the Company and Metropolitan Life
Insurance Company (filed as Exhibit 4.15 to the
Company's Annual Report on Form 10-K for the year
ended March 31, 1996 and incorporated herein by
reference)
4.15 -- Loan Agreement dated as of September 21, 1989
between C.R. Gibson and Metropolitan Life
Insurance Company (filed by C.R. Gibson as
Exhibit 4(c) to The C.R. Gibson Company's
Registration Statement on Form S-2 (No. 33-43644)
dated November 4, 1991 and incorporated herein
by reference)
4.16 -- Loan Agreement dated as of June 23, 1994 between
C.R. Gibson and Metropolitan Life Insurance
Company (filed by C.R. Gibson (Commission File
No. 0-4855) as Exhibit 4(b) to C.R. Gibson's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, filed with the commission
on March 14, 1995 and incorporated herein by
reference)
10.1 -- Tender Offer and Merger Agreement, dated as of
September 13, 1995, as amended by Amendment No.1,
dated as of October 16, 1995, among the Company,
Nelson Acquisition Corp. and C.R. Gibson (filed
as Exhibits (c)(1) and (c)(14) to the Company's
joint Tender Offer Statement on Schedule 14D-1/
Schedule 13D filed September 19, 1995, as amended,
and is incorporated herein by reference)
10.2 -- Thomas Nelson, Inc. Amended and Restated 1986 Stock
Incentive Plan (filed as Exhibit 4.4 to the Company's
Registration Statement on Form S-8 (No. 33-80086)
dated June 13, 1994 and incorporated herein by
reference)*
10.3 -- Thomas Nelson, Inc. Amended and Restated 1990
Deferred Compensation Option Plan for Outside
Directors (filed as Exhibit 4.5 to the Company's
Registration Statement on Form S-8 (No. 33-80086)
dated June 13, 1994 and incorporated herein by
reference)*
10.4 -- Thomas Nelson, Inc. Amended and Restated 1992
Employee Stock Incentive Plan (filed as Exhibit 4.6
to the Company's Proxy Statement dated July 26, 1995,
for the Annual Meeting of Shareholders held on
August 24, 1995 and incorporated herein by reference)*
10.5 -- Thomas Nelson, Inc. Sales Managers' Stock Plan for
the Varsity Company (filed as Exhibit 4.7 to the
Company's Registration Statement on Form S-8
(No. 33-80086) dated June 13, 1994 and incorporated
herein by reference)*
10.6 -- Severance Agreement dated as of May 17, 1991, between
the Company and Sam Moore (filed as Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the
year ended March 31, 1991 and incorporated herein
by reference)*
10.7 -- Employment Agreement dated as of May 13, 1996, between
the Company and Sam Moore (filed as Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year
ended March 31, 1996 and incorporated herein by
reference)*
10.8 -- Employment Agreement dated as of May 10, 1996, between
the Company and S. Joseph Moore (filed as Exhibit 10.8
to the Company's Annual Report on Form 10-K for the year
ended March 31, 1996 and incorporated herein by
reference)*
10.9 -- Employment Agreement dated as of May 10, 1996, between
the Company and Joe L. Powers (filed as Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the year
ended March 31, 1996 and incorporated herein by
reference)*
10.10-- Employment Agreement dated as of May 13, 1996, between
the Company and Charles Z. Moore (filed as Exhibit
10.10 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1996 and incorporated
herein by reference)*
10.11-- Employment Agreement dated as of December 7, 1993,
between the Company and Byron Williamson (filed as
Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended March 31, 1994 and
incorporated herein by reference)*
10.12-- Employment Agreement dated as of December 22, 1994,
between the Company and Raymond T. Capp (filed as
Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended March 31, 1995 and
incorporated herein by reference)*
10.13-- Employment Agreement dated as of June 23, 1993,
between the Company and Vance Lawson (filed as
Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the year ended March 31, 1994 and
incorporated herein by reference)*
11 -- Statement Re Computation of Per Share Earnings
13 -- Thomas Nelson, Inc. Annual Report to Shareholders
for the year ended March 31, 1997 (to the extent
of portions specifically incorporated by
reference)
21 -- Subsidiaries of the Company
23 -- Consent of Independent Public Accountants
27 -- Financial Data Schedule (for SEC use only)
-------------------
*Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated January 6, 1997 (the
"Form 8-K"), was filed by the Company on January 21, 1997.
The Form 8-K included information required pursuant to Item
2 thereunder relating to the disposition by the Company of
the assets of its Music Business to Gaylord Entertainment
Company. The following pro forma financial information was
included in that filing:
i. Thomas Nelson, Inc. and Subsidiaries Unaudited Pro
Forma Condensed Consolidated Balance Sheet at
September 30, 1996
ii. Thomas Nelson, Inc. and Subsidiaries Unaudited Pro
Forma Consolidated Statements of Operations for six
months ended September 30, 1996
iii.Thomas Nelson, Inc. and Subsidiaries Unaudited Pro
Forma Consolidated Statements of Operations for
twelve months ended March 31, 1996.
(c) Exhibits - The response to this portion of Item 14 is
submitted above as a separate section of this report.
(d) Financial Statement Schedules - The response to this portion
of Item 14 is submitted above as a separate section of this
report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THOMAS NELSON, INC.
By: /s/ Sam Moore
------------------------
Sam Moore, Chief Executive
Officer and President
Date: June 27, 1997
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
------------------------------------------------------------
<S> <C> <C>
/s/ Sam Moore Chairman of the Board June 27, 1997
- - ------------------ of Directors, Chief
Sam Moore Executive Officer
and President
(Principal Executive
Officer)
/s/ S. Joseph Moore Executive Vice June 27, 1997
- - -------------------- President and
S. Joseph Moore Director
/s/ Joe L. Powers Executive Vice June 27, 1997
- - -------------------- President and
Joe L. Powers Secretary
(Principal
Financial and
Accounting
Officer)
/s/ Brownlee O.
Currey, Jr. Director June 27, 1997
- - --------------------
Brownlee O. Currey, Jr.
/s/ W. Lipscomb
Davis, Jr. Director June 27, 1997
- - --------------------
W. Lipscomb Davis, Jr.
/s/ Robert J. Niebel Director June 27, 1997
- - --------------------
Robert J. Niebel
/s/ Millard V. Oakley Director June 27, 1997
- - --------------------
Millard V. Oakley
/s/ Joe M. Rodgers Director June 27, 1997
- - --------------------
Joe M. Rodgers
/s/ Cal Turner, Jr. Director June 27, 1997
- - --------------------
Cal Turner, Jr.
/s/ Andrew Young Director June 27, 1997
- - --------------------
Andrew Young
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thomas Nelson, Inc.:
We have audited in accordance with generally accepted
auditing standards, the consolidated financial statements
included in Thomas Nelson's annual report to shareholders
incorporated by reference in this Form 10-K, and have issued
our report thereon dated May 30, 1997. Our audit was made
for the purpose of forming an opinion on those consolidated
statements taken as a whole. The schedules listed in the
index are the responsibility of the Company's management and
are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the
basic consolidated financial statements. These schedules
have been subjected to the auditing procedures applied in
the audit of the basic consolidated financial statements
and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in
relation to the basic consolidated financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Nashville, Tennessee
May 30, 1997
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
March 31, 1997 March 31, 1996 March 31, 1995
------------------------------------------------
<S> <C> <C> <C>
Reserve for Sales Returns:
Balance at beginning of
period $ 4,355,000 $ 3,421,000 $ 2,965,000
Additions:
1. Charged to costs
and expenses 418,000 559,000 456,000
2. Charged to other
accounts<F1> - 375,000 -
Deductions: charge-offs - - -
-------------------------------------------------
Balance at end of period $ 4,773,000 $ 4,355,000 $ 3,421,000
=================================================
Reserve for Doubtful
Accounts:
Balance at beginning of
period $ 2,714,000 $ 1,968,000 $ 2,523,000
Additions:
1. Charged to costs
and expenses 2,794,000 3,117,000 2,300,000
2. Charged to other
accounts<F1> - 500,000 -
Deductions: charge-offs 3,281,000 2,871,000 2,855,000
-------------------------------------------------
Balance at end of period $ 2,227,000 $ 2,714,000 $ 1,968,000
=================================================
Discontinued Operations:
Balance at beginning of
period $ 4,381,000 $ - $ -
Additions:
1. Charged to costs
and expenses 12,266,000 4,381,000 -
2. Charged to other
accounts - - -
Deductions: charge-offs 7,546,000 - -
-------------------------------------------------
Balance at end of period $ 9,101,000 $ 4,381,000 $ -
=================================================
<FN>
<F1> Reserves acquired in connection with acquisition - C.R. Gibson in 1996.
</TABLE>
INDEX TO EXHIBITS
Exhibit Page
Number Number
- - -------- ------
11 -- Statement Re-Computation of Per Share Earnings...
