===============================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998 Commission file number 0-4095
---------------------------
THOMAS NELSON, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 62-0679364
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
501 Nelson Place, Nashville, Tennessee 37214-1000
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (615) 889-9000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -------------------
Common Stock, Par Value $1.00 per share New York Stock Exchange
Class B Common Stock, Par Value New York Stock Exchange
$1.00 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90
days.
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
As of June 25, 1998, the Registrant had outstanding
15,660,729 shares of common stock and 1,111,924
shares of Class B common stock. On such date the aggregate
market value of shares of common stock and Class B common
stock held by nonaffiliates was approximately $178.4
million. The market value calculation was determined using
the closing sale price of the Registrant's common stock and
Class B common stock on June 25, 1998, as reported on The
New York Stock Exchange, and assumes that all shares
beneficially held by executive officers and the directors of
the Registrant are shares owned by "affiliates," a status
which each of such officers and directors individually
disclaims.
============================================================
DOCUMENTS INCORPORATED BY REFERENCE
Documents from which portions
Part of Form 10-K are incorporated by reference
--------------------- -------------------------------
PART II
Item 5 - Market for Company's Page 33 of Annual Report to
Common Equity and Shareholders for year ended
Related Shareholder March 31, 1998 (market
Matters price and dividend
information only)
Item 6 - Selected Financial Page 11 of Annual Report to
Data Shareholders for year ended
March 31, 1998
Item 7 - Management's Dis- Pages 12 to 15 of Annual
cussion and Analysis Report to Shareholders for
of Financial Con- year ended March 31, 1998
dition and Results
of Operations
Item 8 - Financial Statements Pages 16 to 31 of Annual
and Supplementary Report to Shareholders for
Data year ended March 31, 1998
PART III
Item 10 - Directors and To be included in Company's
Executive Officers Proxy Statement for the
of the Company Annual Meeting of Share-
holders to be held August 20,
1998, to be filed with the
Securities and Exchange
Commission pursuant to
Regulation 14A under the
Securities Exchange Act of
1934, as amended.
Item 11 - Executive To be included in Company's
Compensation Proxy Statement for the
Annual Meeting of Share-
holders to be held August 20,
1998, to be filed with the
Securities and Exchange
Commission pursuant to
Regulation 14A under the
Securities Exchange Act of
1934, as amended.
Item 12 - Security Ownership To be included in Company's
of Certain Bene- Proxy Statement for the
ficial Owners and Annual Meeting of Share-
Management holders to be held August 20,
1998, to be filed with the
Securities and Exchange
Commission pursuant to
Regulation 14A under the
Securities Exchange Act of
1934, as amended.
Item 13 - Certain Relation- To be included in Company's
ships and Related Proxy Statement for the
Transactions Annual Meeting of Share-
holders to be held August 20,
1998, to be filed with the
Securities and Exchange
Commission pursuant to
Regulation 14A under the
Securities Exchange Act of
1934, as amended.
PART I
Item 1. Business
Thomas Nelson, Inc. (the "Company") is a leading publisher,
producer and distributor of books emphasizing Christian,
inspirational and family value themes, and believes it is the
largest commercial publisher of the Bible in English language
translations. The Company also designs, manufactures and markets
a broad line of gift and stationery products. The Company
believes it is the largest publisher of Christian and
inspirational books in the United States and is a major producer
of gift and stationery items.
The Company, incorporated under the laws of the State of
Tennessee in 1961, has grown significantly over the last five
years through a combination of internal product development,
expanded product distribution and acquisitions. In November
1992, the Company acquired Word, Incorporated, a leading producer
and publisher of Christian music with complementary operations in
Christian and inspirational book publishing. The Company also
has enhanced its position in the gift products market and related
distribution channels through the acquisition of The C.R. Gibson
Company ("C.R. Gibson"), effective October 31, 1995. C.R.
Gibson, based in Norwalk, Connecticut, is a leading designer,
manufacturer and distributor of paper gift products, including
baby and wedding memory books, stationery, gift wrap and other
products.
During fiscal 1997, the Company analyzed various strategic
alternatives for maximizing value from its music division and in
the third quarter determined to sell the music division, which
included the production of recorded music and related products,
the distribution of recordings for other companies and music
publishing, including songwriter development, print music
publishing and copyright administration. On January 6, 1997, the
Company sold the assets, subject to certain liabilities, of the
music division ("Music Business") for $120 million and realized a
net gain of $15.8 million (net of a goodwill write-off of $17
million).