13 -- Thomas Nelson, Inc. Annual Report to Shareholders
for the year ended March 31, 1997 (to the extent
of portions specifically incorporated by reference)
21 -- Subsidiaries of the Company
23 -- Consent of Independent Public Accountants
27 -- Financial Data Schedule (for SEC purposes only)
<TABLE>
EXHIBIT 11
STATEMENT RE-COMPUTATION OF PER SHARE EARNINGS
(Dollars and Shares in thousands, except per share data)
<CAPTION>
March 31, 1997 March 31, 1996 March 31, 1995
------------------------------------------------
<S> <C> <C> <C>
Primary Earnings Per Share:
Weighted average shares
outstanding 17,135 15,718 13,374
================================================
Income (Loss) from
continuing operations $ 9,522 ($ 923) $ 10,101
Income (Loss) from
discontinued operations 16,555 ( 9,991) 1,609
------------------------------------------------
Net Income (Loss) $ 26,077 ($ 10,914) $ 11,710
================================================
Income (Loss) Per Share from
continuing operations $ 0.56 ($ 0.06) $ 0.76
Income (Loss) Per Share from
discontinued operations 0.96 ( 0.63) 0.12
------------------------------------------------
Net Income (Loss) Per Share $ 1.52 ($ 0.69) $ 0.88
================================================
Fully-diluted Earnings
Per Share:
Weighted average shares
outstanding 17,135 15,718 13,374
Convertible Notes 3,235 3,235 3,235
Dilutive stock options -
based on treasury stock
method using the year-end
market price, if higher
than the average market
price - 76 111
------------------------------------------------
Total Shares 20,370 19,029 16,720
================================================
Income (Loss) from
continuing operations<F1> $ 11,629 $ 1,095 $ 12,232
Income (Loss) from
discontinued operations 16,555 ( 9,991) 1,609
------------------------------------------------
Net Income (Loss) $ 28,184 ($ 8,896) $ 13,841
================================================
Income (Loss) Per Share from
continuing operations $ 0.56<F2> $ 0.05 $ 0.74
Income (Loss) Per Share from
discontinued operations 0.81 ( 0.52) 0.09
------------------------------------------------
Net Income (Loss) Per Share $ 1.37 ($ 0.47)<F2> $ 0.83
================================================
<FN>
<F1> Adjusted for interest on convertible debt
<F2> Anti-dilutive; use primary earnings per share on Statement of
Operations
</TABLE>
EXHIBIT 13
<TABLE>
SELECTED FINANCIAL DATA
============================================================================
<CAPTION>
YEARS ENDED
March 31, 1997 1996<F1> 1995 1994 1993<F1>
(Dollars in thousands,
except per share data)
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS<F2><F4>
Net revenues $243,436 $219,838 $174,609 $152,418 $116,744
=====================================================
Operating income (loss) $ 22,954 $ 5,887 $ 21,212 $ 16,131 $ 13,739
=====================================================
Income (loss) from
continuing
operations <F5> $ 9,522 ($ 923) $ 10,101 $ 7,736 $ 7,846
Income (loss) from
discontinued
operations <F6><F7> 16,555 ( 9,991) 1,609 1,345 ( 1,564)
-----------------------------------------------------
Net income (loss) $ 26,077 ($10,914) $ 11,710 $ 9,081 $ 6,282
=====================================================
- - ------------------------------------------------------------------------------
FINANCIAL POSITION <F2>
Total assets $301,571 $355,083 $232,386 $203,750 $183,523
Working capital 131,852 197,127 145,860 119,522 97,724
Long-term debt and other
non-current liabilities 89,233 185,019 121,797 106,876 99,319
Shareholders' equity 146,812 122,065 72,178 62,725 55,292
Long-term debt to total
capitalization 37.8% 60.3% 62.8% 63.0% 64.2%
- - ------------------------------------------------------------------------------
PER SHARE DATA <F2><F3><F4>
Income (loss) per share
from continuing
operations<F5> $ 0.56 ($ 0.06) $ 0.76 $ 0.58 $ 0.59
Income (loss) per
share from discon-
tinued operations
<F6><F7> 0.96 ( 0.63) 0.12 0.10 ( 0.12)
Net income (loss)
per share $ 1.52 ($ 0.69) $ 0.88 $ 0.68 $ 0.47
Dividends declared
per share 0.16 0.16 0.14 0.13 0.12
Book value per share 8.58 7.13 5.37 4.70 4.14
Weighted average number
of shares outstanding
(in thousands) 17,135 15,718 13,374 13,355 13,268
- - ------------------------------------------------------------------------------
<FN>
<F1> Includes C.R. Gibson operations subsequent to acquisition on
October 31, 1995 and Word, Incorporated operations subsequent to
acquisition on November 30, 1992.
<F2> All financial information has been restated to reflect the
pooling of interests with PPC, Inc.
<F3> Per share data has been restated for stock dividends.
<F4> Operating results and per share data have been restated for
discontinued operations.
<F5> For 1994 net income and per share data from continuing
operations includes $336,000 and $0.03, respectively, for
accumulated effects of change in accounting principle.
<F6> During March 1996, the Company adopted plans to sell the
Christian-lifestyle magazines and the radio networks of the
Royal Media division and the projected loss on disposal
and results of operations for this discontinued operation are
included herein.
<F7> 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.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
==================================================================
OVERVIEW
The Company's net revenues from continuing operations have
grown in recent years as a result of increased sales of existing
product lines and through the development and acquisition of new
product lines. In October 1995, the Company acquired The C.R.
Gibson Company ("Gibson") for approximately $67 million in cash,
which expanded its gift product lines and distribution network.
As a result, the Company's gift revenues have grown
significantly for fiscal 1997 as compared to the prior year.
On January 6, 1997, the Company sold the assets, subject to
certain liabilities, of the music division ("Music Business")
for $120 million and realized a net gain of $16 million (net of
goodwill of $17 million). The proceeds from the sale were used
primarily to retire long-term debt. The operating results of
the Music Business are reported as discontinued operations for
all years presented.
As a result of operating trends and the softness of the retail
markets for the Company's products, which began to adversely
affect operating results in the second quarter of fiscal 1996,
the Company decided during the fourth quarter of fiscal 1996 to
discontinue the operations of its Royal Media division, a
division which published magazines and operated radio networks
directed toward Christian markets. The disposal of the Royal
Media division has been consummated. The operating results of
the Royal Media division for fiscal 1996 and 1995 are reported
as a loss from discontinued operations.
The following table sets forth for the periods indicated
certain selected statements of operations data of the Company
expressed as a percentage of net revenues and the percentage
change in dollars of such data from the prior fiscal year.
<TABLE>
<CAPTION>
Fiscal Year-to-Year
Years Ended March 31, Increase (Decrease)
-------------------------------------------------------
1997 1996 1995 1996 to 1997 1995 to 1996
-------------------------------------------------------
(%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C>
Net revenues
Publishing 63.0 75.1 85.5 ( 7.1) 10.6
Gift 37.0 24.9 14.5 64.5 116.3
-------------------------
Total net
revenues 100.0 100.0 100.0 10.7 25.9
Expenses:
Cost of goods sold 54.3 57.6 51.8 4.4 39.9
Selling, general and
administrative
expenses 35.5 39.2 35.5 -- 39.0
Amortization of
goodwill and
non-compete
agreements 0.8 0.5 0.5 82.3 34.4
--------------------------
Total expenses 90.6 97.3 87.8 3.1 39.5
--------------------------
Operating income 9.4 2.7 12.2 289.9 ( 72.3)
==========================
Income (loss) from
continuing
operations 3.9 ( 0.4) 5.8 -- --
Income (loss) from
discontinued
operations 6.8 ( 4.6) 0.9 -- --
--------------------------
Net income (loss) 10.7 ( 5.0) 6.7 -- --
==========================
</TABLE>
The Company's net revenues fluctuate seasonally, with net
revenues in the second and third fiscal quarters historically
being greater than those in the first and fourth fiscal quarters.
This seasonality is the result of increased consumer purchases of
the Company's products during the traditional year-end holidays.
Due to this seasonality, the Company has historically incurred a
loss during the first quarter of each fiscal year. In addition,
the Company's quarterly operating results may fluctuate
significantly due to the seasonality of new product
introductions, the timing of selling and marketing expenses and
changes in sales and product mixes. See Note N of Notes to
Consolidated Financial Statements.
The following discussion includes certain forward-looking
statements. Actual results could differ materially from those
reflected by the forward-looking statements and a number of
factors may affect future results, liquidity and capital
resources. These factors include softness in the general retail
environment, the timing of products being introduced to the
market, the level of returns experienced by the operating
divisions, the level of margins achievable in the marketplace and
the ability to minimize operating expenses. Although the Company
believes it has the business strategy and resources needed for
improved operations, future revenue and margin trends cannot be
reliably predicted and may cause the Company to adjust its
business strategy during the 1998 fiscal year.
RESULTS OF OPERATIONS
Fiscal 1997 compared to Fiscal 1996.