During the fourth quarter of fiscal 1996, the Company
determined to discontinue its Royal Media division operations as
part of its business strategy to refocus its efforts and
resources on the growth of the Company's core businesses. The
Royal Media division was formed in fiscal 1995 to evaluate and
implement new initiatives in the use of alternative forms of
media and new distribution technologies to further capitalize on
the commercial potential of the Company's intellectual
properties. As a result of the termination of the Royal Media
operations, the Company incurred a net loss of approximately $4.7
million from discontinued operations for the fiscal year ended
March 31, 1996.
The following table sets forth the net revenues (in thousands)
and the percentage of total net revenues for each of the
Company's principal product lines for the periods indicated:
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------------------------------
1998 1997 1996
-------------------------------------------------
Amount % Amount % Amount %
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Publishing $163,842 64.8 $153,317 63.0 $165,048 75.1
Gift 89,116 35.2 90,119 37.0 54,790 24.9
-------------------------------------------------
$252,958 100.0 $243,436 100.0 $219,838 100.0
=================================================
</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 several imprints including Nelson, Word, J.
Countryman(Trademark symbol) and Tommy Nelson(Trademark symbol),
and consist generally of inspirational, trade, gift, children's
and reference books emphasizing Christian and family value
themes. The Company distributes books primarily through
Christian bookstores, general bookstores, mass merchandisers and
direct sales to consumers. The Company also distributes books
published by other companies to complement their marketing and
distribution capabilities. In fiscal 1998, approximately 7% of
the book net revenues related to the distribution of books published
by other companies.
In fiscal 1998, 1997 and 1996, the Company released over 200
new book titles annually. The Company publishes some of the most
well-known communicators in the Christian and inspirational
field, including James Dobson, Billy Graham, Barbara Johnson, Max
Lucado, John Maxwell, Frank Peretti, Pat Robertson, Robert
Schuller, Gary Smalley, Charles Stanley and Charles Swindoll.
The Company also publishes books emphasizing positive and
inspirational themes by famous athletes and celebrities, such as
Bobby Bowden, Joe Gibbs, Evander Holyfield, Bill McCartney, Nolan
Ryan, Reggie White and Zig Ziglar. In each of the last three
fiscal years, the Company published over 50% of the top ten
bestselling Christian and inspirational books based on the
monthly Christian Booksellers' Association nonfiction hardcover
bestseller lists. In addition, the Company maintains a backlist
of approximately 1,100 titles which provide a stable base of
recurring revenues as many popular titles continue to generate
significant sales from year to year. Backlist titles accounted
for approximately 48% of the book division's net revenues in
fiscal 1998. Authors and titles are supported through the use of
radio, television, cooperative advertising, author appearances,
in-store promotions, print advertising and other means.
The Company's book publishing business is enhanced by the
breadth and development of its marketing and distribution
channels. In addition to enhancing sales of its products, the
Company believes its ability to sign and renew contracts with
popular authors is improved because the Company's marketing and
distribution capabilities provide exposure for the authors' books
to a broader audience than its competitors. See "Marketing,
Distribution and Production."
The Company believes it is the largest commercial publisher of
English translations of the Bible. The Bible is based on ancient
manuscripts which are the surviving reproductions of the original
writings. These manuscripts, written in Hebrew, Aramaic or
Greek, have been translated into English and other modern
languages by biblical scholars and theologians, generally under
the auspices of a major Bible society or translation
organization. Each of the many English translations available
differs in some degree from the others, primarily because of
different translation guidelines and principles used as the basis
for each translation. The distinctiveness of each translation is
also, in part, a result of the evolution of the meaning and use
of words within the English language.
Virtually all Bibles and Bible products currently published in
the United States are based on one of 13 major translations. Of
these 13 translations, 12 are protected by copyright laws which
grant the copyright owner the exclusive right, for a limited
term, to control the publication of such translation. The
Company publishes Bibles and Bible products based on nine of the
13 major translations, of which four are exclusive to the Company
as a result of copyright ownership or licensing arrangements.
See "Copyrights and Royalty Agreements." Approximately 63% of
the Company's net revenues from Bible publishing in fiscal 1998
were generated through sales of its proprietary Bible products.
The following table sets forth the nine major Bible
translations currently published by the Company:
<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 1,200 different Bibles and biblical
reference products such as commentaries, study guides and other
popular Bible help texts. Styles range from inexpensive
paperbacks to deluxe leather-bound Bibles. Different editions of
a particular Bible translation are created by incorporating extra
material, such as study helps, concordances, indices and Bible
outlines, or artwork, into the biblical text. These editions
(which are generally proprietary to the Company regardless of
whether or not the Company holds proprietary rights to the
underlying Bible translation) are targeted to the general market
or positioned for sale to specific market segments.
GIFT
The Company's gift division more than doubled in size during
fiscal 1996 through the acquisition of C.R. Gibson and nearly
doubled in size again during fiscal 1997. In fiscal 1998, gift
revenues declined slightly due to a change in product focus away
from the mass merchandisers stationery category. Current product
lines offered by the Company include journals and gift books,
photo albums, baby and wedding memory books, kitchen accessories
and stationery.
Products are marketed under the C.R. Gibson(Registered symbol),
Creative Papers(Registered symbol), C.R. Gibson(Registered symbol)
Kids Kollection(Trademark symbol), Toccata(Trademark symbol),
Tomorrow's Treasures(Trademark symbol), Stepping Stones(Trademark
symbol) and Inspirations(Registered symbol) brand names, the latter
of which incorporates Christian and inspirational text or themes.
Certain product lines are marketed as collections, with each
collection including a variety of products featuring a common
design or theme. Designs include original artwork designed in-
house as well as licensed from artists or design groups such as
Dena, Beatrix Potter, Carter's Infant Apparel, Echo, Warner
Brothers and Dreamworks.
The Company believes the gift division has significant
opportunities for growth as a result of the range of
complementary gift categories not currently offered and the
breadth of the Company's existing and potential distribution
channels. In addition to its product lines, the C.R. Gibson
acquisition provided the Company access to both a dedicated sales
force of more than 100 representatives experienced in marketing
to the general gift, department and specialty stores and C.R.
Gibson's manufacturing and distribution facilities.
MARKETING, DISTRIBUTION AND PRODUCTION
The principal market channels through which the Company markets
its publishing products domestically are Christian bookstores,
which are primarily independently owned; general bookstores,
including national chains such as Barnes & Noble and Borders;
specialty gift and department stores, such as Carlton Cards and
the Federated Department Store group; mass merchandisers such as
Target, K-Mart, Wal-Mart and Sam's Wholesale Club; and directly
to consumers through direct mail and telemarketing. The Company
services these market channels through its sales force and
through wholesalers or jobbers servicing bookstores, gift stores,
other retail outlets and libraries. In addition, the Company
sells certain of its products for promotional purposes and sells
specially designed or imprinted products to certain customers.
The Company's direct marketing operations sell publishing
products directly to approximately 150,000 customers consisting
of churches, other religious organizations, pastors and other
individuals by direct mail and telemarketing. Retail sales also
are made during the summer months on a door-to-door, cash sales
basis through a student sales organization operated by the
Company.
As of March 31, 1998, the Company employed a sales force of
approximately 225 people and maintained 24-hour-a-day
telemarketing capability. These employees service over 50,000
retail accounts and 150,000 church related accounts. Customer
orders are usually shipped through a variety of common carriers,
as well as by UPS, RPS and parcel post. No single customer
accounted for more than 10% of net revenues during fiscal 1998.
The Company contracts with a number of foreign publishers to
translate the Company's English titles into foreign languages.
The Company typically retains ownership rights to the titles
translated.
The Company distributes its products internationally in South
America, Europe, Australia, New Zealand, South Africa, the Far
East, Mexico and Canada. In fiscal 1998, the Company's export
operations accounted for approximately $20.1 million, or 8%, of
the Company's total net revenues.
Substantially all of the Company's publishing products are
manufactured by domestic and foreign commercial printers, binders
and manufacturers which are selected on the basis of competitive
bids. The Company may contract separately for paper and certain
other supplies used by its manufacturers. The Company
manufactures a significant portion of its gift products and
purchases its raw materials (e.g., paper, film and boxes) from a
wide group of suppliers.
COPYRIGHTS AND ROYALTY AGREEMENTS
The Company customarily secures copyrights on its books and
Bible editions in order to protect its publishing rights. Almost
all of the Company's book products are published under royalty
agreements with their respective authors or other copyright
proprietors. Many of the Company's gift products incorporate
copyrighted art work, which is licensed directly from the artist
or the owning entity under a royalty agreement.
COMPETITION
The Company believes that it is the largest publisher of
Christian and inspirational books, the largest commercial
publisher of Bibles in English language translations and a major
producer of gift and stationery items. The publishing and gift
divisions each compete with numerous other companies that publish
and distribute Christian and inspirational books or manufacture
and distribute gift products, many of which have significantly
longer operating histories and larger revenue bases than the
Company and certain of which are tax-exempt organizations. While
the Company's prices are comparable to those of its competitors,
the Company believes that its breadth of product line,
established market channels, established sales forces and
customer service give it a competitive advantage.