Net revenues for fiscal 1997 increased $23.6 million, or
10.7%, over fiscal 1996 primarily due to the volume increases
arising from introduction of new products and the acquisition of
Gibson which was included in fiscal 1996 revenues for only five
months subsequent to its October 1995 acquisition. Net revenues
from publishing products decreased for fiscal 1997 from fiscal
1996 by $11.7 million, or 7.1%. The decline in
publishing product revenues from fiscal 1996 was due to a 26%
increase in the rate of returns and fewer major product releases
than fiscal 1996 when a new Bible translation and a major
hardcover fiction title were introduced. Net revenues from
gift products, including Gibson, increased by $35.3 million,
or 64.5%. Price increases did not have a material effect on
net revenues.
The Company's cost of goods sold for fiscal 1997 increased
$5.6 million, or 4.4%, and, as a percentage of net revenues,
decreased from 57.6% to 54.3%. The decrease in cost of goods
sold, as a percentage of net revenues was due to a lower
percentage of publishing and gift revenues being derived from
mass market sales in fiscal 1997 as compared to fiscal 1996.
Mass Market sales generally have higher cost of goods sold as a
percentage of revenues than other market channels. In addition,
cost of goods sold, as a percentage of net revenues, decreased
from fiscal 1996, when additional provisions for obsolescence and
unearned royalty advances were made.
Selling, general and administrative expenses for fiscal 1997
increased only $40,000 over the comparable period in fiscal 1996.
These expenses, expressed as a percentage of net revenues,
decreased from 39.2% for fiscal 1996 to 35.5% for fiscal 1997
primarily as a result of the consolidation of two publishing
sales forces, staff reductions implemented in the last half of
fiscal 1996 and reduced advertising and direct to consumer
marketing expenditures.
Interest expense increased 5.1% for fiscal 1997 due to
increased average borrowings primarily due to the acquisition of
Gibson.
The Company's effective tax (benefit) rate in fiscal 1997 was
41.0% compared to (39.9%) for fiscal 1996. The current tax rate
reflects the combined tax rate from continuing and discontinued
operations. Prior year rate shows the rate of tax recovery from
operating losses carried to earlier periods. See Note M of Notes
to Consolidated Financial Statements.
The Company earned net income of $26.1 million for fiscal
1997. Included in net income is income from discontinued
operations of $16.6 million as a result of the sale of the Music
Business, including net operating income of $0.7 million. See
Note Q of Notes to Consolidated Financial Statements.
Fiscal 1996 compared to Fiscal 1995.
Net revenues for fiscal 1996 increased $45.2 million, or
25.9%, over fiscal 1995 primarily due to volume increases arising
from the introduction of new products and the acquisition of
Gibson on October 31, 1995. Net revenues increased for fiscal
1996 over fiscal 1995 in each of the Company's product lines, as
follows: gift products increased by $29.5 million, or 116.3%,
and publishing products increased by $15.7 million, or 10.6%.
Of the increase in net revenues derived from gift products,
approximately $26 million was attributed to Gibson for fiscal
1996. Price increases did not have a material effect on net
revenues.
The Company's cost of goods sold for fiscal 1996 increased by
$36.1 million, or 39.9%, over fiscal 1995 and, as a percentage of
net revenues, increased from 51.8% to 57.6%. The increase of
cost of goods sold, as a percentage of net revenues, was the
result of a change in sales mix of market channels as well as
additional provisions for obsolescence and unearned royalty
advances. Sales through the gift market channels more than
doubled from the prior year as a result of the Gibson acquisition
while sales through the direct market channels decreased as a
percentage of total sales. Sales made through the direct
marketing to consumers channel approximate retail prices while
sales through the gift market channel are at wholesale prices.
Therefore, as gift market channel sales increased and direct
marketing sales decreased as a percentage of the total Company's
revenues, cost of sales as a percent of revenues increased for
fiscal 1996 over 1995. During the fourth quarter of fiscal 1996,
the Company provided for additional product obsolescence and
anticipated unearned royalty advances of approximately $6 million
greater than in fiscal 1995. These provisions were made as a
result of an increase in actual return rates from domestic sales,
which primarily occurred during the fourth quarter.
Selling, general and administrative expenses for fiscal 1996
increased by $24.2 million, or 39.0%, over the comparable period
in fiscal 1995. These expenses, expressed as a percentage of net
revenues, increased to 39.2% for fiscal 1996 from 35.5% for
fiscal 1995. This increase resulted from a weaker trade market
channel environment which led to higher marketing expenses as a
percentage of revenues compared to fiscal 1995 and to staffing
costs related to handling the higher publishing product returns.
Interest expense increased 27.7% for fiscal 1996 due to
increased average borrowings for the first quarter of the fiscal
year for working capital needs and for the third and fourth
quarter to fund the Gibson acquisition.
The Company's effective tax (benefit) rate in fiscal 1996 was
(39.9)% compared to 36.2% for fiscal 1995. This increased rate
resulted primarily from higher effective state tax rates. The
acquisition of Gibson and expanded sales in states with higher
tax rates were contributing factors. See Note M of Notes to
Consolidated Financial Statements.
The Company had a net loss of $10.9 million for fiscal 1996.
Included in that net loss is a loss from discontinued operations
of $4.7 million as a result of the Company's decision during the
fourth quarter to discontinue the Christian-lifestyle magazines
and the radio networks of the Royal Media division, including an
operating loss of $2 million and a net loss on the disposal of
these operations, which was completed during fiscal 1997, of $2.7
million. Also included in that net loss is $5.3 million for the
operating loss of the Music Business that has been reclassified
as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $43.5 million in cash and
cash equivalents primarily from the sale of its Music Business
for $120 million, with $84 million of the proceeds from the sale
used to retire long-term debt. The primary sources of liquidity
to meet the Company's future obligations and working capital
needs are cash generated from operations and borrowings available
under bank credit facilities. At March 31, 1997, the Company had
working capital of $131.9 million. Under its two credit
facilities, at March 31, 1997, the Company had no borrowings
outstanding, and $85 million available for borrowing. In January
1997, the Company retired all the existing borrowings under its
two credit facilities with a portion of the proceeds of the sale
of the Music Business.
Net cash provided by (used in) operating activities was $25.8
million, ($30.3) million and ($11.7) million in fiscal 1997, 1996
and 1995, respectively. The increase in cash provided by
operations during fiscal 1997 was principally attributable to
earnings from continuing operations and reductions in inventories
and accounts receivable. Inventories decreased by $7.8 million
primarily due to improved inventory management and reduction in
product offerings in all divisions. Accounts receivable
decreased by $7.4 million primarily due to the revenue decline in
the fourth quarter of fiscal 1997 from fiscal 1996.
During fiscal 1997, capital expenditures totaled approximately
$1.9 million. The capital expenditures were primarily for
warehousing and manufacturing equipment and computer equipment.
In fiscal 1998, the Company anticipates capital expenditures of
approximately $5 million, consisting primarily of computer
equipment and warehousing and manufacturing equipment.
The Company's bank credit facilities are unsecured and consist
of a $75 million credit facility and a $10 million credit
facility (collectively, the "Credit Agreements"). The $75
million credit facility bears interest at either the prime rate
or, at the Company's option, LIBOR plus a percentage, subject to
adjustment based on certain financial ratios and matures on
December 13, 2002. The $10 million credit facility bears
interest at the prime rate and matures on July 31, 1998. Due to
the seasonality of the Company's business, borrowings under the
Credit Agreements typically peak during the third quarter of the
fiscal year.
The Company has outstanding $26 million of senior notes
("Senior Notes") which are unsecured. The Senior Notes bear
interest at rates from 6.68% to 9.5% due through fiscal 2006. In
January 1997, the Company retired $35 million of previously held
Senior Notes with a portion of the proceeds of the sale of the
Music Business.
Under the terms of the Credit Agreements and Senior Notes, the
Company has agreed to limit the payment of dividends and to
maintain certain interest coverage and debt-to-total-capital
ratios which are similarly calculated for each debt agreement.
At March 31, 1997, the Company was in compliance with all
covenants of these debt agreements. The Company expects to be in
compliance with all of its covenants for each quarter of fiscal
1998 although no assurance can be given that such compliance will
be maintained.
The Company also has outstanding $55 million of 5.75%
convertible subordinated notes ("Convertible Subordinated Notes")
due November 30, 1999. The Convertible Subordinated Notes
presently are convertible into common stock at $17.00 per share
and are redeemable at the Company's option after November 30,
1995, at 103.29% of the principal amount, declining annually
thereafter to 100% on November 30, 1999.
On July 18, 1995, the Company consummated the sale of 2,875,000
shares of its common stock with net proceeds to the Company of
approximately $54.4 million. The net proceeds were used to repay
a portion of the borrowings under the Credit Agreements in fiscal
1996.
Management believes cash generated by operations and borrowings
available under the Credit Agreements will be sufficient to fund
anticipated working capital requirements for existing operations
through fiscal 1998.
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Years ended March 31,
---------------------------------------------
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Net Revenues $243,436 $ 219,838 $ 174,609
Cost of goods sold 132,199 126,622 90,522
---------------------------------------------
Gross Profit 111,237 93,216 84,087
Selling, general and
administrative 86,259 86,219 62,049
Amortization of goodwill and
non-compete agreements 2,024 1,110 826
---------------------------------------------
Operating Income 22,954 5,887 21,212
Other income 590 595 897
Interest expense 8,430 8,018 6,281
---------------------------------------------
Income (loss) from continuing
operations before income
taxes 15,114 ( 1,536) 15,828
Provision (benefit) for income
taxes 5,592 ( 613) 5,727
---------------------------------------------
Income (loss) from continuing
operations 9,522 ( 923) 10,101
Discontinued operations:
Operating income (loss),
net of applicable tax
provision (benefit) of
$446, ($4,891) and
$912, respectively 728 ( 7,358) 1,609
Gain (loss) on disposal,
net of applicable
tax provision (benefit)
of $24,096 and ($1,748),
respectively 15,827 ( 2,633) --
---------------------------------------------
Income (loss) from discontinued
operations 16,555 ( 9,991) 1,609
---------------------------------------------
NET INCOME (LOSS) $ 26,077 ($ 10,914) $ 11,710
=============================================
Weighted average number
of shares outstanding 17,135 15,718 13,374
=============================================
NET INCOME (LOSS) PER SHARE:
Primary--
Income (loss) from
continuing operations $ 0.56 ($ 0.06) $ 0.76
Income (loss) from
discontinued
operations 0.96 ( 0.63) 0.12
---------------------------------------------
Net income (loss)
per share $ 1.52 ($ 0.69) $ 0.88
=============================================
Fully diluted--
Income (loss) from
continuing operations $ 0.56 ($ 0.06) $ 0.74
Income (loss) from
discontinued
operations 0.81 ( 0.63) 0.09
---------------------------------------------
Net income (loss)
per share $ 1.37 ($ 0.69) $ 0.83
==============================================
</TABLE>
See Notes to Consolidated Financial Statements
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<CAPTION>
March 31,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 43,471 $ 672
Accounts receivable, less allowances of
$7,000 and $7,069, respectively 64,626 72,001
Income tax refunds receivable - 4,440
Inventories 71,550 79,308
Prepaid expenses 9,421 11,221
Deferred tax asset 8,310 14,970
Net assets of discontinued operations - 62,514
----------------------------
Total current assets 197,378 245,126
Property, plant and equipment, net 32,843 35,357
Other assets 10,466 10,201
Deferred charges 2,785 3,284
Goodwill, less accumulated amortization of
$3,246 and $1,967, respectively 58,099 61,115
----------------------------
TOTAL ASSETS $301,571 $355,083
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 18,880 $23,187
Accrued expenses 22,740 21,502
Dividends payable 685 685
Income taxes currently payable 19,974 -
Current portion of long-term debt 2,979 2,376
Current portion of capital lease
obligations 268 249
---------------------------
Total current liabilities 65,526 47,999
Long-term debt 83,162 179,489
Capital lease obligations 377 527
Deferred tax liability 3,640 3,127
Other liabilities 2,054 1,876
Shareholders' equity
Preferred stock, $1.00 par value,
authorized 1,000,000 shares;
none issued - -
Common stock, $1.00 par value,
authorized 20,000,000 shares;
issued 16,001,178 and 16,004,368
shares, respectively 16,001 16,004
Class B common stock, $1.00 par value,
authorized 5,000,000 shares;
issued 1,112,075 and 1,112,075
shares, respectively 1,112 1,112
Additional paid-in capital 79,409 78,825
Retained earnings 50,290 26,952
Deferred compensation - ( 828)
----------------------------
Total shareholders' equity 146,812 122,065
----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $301,571 $355,083
============================
</TABLE>
See Notes to Consolidated Financial Statements
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<CAPTION>
Class B Additional Deferred
Common Common Paid-In Retained Compen-
Stock Stock Capital Earnings sation
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1994 $ 9,891 $ 800 $20,982 $30,651 $ -
Net income 11,710
Common stock issued:
Option plans --
10,500 common and
60,000 Class B
common shares 11 60 306
Retirement for option
payments
15,038 common
and 180 Class B
common shares ( 15) ( 348)
Dividends declared -
$0.136 per share ( 1,823)
Executive Stock Purchase
Plan
Retired 2,255 common
shares ( 2) ( 26)
Stock dividend - 25% 2,471 213 ( 2,703)
Class B common stock
converted to
common stock 6 ( 6)
---------------------------------------------------
Balance at March 31, 1995 12,362 1,067 18,211 40,538 -
Net loss (10,914)
Common stock issued:
Option plans --
26,738 common
and 18,750
Class B common
shares 27 19 153
Retirement for option
payments
7,349 common shares ( 7) ( 141)
Incentive plan stock
awards --
49,294 common shares
and 26,250 Class B
common shares 49 26 614
Common stock offering 2,875 51,521
C.R. Gibson ESOP -
698,308 common
shares 698 8,467
Dividends declared -
$0.16 per share ( 2,672)
Deferred compensation ( 828)
---------------------------------------------------
Balance at March 31, 1996 16,004 1,112 78,825 26,952 ( 828)
Net income 26,077
Common stock issued:
Option plans --
8,841 common
shares 9 75
Retirement of stock
awards --
12,031 common
shares ( 12) ( 110)
Dividends declared -
$0.16 per share ( 2,739)
Incentive plan stock
awards 619
Deferred compensation 828
---------------------------------------------------
Balance at March 31, 1997 $ 16,001 $ 1,112 $79,409 $50,290 $ -
===================================================
</TABLE>
See Notes to Consolidated Financial Statements
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Years ended March 31,
----------------------------------
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing
operations $ 9,522 ($ 923) $ 10,101
Adjustments to reconcile income to
net cash provided by (used in)
operations:
Depreciation and amortization 8,436 7,263 4,191
Deferred income taxes 7,173 ( 2,774) 5,601
Gain on sale of property, plant
and equipme - ( 449) ( 702)
Deferred compensation 619 222 -
Changes in assets and liabilities,
net of acquisitions and disposals:
Accounts receivable, net 7,375 2,572 ( 19,548)
Income tax refunds receivable 4,440 ( 3,570) ( 870)
Inventories 7,758 ( 8,827) ( 399)
Prepaid expenses 1,800 747 ( 6,522)
Accounts payable and accrued
expenses ( 9,969) ( 7,338) 9,513
Income taxes currently payable 3,707 - ( 4,471)
-----------------------------------
Net cash provided by (used in) continuing
operations 40,861 ( 13,077) ( 3,106)
------------------------------------
Discontinued operations:
Income (loss) from discontinued
operations 728 ( 7,358) 1,609
Gain (loss) on disposal of
discontinued operations 15,827 ( 2,633) -
Changes in discontinued assets ( 24,442) 20 1,819
Cash used in discontinued
operations ( 7,179) ( 7,237) ( 12,002)
-----------------------------------
Net cash used in discontinued operations ( 15,066) ( 17,208) ( 8,574)
-----------------------------------
Net cash provided by (used in) operating
activities 25,795 ( 30,285) ( 11,680)
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 1,876) ( 3,996) ( 1,342)
Proceeds from sale of property,
plant and equipment 49 854 23
Proceeds from sales of business and
discontinued assets 120,368 - 2,823
Purchase of net assets of acquired
companies - net of cash received ( 122) ( 70,217) ( 187)
Changes in other assets and
deferred charges ( 2,817) 3,241 ( 3,344)
-----------------------------------
Net cash provided by (used in) investing
activities 115,602 ( 70,118) ( 2,027)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under line
of credit ( 57,800) ( 1,000) 18,300
Proceeds from issuance of
long-term debt - 50,000 -
Payments under capital lease
obligation ( 231) ( 901) ( 723)
Payments on long-term debt ( 37,968) ( 9,375) ( 892)
Dividends paid ( 2,739) ( 2,524) ( 1,713)
Changes in other liabilities 178 ( 193) ( 1,246)
Proceeds from issuance of common stock 84 64,449 377
Common stock retired ( 122) ( 148) ( 391)
-----------------------------------
Net cash provided by (used in)
financing activities ( 98,598) 100,308 13,712
-----------------------------------
Net increase (decrease) in cash and
cash equivalents 42,799 ( 95) 5
Cash and cash equivalents at beginning
of year 672 767 762
------------------------------------
Cash and cash equivalents at end of year $ 43,471 $ 672 $ 767
====================================
Supplemental disclosures of noncash
investing and financing activities:
Dividends accrued and unpaid $ 685 $ 685 $ 537
Capital lease obligations
incurred to lease new
equipment $ 144 $ 674 $ -
Contribution to ESOP using
previously funded advances $ 828 $ - $ -
</TABLE>
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
====================================================================
Thomas Nelson, Inc. and Subsidiaries
NOTE A-DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS: Thomas Nelson, Inc. (a Tennessee
corporation) and subsidiaries (the "Company"), is a
publisher, producer and distributor of Bibles and books
emphasizing Christian, inspirational and family value
themes. The Company also designs and markets a broad line
of gift and stationery products. The principal markets for
the Company's products are Christian bookstores, general
bookstores, mass merchandisers, gift stores and direct
marketing to consumers in English-speaking countries.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements consist of the accounts of the Company including
its subsidiaries, Worthy, Incorporated (formerly Word,
Incorporated) and The C.R. Gibson Company ("Gibson"). See
Note B for additional information. The consolidated
statement of operations for the year ended March 31, 1996,
includes Gibson operations for the five months ended March
31, 1996. All intercompany transactions and balances have
been eliminated.