The most important factor with respect to the competitive
position of the Company's publishing division is the contractual
relationships it establishes and maintains with authors. The
Company competes with other book publishing companies, both
Christian and secular, for signing top authors. The Company's
ability to sign and re-sign popular authors depends on a number
of factors, including distribution and marketing capabilities,
the Company's management team and the royalty and advance
arrangements offered. The Company believes its relationships with
its authors, which are based on its reputation in the book
publishing industry, its marketing experience and its management
expertise give it a competitive advantage in signing and
maintaining contracts with top Christian and inspirational
authors.
The Company's gift division has many competitors with respect
to certain of its product lines, but the Company believes there
are few competitors who manufacture and distribute all of the
Company's gift product lines. The gift division also competes
with numerous religious publishers and suppliers, including tax-
exempt church-owned organizations, in connection with the sale of
its church supply products, and with numerous large and small
companies in the production and sale of stationery products, gift
wrap and paper tableware.
EMPLOYEES
As of March 31, 1998, the Company employed approximately 1,250
persons. The Company has not suffered any work stoppages as a
result of labor disputes in recent years and considers relations
with its employees to be good.
MANAGEMENT
Officers of the Company are elected by the Board of Directors
and serve at the pleasure of the Board of Directors. Following
is certain information regarding the executive officers of the
Company:
<TABLE>
<CAPTION>
Name Age Position with the Company
--------------------------------------------------------------
<S> <C> <C>
Sam Moore 68 Chairman of the Board, Chief
Executive Officer, President
and Director
S. Joseph Moore 35 Executive Vice President and
Director; President, Thomas
Nelson Gift Division
Joe L. Powers 52 Executive Vice President and
Secretary
Byron D. Williamson 52 President, NelsonWord Publishing
Division
Ray Capp 45 Senior Vice President, Operations
Charles Z. Moore 64 Senior Vice President,
International and Diversified
Markets
Vance Lawson 39 Vice President, Finance
Phyllis E. Williams 50 Treasurer
Eric Heyden 44 Vice President and Deputy
General Counsel
</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. Sam Moore is the father of S. Joseph Moore and
the brother of Charles Z. Moore.
S. Joseph Moore was appointed Executive Vice President and
Director of the Company in 1995 and President of the Thomas
Nelson Gift Division in 1996, and prior to such appointments, he
served as Divisional Vice President of the Company in various
capacities since 1991. S. Joseph Moore is the son of Sam Moore
and the nephew of Charles Z. Moore.
Joe L. Powers was appointed Executive Vice President of the
Company in 1995. Previously, Mr. Powers served as a Vice
President of the Company since 1980.
Byron D. Williamson has been the President of the Company's
NelsonWord Publishing Division since 1995. Mr. Williamson was
formerly President of the Company's Word Publishing Division from
1993 to 1995 and Executive Vice President of the Word Publishing
Division of Word from 1988 until Word, Incorporated was acquired
by the Company in November 1992.
Ray Capp was appointed Senior Vice President, Operations of the
Company in 1995. Prior to joining the Company, Mr. Capp was the
President and Chief Operating Officer of Ingram Merchandising
Services and Assistant to the Chairman of Ingram Distribution,
Inc. since 1992 and Executive Vice President and Chief Operating
Officer of Ingram Entertainment from 1987 to 1992.
Charles Z. Moore has been a Vice President of the Company since
1983 and was appointed Senior Vice President, International and
Diversified Markets in 1986. Charles Moore is the brother of Sam
Moore and the uncle of S. Joseph Moore.
Vance Lawson has been the Vice President, Finance of the
Company since 1993. Mr. Lawson was formerly Senior Vice
President of Finance and Operations at Word since 1988.
Phyllis E. Williams has been the Treasurer of the Company since
1992. Mrs. Williams was previously Controller for the Company
since 1988.
Eric Heyden has been the Vice President and Deputy General
Counsel of the Company since 1997 and was the Assistant General
Counsel of the Company since 1995. Mr. Heyden was previously
Vice President and General Counsel with Knoedler Publishing, Inc.
from 1985 to 1995.
Item 2. Properties
The Company's executive, editorial, sales and production
offices are primarily located at its corporate headquarters at
501 Nelson Place in Nashville, Tennessee. These facilities are
housed in a 74,000 square foot building completed in 1981, which
is owned by the Company subject to a mortgage securing a debt
with an outstanding balance at March 31, 1998 of $1,725,000.