SALES RETURNS: Provision is made for the estimated effect of
sales returns where right-of-return privileges exist.
Returns of products from customers are accepted in
accordance with standard industry practice. The full amount
of the returns allowance (estimated returns to be received
net of inventory and royalty costs) is shown, along with the
allowance for doubtful accounts, as a reduction of accounts
receivable in the accompanying financial statements.
INVENTORIES: Inventories are stated at the lower of cost or
market using the first-in, first-out (FIFO) valuation
method. Costs of the production and publication of products
are included in inventory and charged to operations when
sold or when otherwise disposed. Costs of abandoned
publishing projects and appropriate provisions for inventory
obsolescence and decreases in market value are charged to
operations on a current basis.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are
stated at cost. Depreciation and amortization are provided
for principally on the straight-line method over the
estimated useful lives of the individual assets.
GOODWILL: Goodwill is being amortized on a straight-line basis
over 40 years. Subsequent to acquisitions, the Company
continually evaluates whether later events and circumstances
have occurred that indicate the remaining estimated useful
life of goodwill may warrant revision or that the remaining
balance of goodwill may not be recoverable. In the
evaluation of possible impairment, the Company uses the most
appropriate method of evaluation given the circumstances
surrounding the particular acquisition, which has generally
been an estimate of the related business unit's undiscounted
operating income before interest and taxes over the
remaining life of the goodwill.
PREPAID EXPENSES: Prepaid expenses consist primarily of royalty
advances. These costs are expensed over the expected
benefit periods.
DEFERRED CHARGES: Deferred charges consist primarily of loan
issuance costs which are being amortized over the average
life of the related debt. Also included are publication
costs that are expected to be of significant benefit to
future periods and other deferred charges, all of which are
amortized over periods not to exceed 60 months.
OTHER ASSETS: Other assets consist primarily of prepaid royalty
costs for works and projects which are not expected to be
released within the next fiscal year.
STOCK-BASED COMPENSATION: Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS 123"), encourages, but does not require, companies to
record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to
continue to account for employee stock-based compensation
using the intrinsic value method as prescribed in Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued
to Employees" ("APB Opinion No. 25"), and related
Interpretations. Under APB Opinion No. 25, no compensation
cost related to employee stock options has been recognized
because all options are issued with exercise prices equal to
or greater than the fair market value at the date of grant.
See Note J for further discussion.
INCOME TAXES: Income taxes are accounted for in accordance with
SFAS 109, "Accounting for Income Taxes." Deferred income
taxes are provided for temporary differences between the
financial statement and income tax bases of assets and
liabilities.
COMPUTATION OF NET INCOME PER SHARE: Net income per share is
computed by dividing net income by the weighted average
number of common and Class B common shares outstanding
during the year, which includes the additional dilution
related to stock options. The fully diluted per share
computation reflects the effect of common shares
contingently issuable upon conversion of convertible debt
securities in periods in which such exercise would cause
dilution and the effect on net income of converting the debt
securities. Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128") has been issued
effective for interim and annual fiscal periods ending after
December 15, 1997. SFAS 128 establishes standards for
computing and presenting earnings per share. The Company is
required to adopt the provisions of SFAS 128 in the third
quarter of fiscal 1998. Management does not believe that
adoption of SFAS 128 will have a material effect on the
Company's financial statements, taken as a whole.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash
flows, the Company considers as cash equivalents all highly
liquid debt instruments with a maturity of three months or
less.
ACCOUNTING ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual
results could differ from those estimates.
OTHER NEW PRONOUNCEMENTS: In March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" ("SFAS 121"). This statement imposes stricter
criteria for long-term assets by requiring that such assets
be probable of future recovery at each balance sheet date.
The Company adopted SFAS 121 effective April 1, 1996. The
Company did not experience a material impact on its results
of operations, financial conditions or cash flows as a
result of adoption.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" ("SFAS 129"). SFAS 129 establishes
standards for disclosing information about an entity's
capital structure. The Company will be required to adopt
SFAS 129 in the third quarter of fiscal 1998. Management
does not expect the adoption to have a material impact on
the Company's financial position, results of operation or
cash flows.
RECLASSIFICATIONS: Certain reclassifications of prior period
amounts have been made to conform to the current year's
presentation.
NOTE B-ACQUISITIONS
The Company completed its $9.00 per share cash tender offer
effective October 31, 1995, for the outstanding shares of common
stock of Gibson for approximately $67 million. The purchase price
was funded by the Company's issuance of $50 million of the
Company's Senior Notes and by borrowings under the Company's Credit
Agreements. See Note H for additional information. Gibson,
headquartered in Norwalk, Connecticut, manufactures and markets a
wide range of paper, gift and stationery products, primarily under
the C.R. Gibsonr and Creative Papersr brand names. Products
include baby and wedding memory books, stationery, giftwrap and
paper tableware.
The Gibson acquisition has been accounted for as a purchase, and
Gibson's results of operations are included in the Company's
consolidated financial statements since the date of acquisition.
The total acquisition cost has been allocated to the net assets
acquired based on the estimated fair values. The purchase price
has been allocated to the purchased assets and assumed liabilities
as follows (in thousands):
Working capital, net $ 7,428
Property, plant and equipment,
net 20,138
Goodwill 45,974
Other assets 9,607
Other liabilities ( 15,743)
----------
$ 67,404
==========
The following unaudited pro forma information combines the
consolidated results of operations of the Company and Gibson as if
the acquisition had occurred on April 1, 1994, after giving effect
to amortization of goodwill and interest expense on borrowings to
finance the acquisition. The pro forma information is not
necessarily indicative of the results of operations which would
have actually been obtained during such periods. While the Company
believes that it will realize certain long-term synergies through
the integration of certain operating functions, there can be no
assurances that such synergies can be realized, and no amounts have
been reflected in the pro forma adjustments to reflect such
anticipated synergies.
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------
1996 l995
---------------------------
(In thousands, except per share data) (Unaudited) (Unaudited)
<S> <C> <C>
Net revenues $260,367 $ 225,030
Income (loss) from continuing
operations ($ 7,102) $ 9,244
Income (loss) per share
from continuing operations ($ 0.45) $ 0.69
</TABLE>
NOTE C-INVENTORIES
Inventories consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1997 l996
-------------------------
<S> <C> <C>
Finished goods $ 53,634 $ 61,002
Work in process and raw materials 17,916 18,306
-------------------------
$ 71,550 $ 79,308
=========================
</TABLE>
NOTE D-PREPAID EXPENSES
Prepaid expenses consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------
<S> <C> <C>
Royalties $ 7,648 $ 9,650
Other 1,773 1,571
------------------------
$ 9,421 $ 11,221
========================
</TABLE>
NOTE E-PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at
March 31 (in thousands):
<TABLE>
<CAPTION>
1997 l996
------------------------
<S> <C> <C>
Land $ 4,948 $ 4,948
Buildings 20,353 20,152
Machinery and equipment 29,762 29,469
Furniture and fixtures 3,620 3,179
Other 737 348
------------------------
59,420 58,096
Less allowance for depreciation
and amortization ( 26,577) ( 22,739)
------------------------
$ 32,843 $ 35,357
========================
</TABLE>
NOTE F-OTHER ASSETS
Other assets consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1997 l996
------------------------
<S> <C> <C>
Prepaid royalties $ 6,654 $ 5,018
Other 3,812 5,183
------------------------
$ 10,466 $ 10,201
========================
</TABLE>
NOTE G-ACCRUED EXPENSES
Accrued expenses consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1997 l996
------------------------
<S> <C> <C>
Accrued royalties $ 4,535 $ 5,558
Accrued payroll 4,708 6,039
Accrued integration costs 2,904 3,296
Accrued interest 1,541 3,263
Net liability of discontinued
operations 6,900 -
Other 2,152 3,346
------------------------
$ 22,740 $ 21,502
========================
</TABLE>
Cash payments for interest were $10.2 million in 1997, $9.6
million in 1996 and $8.0 million in 1995.
NOTE H-LONG-TERM DEBT
Long-term debt consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------
<S> <C> <C>
Industrial Revenue Bonds, 7.75% to
8.35%, due through 2005 $ 1,900 $ 2,475
Loan Agreement 3,000 3,667
Credit Agreements -- 57,800
Senior Notes 26,000 62,000
Convertible Subordinated Notes 55,000 55,000
Other 241 923
------------------------
86,141 181,865
Less current portion ( 2,979) ( 2,376)
------------------------
$ 83,162 $ 179,489
========================
</TABLE>
At March 31, 1997, Industrial Revenue Bonds were secured by
property, plant and equipment with a net book value of
approximately $1.7 million.
The Loan Agreement indebtedness is secured by property, plant
and equipment related to the Company's Nashville warehouse and
distribution center expansion completed in June 1992. Interest
payable monthly is at the London Interbank Offered Rate ("LIBOR")
plus 1.25%, which was 6.6875% at March 31, 1997. Semi-annual
principal payments are due through March 2002.
The Company has Credit Agreements with borrowing limits
totaling $85 million as of March 31, 1997. In January 1997, the
primary credit facility ("Credit Facility") was amended, in
connection with the sale of the Company's Music Business, to
decrease the Credit Facility borrowing limit to $75 million
maturing in fiscal 2003. The Credit Facility bears interest at
either the lender's prime rate or, at the Company's option, the
LIBOR plus a percentage, based on certain financial ratios. The
Credit Facility is guaranteed by all of the Company's material
subsidiaries and the Company has agreed, among other things, to
limit the payment of cumulative cash dividends and to maintain
certain interest coverage and debt-to-total-capital ratios. The
maximum dividends which the Company may pay for fiscal 1998 are
$13.2 million. Additionally, the Company has a $10 million credit
facility which matures July 31, 1998, and bears interest at the
lender's prime rate, with covenants which are the same as the
Credit Facility. At March 31, 1997, the Company was in
compliance with all covenants of the Credit Agreements. At March
31, 1997, the Company had $85 million available under its Credit
Agreements.
The Company has outstanding $26 million of Senior Notes, which
bear interest at rates from 6.68% to 9.5% and are due through
fiscal 2006. The Company in January 1997, subsequent to the sale
of the Music Business, retired $35 million of the Senior Notes.
See Note Q for further discussion. Under the terms of the Senior
Notes, the Company has agreed, among other things, to limit the
payment of cash dividends and to maintain certain interest
coverage and debt-to-total-capital ratios. The maximum
dividends which the Company may pay for fiscal 1998 are $13.2
million. At March 31, 1997, the Company was in compliance with
all covenants of the Senior Notes.
The Company has issued $55 million of Convertible Subordinated
Notes due November 30, 1999, priced at par to yield 5.75%. The
notes presently are convertible into common stock at $17.00 per
share and are redeemable at the Company's option after November
30, 1995, at 103.29% of the principal amount, declining
thereafter to 100% on November 30, 1999. This conversion would
result in 3,235,294 additional shares outstanding.
Maturities of long-term debt for the years ending March 31 are
as follows (in thousands):
1998 $ 2,979
1999 3,684
2000 59,735
2001 3,888
2002 3,581
2003 and thereafter 12,274
------------
$ 86,141
============
NOTE I-LEASES
Total rental expense for all operating leases, including
short-term leases of less than a year, amounted to approximately
$3.2 million in 1997, $2.5 million in 1996, and $1.5 million in
1995. Generally, the leases provide that, among other things,
the Company shall pay for utilities, insurance, maintenance and
property taxes in excess of base year amounts.
Minimum rental commitments under non-cancelable leases for the
years ending March 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
-------------------------
<S> <C> <C>
1998 $ 2,506 $ 325
1999 2,010 294
2000 850 52
2001 96 22
2002 30 19
2003 and thereafter -- --
-------------------------
Total minimum lease payments $ 5,492 712
===========
Less amount representing
interest ( 67)
----------
Present value of net lease
payments 645
Less current portion ( 268)
----------
$ 377
==========
</TABLE>
NOTE J-STOCK PLANS
1986 STOCK INCENTIVE PLAN: The Company adopted the 1986 Stock
Incentive Plan (the "1986 Plan"), which is administered by the
Company's Compensation Committee. Stock options were granted
under the 1986 Plan at a price not less than the fair market
value ("FMV") of the stock on the date the option is granted and
must be exercised not later than five years after the date of
grant. Stock options issued to a person then owning more than
10% of the voting power in all classes of the Company's
outstanding stock were granted at a purchase price of not less
than 110% of the FMV and must be exercised within five years from
the date of grant. The options vest 1/4 each year for four years
beginning on the first anniversary date of the option grant and,
at March 31, 1997, there were 74,768 shares of common stock and
31,250 shares of Class B common stock exercisable in the 1986
Plan. The weighted average life of the options outstanding in
the 1986 Plan at March 31, 1997, was two years. The 1986 Plan
terminated in March 1996 and options outstanding remain in effect
until exercised or expired. Options outstanding under this plan
are as follows:
<TABLE>
<CAPTION>
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
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
April 1, 1994 58,238 36,000 190,487 75,000 $ 5.50
Granted ( 60,238) 200,000 (189,762) 50,000 18.20
Stock dividend -- 54,750 181 16,250 ( 3.32)
Exercised -- ( 15,000) -- ( 60,000) 5.74
Canceled 2,000 ( 2,000) -- -- 4.00
-------------------------------------------------------------
March 31, 1995 -- 273,750 906 81,250 13.22
Exercised -- ( 21,094) -- ( 18,750) 4.44
Canceled 29,344 ( 29,344) -- -- 11.97
Plan terminated ( 29,344) -- ( 906) -- --
-------------------------------------------------------------
March 31, 1996 -- 223,312 -- 62,500 14.58
Canceled -- ( 74,375) -- -- 14.40
-------------------------------------------------------------
March 31, 1997 -- 148,937 -- 62,500 $ 14.64
=============================================================
</TABLE)
1990 DEFERRED COMPENSATION OPTION PLAN FOR OUTSIDE DIRECTORS:
The Company adopted the 1990 Deferred Compensation Option Plan
for Outside Directors (the "Outside Directors Plan"), which is
administered by the Company's Compensation Committee. Options
were awarded, on or prior to the annual meeting of shareholders
or on initial election to the Board of Directors ("Board"), to
each Director of the Company who filed with the Company an
irrevocable election to receive options in lieu of not less than
fifty percent (50%) of the retainer fees to be earned during each
fiscal year. The option price was $1.00 per share with the
number of shares being determined by dividing the amount of the
annual retainer fee by the fair market value of the shares on the
option date less $1.00 per share. The amount of annual retainer
fee for options was expensed by the Company as earned. The
options in the Outside Directors Plan vest on the first
anniversary date of the option grant and, at March 31, 1997,
there were 17,852 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, 1997, was two years. Options granted
and outstanding under this plan are as follows:
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
Remaining Weighted
Shares Outstanding Average
Reserved Optioned Exercise
For Grant Shares Price
-----------------------------------------
<S> <C> <C> <C>
April 1, 1994 128,265 12,437 $ 0.77
Stock dividend 31,023 4,153 ( 0.17)
Granted ( 4,175) 4,175 1.00
-----------------------------------------
March 31, 1995 155,113 20,765 0.66
Granted ( 3,030) 3,030 1.00
-----------------------------------------
March 31, 1996 152,083 23,795 0.71
Exercised -- ( 5,943) 0.53
Plan terminated ( 152,083) -- --
-----------------------------------------
March 31, 1997 -- 17,852 $ 0.76
=========================================
</TABLE>
1992 EMPLOYEE STOCK INCENTIVE PLAN: The Company has adopted the
1992 Amended and Restated Employee Stock Incentive Plan, which is
administered by the Company's Compensation Committee. Stock
options, stock appreciation rights, restricted stock, deferred
stock, stock purchase rights and other stock-based awards may be
granted to employees under this plan. In addition, 140,000
shares of common stock have been authorized for issuance under
this plan for annual stock option grants to each of the Company's
outside directors for the purchase of 2,000 shares of common
stock. Stock options have been granted under this plan as
indicated in the table below. In addition, for fiscal 1995 and
1996, restricted stock awards were granted. Under the provision
of the restricted stock awards, employees may earn 50% of the
award in fiscal years 1995 and 1996 based upon achieving
performance goals in each year provided the employee does not
terminate his or her employment for two years subsequent to when
an award is earned. During fiscal 1997, the Company issued 1,083
shares of common stock and 2,082 shares of Class B common stock
pursuant to such restricted stock awards. Compensation expense
of $0.6 million related to this plan was recognized during fiscal
1997. The options in the Stock Incentive Plan vest over one to
three year periods beginning on the first or fourth anniversary
date of the option grant, and at March 31, 1997, there were
40,833 shares of common stock and 30,000 shares of Class B common
stock exercisable. The weighted average life of the options
outstanding in the Stock Incentive Plan at March 31, 1997, was
eight years.