The Company's major warehouse facilities for its publishing
division are located in a building containing approximately
215,000 square feet adjacent to its corporate headquarters in
Nashville, Tennessee. This building, which was completed in
fiscal 1978, is owned by the Company. An addition to the
warehouse and distribution center of approximately 120,000 square
feet was completed during fiscal 1993. This addition was
financed by a $5,000,000 construction and term loan secured by a
mortgage with an outstanding balance of $2,332,000 at March 31,
1998. The Company maintains other offices and warehouse
facilities in two locations in Waco, Texas (of approximately
30,000 and 100,000 square feet each) which are owned by the
Company. The Company also has offices, manufacturing and
warehousing facilities for its gift division in Beacon Falls,
Guilford and Norwalk, Connecticut (of approximately 112,000,
74,000 and 147,000 square feet, respectively) which are owned by
the Company.
The Company leases properties as described below:
<TABLE>
<CAPTION>
Square Annual Lease
Location Use Feet Rent Expiration
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Miami, FL Editorial office 1,400 $ 23,800 08/2000
Atlanta, GA Editorial office 800 $ 11,700 09/1998
Carmel, IN Retail store 12,500 $ 79,300 09/1999
Clifton, NJ Manufacturing 11,000 $ 46,800 10/1998
Nashville, TN Creative and sales
office 37,400 $ 313,000 11/2001
Nashville, TN Creative office 13,700 $ 241,600 09/2000
Nashville, TN Warehousing 84,700 $ 236,200 11/2002
Nashville, TN Warehousing 84,700 $ 271,800 12/2005
Norwalk, CT Warehousing 8,000 $ 72,000 monthly
Shelton, CT Warehousing 152,000 $ 559,200 03/2000
Scarborough,
Ontario Warehousing and
(Canada) office 25,700 $ 151,000 08/2003
Kobe, Japan Sales office 2,500 $ 69,500 06/1998
</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 purposes for which they are used.
The Company's machinery and equipment are located in Nashville,
Tennessee; Guilford and Norwalk, Connecticut and Waco, Texas; and
consist primarily of computer equipment, printing and binding
equipment, warehousing and shipping racks, conveyors and other
material handling equipment located at the various warehousing
and manufacturing facilities; and office equipment. Such
machinery and equipment are in good repair and adequate for the
Company's present operations. All such equipment, other than a
portion of the computer equipment that is leased under capital
leases, is owned by the Company.
The Company's physical properties are operated at approximate
capacity. Additional personnel are employed as required.
Item 3. Legal Proceedings
The Company is subject to various legal proceedings, claims and
liabilities which arise in the ordinary course of its business.
In the opinion of management, the amount of ultimate liability
with respect to these actions will not materially affect the
financial position or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matter to a vote of its security
holders during the last quarter of its fiscal year ended March
31, 1998.
PART II
Item 5. Market for the Company's Common Equity and Related
Shareholder Matters
Incorporated by reference to the Annual Report to Shareholders
for the year ended March 31, 1998 (the "Annual Report").
Item 6. Selected Financial Data
Incorporated by reference to the Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Incorporated by reference to the Annual Report.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Annual Report. Includes
selected unaudited quarterly financial data for the years ended
March 31, 1998 and 1997.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Company
Information regarding the directors of the Company and
compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), is incorporated by
reference to the Company's Proxy Statement for the Annual Meeting
of Shareholders to be held on August 20, 1998 (the "Proxy
Statement"), to be filed within 120 days of March 31, 1998 with
the Securities and Exchange Commission (the "Commission")
pursuant to Regulation 14A under the Exchange Act. Information
regarding the Company's executive officers is contained in Part
1, Item 1 herein.
Item 11. Executive Compensation
Incorporated by reference to the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Incorporated by reference to the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Documents filed as part of Report
1. Financial Statements
The following consolidated financial statements of the Company
included in the Annual Report are incorporated herein by
reference as set forth in Part II, Item 8:
Statements of operations -- years ended March 31, 1998, 1997
and 1996
Balance sheets -- March 31, 1998 and 1997
Statements of shareholders' equity -- years ended March 31,
1998, 1997 and 1996
Statements of cash flow -- years ended March 31, 1998, 1997
and 1996
Notes to consolidated financial statements
Report of Arthur Andersen LLP, Independent Public
Accountants
2. Financial Statement Schedules
The following consolidated financial statement schedules are
included herein:
Page
----
Report of Arthur Andersen LLP, Independent Public
Accountants. . . . . . . . . . . . . . . . . . . 18
Schedule VIII -- Valuation and Qualifying Accounts
and Reserves . . . . . . . . . . . . . . . . . . 19
Schedules not listed above have been omitted because they are
not required, are inapplicable or the required information has
been given in the financial statements or notes thereto.