<TABLE>
<CAPTION>
Remaining Outstanding Outstanding Weighted Weighted
Shares Award Shares Option Shares Average Average
Reserved ---------------------------------- Exercise Fair
For Grant Common Class B Common Class B Price Value
Stock Stock Stock Stock
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
April 1,
1994 750,000 -- -- -- --
Awards
granted (187,084) 132,084 55,000 -- --
Stock
dividend 187,500 -- -- -- --
-----------------------------------------------------------------
Balance at
March 31,
1995 750,416 132,084 55,000 -- --
Awards
canceled 21,136 ( 17,804) ( 3,332) -- --
Awards
issue -- ( 51,376) (24,168) -- --
Options
grante (635,500) -- -- 305,500 330,000 $19.48 $11.94
Additional
shares
author-
ized 1,202,500 -- -- -- --
------------------------------------------------------------------
Balance at
March 31,
1996 1,338,552 62,904 27,500 305,500 330,000 $19.48
Awards
canceled 87,239 (61,821) (25,418) -- --
Options
canceled 198,000 -- -- (183,000) ( 15,000) $17.19
Awards
issue -- ( 1,083) ( 2,082) -- --
Options
granted (320,000) -- -- 185,000 135,000 $14.34 $ 8.49
Stock
incentive
issued ( 1,815) -- -- -- --
------------------------------------------------------------------
Balance at
March 31,
1997 1,301,976 -- -- 307,500 450,000 $17.91
==================================================================
</TABLE>
STOCK-BASED COMPENSATION PLANS: The Company accounts for options
issued to employees and directors under APB Opinion No. 25. All
options are granted with exercise prices equal to or greater than
market value of the Company's common stock on the date of grant.
As a result, no compensation cost has been recognized.
In October 1995, the FASB issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 established new financial
accounting and reporting standards for stock-based compensation
plans. The Company has adopted the disclosure-only provision of
SFAS 123. As a result, no compensation cost has been recognized
for the Company's employee stock option plans. Had compensation
cost for the employee stock option plans been determined based on
the fair value at the grant date for awards in fiscal 1997 and
1996 consistent with the provisions of SFAS 123, the Company's
net income (loss) and net income (loss) per share would have been
reduced (increased) to the following pro forma amounts for the
1997 and 1996 fiscal years:
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
Net income (loss):
As reported $ 26,077 ($ 10,914)
==========================
Pro forma $ 24,683 ($ 12,309)
==========================
Net income (loss) per share:
Primary-- As reported $ 1.52 ($ 0.69)
==========================
Pro forma $ 1.44 ($ 0.78)
==========================
Fully diluted-- As reported $ 1.37 ($ 0.69)
==========================
Pro forma $ 1.31 ($ 0.78)
==========================
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Expected dividend payment $ 0.16 $ 0.16
Expected stock price
volatility 45.96% 54.49%
Risk free interest rate 6.55% 6.36%
Expected life of options 8 years 8 years
</TABLE>
NOTE K-RETIREMENT PLANS
The Company has adopted the Thomas Nelson, Inc. Employee Stock
Ownership Plan ("Company ESOP") which includes a 401(k) feature.
In addition, Gibson maintains The C.R. Gibson Company Employee
Stock Ownership Plan ("Gibson ESOP") and The C.R. Gibson Company
Savings and Investment Plan ("Gibson 401(k) Plan"). The Company
ESOP covers all eligible officers and employees other than those
employed by Gibson. The Company, at its discretion, matches each
employee's 401(k) contribution annually and, in addition, may
make retirement contributions to the ESOP at its discretion. The
Gibson ESOP and Gibson 401(k) Plan benefit all eligible Gibson
employees. Gibson, at its discretion, matches each Gibson
employee's 401(k) contributions annually and contributes 4% of
the first $6,600 of a participant's compensation in the Gibson
401(k) Plan. Prior to the Gibson acquisition, Gibson loaned the
Gibson ESOP monies to purchase shares and the balance of the loan
was $828,000 at March 31, 1996. Annual contributions to the
Gibson ESOP are a percentage of compensation in accordance with
the plan provisions and are used to repay the loan to the Company
and to acquire additional shares of common stock. The shares
acquired by the Gibson ESOP through the loan are released and
allocated to the participants as the loan is paid by
contributions. At March 31, 1997, the Gibson ESOP loan had been
retired. The Company's contributions to these retirement plans
including matching contributions totaled $3.1 million, $1.5
million and $1.0 million in 1997, 1996 and 1995, respectively.
NOTE L-COMMON STOCK
On March 24, 1995, the Company effected a five-for-four stock
split in the form of a 25% stock dividend. All common stock,
Class B common stock, dividends per share and earnings per share
data has been restated to reflect this five-for-four stock split.
On July 24, 1995, the Company sold 2,875,000 shares of common
stock at $20.00 per share to a group of underwriters in a
registered public offering. The net proceeds to the Company of
approximately $54.4 million were used to repay amounts
outstanding under the Company's bank Credit Agreements.
NOTE M-INCOME TAXES
The income tax provision is comprised of the expense (benefit)
as follows at March 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Current:
U.S. federal $ 19,180 ($ 3,604) $ 97
State 1,692 150 839
Foreign 2,089 126 102
--------------------------------
Total current 22,961 ( 3,328) 1,038
Deferred 7,173 ( 3,924) 5,601
--------------------------------
Total tax provision $ 30,134 ($ 7,252) $ 6,639
================================
</TABLE>
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):
<TABLE>
<CAPTION>
1997 1996
---------------------
<S> <C> <C>
Accelerated depreciation ($ 2,571) ($ 2,913)
Deferred charges ( 571) ( 779)
Contributions -- 1,663
Inventory obsolescence reserve 1,877 4,748
Bad debt and returns reserves 2,303 4,051
Inventory-unicap tax adjustment 1,129 3,142
Advances and prepaid expenses 92 2,478
Accrued liabilities 2,127 3,559
Other 5,457 1,284
Valuation allowance ( 5,173) ( 5,390)
--------------------
Net deferred tax asset $ 4,670 $11,843
====================
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
U.S. federal statutory tax rate
provision (benefit) 34.0% ( 34.0%) 34.5%
State taxes on income 3.0% ( 6.7%) 4.6%
Other -- .8% ( 2.9%)
-------------------------------
Effective tax rate 37.0% ( 39.9%) 36.2%
===============================
</TABLE>
Cash payments for income taxes were $1.0 million, $0.9 million,
and $6.0 million in 1997, 1996 and 1995, respectively.
NOTE N-QUARTERLY RESULTS (UNAUDITED)
Summarized results for each quarter in the fiscal years ended
March 31, 1997 and 1996 are as follows (dollars in thousands,
except per share data):
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------------------------------------------------
<S> <C> <C> <C> <C>
1997
- - -----
Net revenues $ 55,179 $ 65,206 $ 63,557 $ 59,494
Gross profit $ 26,034 $ 30,973 $ 27,958 $ 26,272
Income from
continuing
operations $ 218 $ 3,571 $ 3,443 $ 2,290
Income (loss) from
discontinued
operations ($ 1,613) $ 1,538 $ 803 $ 15,827
Net income (loss) ($ 1,395) $ 5,109 $ 4,246 $ 18,117
Income (loss) per
share from
continuing
operations $ 0.01 $ 0.21 $ 0.20 $ 0.14
Income (loss) per
share from
discontinued
operations ($ 0.09) $ 0.09 $ 0.05 $ 0.92
Net income (loss)
per share ($ 0.08) $ 0.30 $ 0.25 $ 1.06
1996
- - -----
Net revenues $ 41,986 $ 50,153 $ 62,978 $ 64,721
Gross profit $ 22,167 $ 22,561 $ 28,270 $ 20,218
Income (loss) from
continuing
operations $ 710 $ 3,247 $ 2,181 ($ 7,061)
Income (loss) from
discontinued
operations ($ 1,066) $ 195 ($ 535) ($ 8,585)
Net income (loss) ($ 356) $ 3,442 $ 1,646 ($ 15,646)
Income (loss) per
share from
continuing
operations $ 0.05 $ 0.25 $ 0.13 ($ 0.42)
Income (loss) per
share from
discontinued
operations ($ 0.08) ($ 0.03) ($ 0.03) ($ 0.51)
Net income (loss)
per share ($ 0.03) $ 0.22 $ 0.10 ($ 0.93)
</TABLE>
NOTE O-COMMITMENTS AND CONTINGENCIES
The Company has commitments to provide advances to certain
authors in connection with products they are developing for the
Company. These commitments totaled approximately $10.2 million
at March 31, 1997. The timing of payments will be dependent upon
the performance by the authors of conditions provided in the
applicable contracts. It is anticipated that a substantial
portion of the commitments will be completed within the next five
years.
The Company is subject to various legal proceedings, claims and
liabilities, which arise in the ordinary course of business. In
the opinion of management, the amount of ultimate liability with
respect to these actions will not materially affect the financial
position or results of operations of the Company.
NOTE P-FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of financial
instruments as of March 31, 1997 is made in accordance with SFAS
107, "Disclosures about Fair Value of Financial Instruments."
The estimated fair value amounts have been determined by the
Company using available market information as of March 31, 1997
and 1996, respectively. The estimates presented are not
necessarily indicative of amounts the Company could realize in a
current market transaction (in thousands):
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-----------------------------------------------
<S> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 43,471 $ 43,471 $ 672 $ 672
LONG-TERM DEBT:
Industrial Revenue Bonds $ 1,900 $ 1,900 $ 2,475 $ 2,475
Capital Lease Obligations $ 377 $ 377 $ 776 $ 776
Loan Agreement $ 3,000 $ 3,000 $ 3,667 $ 3,667
Credit Agreements $ -- $ -- $ 57,800 $ 57,800
Senior Notes $ 26,000 $ 24,720 $ 62,000 $ 58,733
Convertible Subordinated
Notes $ 55,000 $ 50,600 $ 55,000 $ 57,200
</TABLE>
The carrying values of the cash and cash equivalents
approximated the fair value based on the short-term nature of the
investment instruments. The fair values of the Convertible
Subordinated Notes and the Senior Notes are based on the
unofficial market for these privately placed instruments. The
carrying value of the Company's Credit Agreements and Loan
Agreement approximates the fair value. Due to the variable rate
nature of the instruments, the interest rate paid by the Company
approximates the current market rate demanded by investors;
therefore, the instruments are valued at par. The carrying value
of the Industrial Revenue Bonds and the Capital Lease Obligation
approximates the fair value.
Outstanding letters of credit totaled $1.4 million and $3.6
million as of March 31, 1997 and 1996, respectively. The letters
of credit guarantee performance to third parties of various trade
activities. Fair value estimated on the basis of fees paid to
obtain the obligations is not material at March 31, 1997 and
1996.
Financial instruments which potentially subject the Company to
credit risk consist primarily of trade receivables. Credit risk
on trade receivables is minimized as a result of the large and
diverse nature of the Company's customer base.
NOTE Q-DISCONTINUED OPERATIONS
On January 6, 1997, the Company sold the assets, net of
liabilities, of the Music Business, which included production of
recorded music and related products, the distribution of
recordings for other companies and music publishing, including
songwriter development, print music publishing and copyright
administration, for approximately $120 million.
During March 1996, the Company adopted plans to sell the
Christian-lifestyles magazines and the radio networks of the
Company's Royal Media division, and those sales have been
completed. These operations are accounted for as discontinued
operations, and accordingly, their assets, liabilities and
results of operations are segregated in the accompanying
consolidated statements of operations, balance sheets and
statements of cash flows.
Net revenues, operating costs and expenses, other income and
expense, and income taxes for all periods presented have been
reclassified for amounts associated with the discontinued
operations.
Revenues, income (losses) and income tax provisions (benefits)
associated with the discontinued operations were as follows at
March 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Net revenues $ 74,687 $ 91,830 $ 90,498
========================================
Income (loss) from operations
before income tax provision
(benefit) $ 1,174 ($ 12,249) $ 2,521
Income tax provision (benefit) 446 ( 4,891) 912
----------------------------------------
Income (loss) from operations 728 ( 7,358) 1,609
----------------------------------------
Gain (loss) on disposal before
income tax provision (benefit) 39,923 ( 4,381) --
Income tax provision (benefit) 24,096 ( 1,748) --
----------------------------------------
Gain (loss) on disposal 15,827 ( 2,633) --
----------------------------------------
Total income (loss) from
discontinued operations $ 16,555 ($ 9,991) $ 1,609
========================================
</TABLE>
Assets and liabilities for all periods presented have been reclassified
for amounts associated with the discontinued operations. Net liabilities
from discontinued operations for fiscal 1997 have been classified as accrued
expenses on the consolidated balance sheet. Summarized balance sheet data for
the discontinued operations is as follows at March 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
Current assets $ 2,201 $ 54,382
Property, plant and
equipment, net -- 1,277
Other assets -- 9,520
Goodwill -- 15,848
--------------------------
Total assets 2,201 81,027
Current liabilities 9,101 17,578
Other non-current liabilities -- 935
--------------------------
Net assets (liabilities) ($ 6,900) $ 62,514
==========================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
=================================================================
Thomas Nelson, Inc. and Subsidiaries
To the Board of Directors of Thomas Nelson, Inc. and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Thomas Nelson, Inc. (a Tennessee corporation) and Subsidiaries as
of March 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1997.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Thomas Nelson, Inc. and Subsidiaries as of March 31, 1997 and
1996, and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Nashville, Tennessee
May 30, 1997
OTHER FINANCIAL INFORMATION
=================================================================
The common stock and the Class B common stock are traded on the
NYSE under the symbols "TNM" and "TNM.B," respectively. Until
June 19, 1995, the common stock and the Class B common stock were
quoted on the Nasdaq National Market under the symbols "TNEL" and
"TNELB," respectively. The following table sets forth, for the
periods indicated, the high and low bid prices of the common
stock and Class B common stock as reported on the Nasdaq National
Market for each of the quarters indicated through June 16, 1995,
and the high and low closing sales prices as reported on the NYSE
composite tape from June 19, 1995:
</TABLE>
<TABLE>
<CAPTION>
Common Class B
Stock Common Stock
------------------------------------- Dividends Paid
High Low High Low Per Share
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal l997
- - -----------
First Quarter $ 15 1/8 $ 11 1/2 $ 19 3/8 $ 16 $ .040
Second Quarter 13 1/4 10 1/4 16 3/4 12 1/2 .040
Third Quarter 14 7/8 9 3/8 21 13 1/4 .040
Fourth Quarter 15 1/4 10 1/2 23 18 7/8 .040
------------
$ .160
============
Fiscal l996
- - -----------
First Quarter $ 20 1/4 $ 19 5/8 $ 23 $ 18 1/2 $ .040
Second Quarter 26 3/8 19 1/8 26 20 7/8 .040
Third Quarter 26 1/8 12 1/2 25 3/4 18 3/8 .040
Fourth Quarter 16 3/4 12 3/8 19 1/4 16 1/2 .040
------------
$ .160
============
</TABLE>
As of June 4, 1997, there were 1,181 record holders of the
common stock and 767 record holders of the Class B common stock.
Declaration of dividends is within the discretion of the Board
of Directors of the Company. The Board considers the payment of
dividends on a quarterly basis, taking into account the Company's
earnings and capital requirements as well as financial and other
conditions existing at the time. Certain covenants of the
Company's Credit Agreements and Senior Notes limit the amount of
cash dividends payable based on the Company's cumulative
consolidated net income. See Note H of Notes to Consolidated
Financial Statements. On May 22, 1997, the Company declared a
cash dividend of $.04 per share on its common stock and Class B
common stock to be paid on August 18, 1997 to shareholders of
record on August 4, 1997.
<TABLE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<CAPTION>
Percentage
Jurisdiction of Ownership of
Subsidiary Incorporation Capital Stock
===========================================================
<S> <C> <C>
Worthy, Incorporated Delaware 100%
(formerly Word,
Incorporated)
Nelson Direct Marketing
Services, Inc. Delaware 100%
Nelson Direct, Inc. Texas 100%
(formerly Word
Direct, Inc.)
Nelson Direct
Partners, LP Texas 100%
(formerly Word Direct
Partners, LP)
Editorial Caribe, Inc. Florida 100%
The C.R. Gibson Company Delaware 100%
855763 Ontario Limited Ontario, Canada 100%
C.R. Gibson Catalogue, Inc. Delaware 100%
Nelson Media (U.K.) Limited United Kingdom 100%
(formerly NelsonWord, Ltd.)
Nelson Media (Canada)
Limited British Columbia, 100%
(formerly Word Canada
Communications Ltd.)
Elm Hill Press, Inc. Tennessee 100%
PPC, Inc. North Carolina 100%
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K of our report dated
May 30, 1997 included in Thomas Nelson, Inc.'s annual report to
shareholders. In addition, we hereby consent to the
incorporation of our reports incorporated by reference in this
Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (File No. 33-80086 and File No. 333-4503).
/s/ ARTHUR ANDERSEN LLP
Nashville, Tennessee
June 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF THOMAS NELSON, INC. FOR FISCAL YEAR ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 43,471
<SECURITIES> 0
<RECEIVABLES> 71,626
<ALLOWANCES> 7,000
<INVENTORY> 71,550
<CURRENT-ASSETS> 197,378
<PP&E> 59,420
<DEPRECIATION> 26,577
<TOTAL-ASSETS> 301,571
<CURRENT-LIABILITIES> 65,526
<BONDS> 83,539
0
0
<COMMON> 17,113
<OTHER-SE> 129,699
<TOTAL-LIABILITY-AND-EQUITY> 301,571
<SALES> 238,769
<TOTAL-REVENUES> 243,436
<CGS> 132,199
<TOTAL-COSTS> 218,458
<OTHER-EXPENSES> 2,024
<LOSS-PROVISION> 2,794
<INTEREST-EXPENSE> 8,430
<INCOME-PRETAX> 15,114
<INCOME-TAX> 5,592
<INCOME-CONTINUING> 9,522
<DISCONTINUED> 15,827
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,077
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.37
</TABLE>