3. Exhibits
The following exhibits are included herein or incorporated by
reference as indicated. Exhibit numbers refer to Item 601 of
Regulation S-K.
Exhibit
Number
- -------
2.1 - Asset Purchase Agreement, dated as of November 21, 1996 by
and among the Company, Word, Incorporated and Word Direct
Partners, L.P. as Sellers and Gaylord Entertainment
Company as Buyer (filed as Exhibit 2.1 to the Company's
Form 8-K dated January 6, 1997 and incorporated herein by
reference)
2.2 - Amendment No. 1 to the Asset Purchase Agreement dated
as of January 6, 1997, by and among the Company, Word,
Incorporated and Word Direct Partners, L.P. as
Sellers and Gaylord Entertainment Company as Buyer
(filed as Exhibit 2.2 to the Company's Form 8-K
dated January 6, 1997 and incorporated herein by
reference)
2.3 - Asset Purchase Agreement dated as of January 6, 1997,
by and between Nelson Word Limited and Word Entertainment
Limited (filed as Exhibit 2.3 to the Company's Form 8-K
dated January 6, 1997 and incorporated herein by reference)
2.4 - Subsidiary Asset Purchase Agreement executed on January 6,
1997, and dated as of November 21, 1996, between Word
Communications, Ltd. and Word Entertainment (Canada), Inc.
(filed as Exhibit 2.4 to the Company's Form 8-K dated
January 6, 1997 and incorporated herein by reference)
3.1 - Thomas Nelson, Inc. Amended and Restated Charter (filed as
Exhibit 4.1 to the Company's Registration Statement on
Form S-8 (No. 33-80086) and incorporated herein by reference)
3.2 - Thomas Nelson, Inc. Amended Bylaws (filed as Exhibit 3(b)
to the Company's Annual Report on Form 10-K for the year
ended March 31, 1990 and incorporated herein by reference)
4.1 - Loan Agreement dated May 18, 1990, between the Company
and The Industrial Development Board of The Metropolitan
Government of Nashville and Davidson County (filed as
Exhibit 4(e) to the Company's Annual Report on Form
10-K for the year ended March 31, 1990 and incorporated
herein by reference)
4.2 - Promissory Note dated May 18, 1990, of the Company
payable to The Industrial Development Board of
the Metropolitan Government of Nashville and Davidson
County (filed as Exhibit 4(f) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1990
and incorporated herein by reference)
4.3 - Deed of Trust and Security Agreement dated May 18,
1990, from the Company to SunTrust Bank, Nashville,
N.A. (filed as Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the year ended March 31, 1991
and incorporated herein by reference)
4.4 - Construction and Term Loan Agreement dated March 31, 1992,
between the Company and SunTrust Bank, Nashville, N.A.
(filed as Exhibit 4.7 to the Company's Annual Report on
Form 10-K for the year ended March 31, 1992 and incorporated
herein by reference)
4.5 - Promissory Note dated March 31, 1992, of the Company
payable to SunTrust Bank, Nashville, N.A. (filed as
Exhibit 4.8 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1992 and incorporated herein
by reference)
4.6 - Deed of Trust and Security Agreement dated March 31,
1992, from the Company to SunTrust Bank, Nashville,
N.A. (filed as Exhibit 4.9 to the Company's Annual
Report on Form 10-K for the year ended March 31, 1992
and incorporated herein by reference)
4.7 - Indenture dated as of November 30, 1992, by and between
Thomas Nelson, Inc. and Boatmen's Trust Company (filed
as Exhibit 4 to the Company's Form 8-K dated
December 11, 1992 and incorporated herein by reference)
4.8 - Amended and Restated Credit Agreement dated as of December
13, 1995, and as amended January 3, 1996, among the Company,
SunTrust Bank, Nashville, N.A., National City Bank of
Louisville, First American National Bank in Nashville,
Nationsbank of Texas, N.A. in Dallas, and Creditanstalt-
Bankverein in New York (filed as Exhibit 4.1 to the
Company's Form 10-Q for the quarter ended December 31,
1995 and incorporated herein by reference)
4.9 - June 1996 Amendment and Waiver with Respect to Amended and
Restated Credit Agreement Dated as of December 13, 1995, among
the Company, SunTrust Bank, Nashville, N.A., National City
Bank of Louisville, First American National Bank in
Nashville, Nationsbank of Texas, N.A. in Dallas, and
Creditanstalt-Bankverein in New York (filed as Exhibit
4.12 to the Company's Annual Report on Form 10-K for the
year ended March 31, 1996 and incorporated herein by
reference)
4.10- Second Amendment to Credit Agreement dated as of November 15,
1996, among the Company, SunTrust Bank, Nashville, N.A.,
National City Bank of Louisville, First American National
Bank in Nashville, Nationsbank of Texas, N.A. in Dallas,
and Creditanstalt-Bankverein in New York (filed as Exhibit
4.1 to the Company's Fom 8-K dated January 6, 1997 and
incorporated herein by reference)
4.11- Third Amendment to Credit Agreement dated as of January 7,
1997, among the Company, SunTrust Bank, Nashville, N.A.,
National City Bank of Louisville, First American National
Bank in Nashville, Nationsbank of Texas, N.A. in Dallas, and
Creditanstalt-Bankverein in New York (filed as Exhibit 4.2
to the Company's Fom 8-K dated January 6, 1997 and
incorporated herein by reference)
4.12- Note Purchase Agreement dated January 3, 1996, among the
Company, The Prudential Insurance Company of America and
Metropolitan Life Insurance Company (filed as Exhibit
4.1 to the Company's Form 10-Q for the quarter ended
December 31, 1995 and incorporated herein by reference)
4.13- Letter Amendment No. 1 dated June 28, 1996, to Note Purchase
Agreement dated January 3, 1996, among the Company, The
Prudential Life Insurance Company of America and
Metropolitan Life Insurance Company and related waiver,
dated as of March 31, 1996 (filed as Exhibit 4.14 to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1996 and incorporated herein by reference)
4.14- Assumption and Amendment Agreement dated as of May 30, 1996,
and as amended June 28, 1996, between the Company and
Metropolitan Life Insurance Company (filed as Exhibit 4.15
to the Company's Annual Report on Form 10-K for the year
ended March 31, 1996 and incorporated herein by reference)
4.15- Loan Agreement dated as of September 21, 1989 between C.R.
Gibson and Metropolitan Life Insurance Company (filed by
C.R. Gibson as Exhibit 4(c) to The C.R. Gibson Company's
Registration Statement on Form S-2 (No. 33-43644) dated
November 4, 1991 and incorporated herein by reference)
4.16- Loan Agreement dated as of June 23, 1994 between C.R.
Gibson and Metropolitan Life Insurance Company (filed by
C.R. Gibson (Commission File No. 0-4855) as Exhibit 4(b)
to C.R. Gibson's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, filed with the Commission on
March 14, 1995 and incorporated herein by reference)
10.1- Thomas Nelson, Inc. Amended and Restated 1986 Stock Incentive
Plan (filed as Exhibit 4.4 to the Company's Registration
Statement on Form S-8 (No. 33-80086) dated June 13,
1994 and incorporated herein by reference)*
10.2- Thomas Nelson, Inc. Amended and Restated 1990 Deferred
Compensation Option Plan for Outside Directors (filed as
Exhibit 4.5 to the Company's Registration Statement on
Form S-8 (No. 33-80086) dated June 13, 1994 and incor-
porated herein by reference)*
10.3- Thomas Nelson, Inc. Amended and Restated 1992 Employee
Stock Incentive Plan (filed as Exhibit 4.6 to the Company's
Proxy Statement dated July 26, 1995, for the Annual Meeting
of Shareholders held on August 24, 1995 and incorporated
herein by reference)*
10.4- Thomas Nelson, Inc. Sales Managers' Stock Plan for the
Varsity Company (filed as Exhibit 4.7 to the Company's
Registration Statement on Form S-8 (No. 33-80086) dated
June 13, 1994 and incorporated herein by reference)*
10.5- Severance Agreement dated as of May 17, 1991, between the
Company and Sam Moore (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1991 and incorporated herein by reference)*
10.6- Employment Agreement dated as of May 13, 1996, between the
Company and Sam Moore (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1996 and incorporated herein by reference)*
10.7- Employment Agreement dated as of May 10, 1996, between
the Company and S. Joseph Moore (filed as Exhibit
10.8 to the Company's Annual Report on Form 10-K for
the year ended March 31, 1996 and incorporated herein
by reference)*
10.8- Employment Agreement dated as of May 10, 1996, between
the Company and Joe L. Powers (filed as Exhibit 10.9
to the Company's Annual Report on Form 10-K for the
year ended March 31, 1996 and incorporated herein by
reference)*
10.9- Employment Agreement dated as of May 13, 1996, between
the Company and Charles Z. Moore (filed as Exhibit
10.10 to the Company's Annual Report on Form 10-K for
the year ended March 31, 1996 and incorporated herein
by reference)*
10.10-Employment Agreement dated as of December 7, 1993,
between the Company and Byron Williamson (filed as
Exhibit 10.15 to the Company's Annual Report on Form
10-K for the year ended March 31, 1994 and
incorporated herein by reference)*
10.11-Employment Agreement dated as of December 22, 1994,
between the Company and Raymond T. Capp (filed as
Exhibit 10.15 to the Company's Annual Report on Form
10-K for the year ended March 31, 1995 and incor-
porated herein by reference)*
10.12-Employment Agreement dated as of June 23, 1993, between
the Company and Vance Lawson (filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K for the year
ended March 31, 1994 and incorporated herein by
reference)*
10.13-Employment Agreement dated as of July 10, 1995, between
the Company and Eric Heyden*
11 - Statement Re Computation of Per Share Earnings
13 - Thomas Nelson, Inc. Annual Report to Shareholders for the
year ended March 31, 1998 (to the extent
of portions specifically incorporated by reference)
21 - Subsidiaries of the Company
23 - Consent of Independent Public Accountants
27 - Financial Data Schedule (for SEC use only)
- -----------------------
*Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No Form 8-K was filed by the Company during the last
quarter of its fiscal year ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
THOMAS NELSON, INC.
By: /s/ Sam Moore
----------------------------
Sam Moore, Chief Executive
Officer and President
Date: June 26, 1998
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Company and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------- -------- -------
<S> <C> <C>
/s/ Sam Moore Chairman of the Board of June 26, 1998
- --------------------- Directors, Chief
Sam Moore Executive Officer and
President (Principal
Executive Officer)
/s/ S. Joseph Moore Executive Vice President June 26, 1998
- --------------------- and Director
S. Joseph Moore
/s/ Joe L. Powers Executive Vice President June 26, 1998
- --------------------- and Secretary
Joe L. Powers (Principal Financial
and Accounting
Officer)
/s/ Brownlee O.
Currey, Jr. Director June 26, 1998
- ---------------------
Brownlee O. Currey, Jr.
/s/ W. Lipscomb
Davis, Jr. Director June 26, 1998
- ---------------------
W. Lipscomb Davis, Jr.
/s/ Robert J. Niebel Director June 26, 1998
- ---------------------
Robert J. Niebel
/s/ Millard V. Oakley Director June 26, 1998
- ---------------------
Millard V. Oakley
/s/ Joe M. Rodgers Director June 26, 1998
- ---------------------
Joe M. Rodgers
/s/ Cal Turner, Jr. Director June 26, 1998
- ---------------------
Cal Turner, Jr.
/s/ Andrew Young Director June 26, 1998
- ---------------------
Andrew Young
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thomas Nelson, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in
Thomas Nelson's annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon
dated June 4, 1998. Our audit was made for the purpose of
forming an opinion on those consolidated statements taken as a
whole. The schedules listed in the index are the responsibility
of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and
are not part of the basic consolidated financial statements.
These schedules have been subjected to the auditing procedures
applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as
a whole.
/s/ Arthur Andersen LLP
Nashville, Tennessee
June 4, 1998
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
================================================================================
<CAPTION>
March 31, 1998 March 31, 1997 March 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Reserve for Sales
Returns:
Balance at beginning
of period $ 4,773,000 $ 4,355,000 $ 3,421,000
Additions:
1. Charged to costs
and expenses - 418,000 559,000
2. Charged to other
accounts <F1> - - 375,000
Deductions: charge-offs 839,000 - -
----------------------------------------------
Balance at end of
period $ 3,934,000 $ 4,773,000 $ 4,355,000
==============================================
Reserve for Doubtful
Accounts:
Balance at beginning
of period $ 2,227,000 $ 2,714,000 $ 1,968,000
Additions:
1. Charged to costs
and expenses 778,000 2,794,000 3,117,000
2. Charged to other
accounts <F1> - - 500,000
Deductions: charge-offs 777,000 3,281,000 2,871,000
----------------------------------------------
Balance at end of
period $ 2,228,000 $ 2,227,000 $ 2,714,000
==============================================
Discontinued Operations:
Balance at beginning
of period $ 9,101,000 $ 4,381,000 $ -
Additions:
1. Charged to costs
and expenses - 12,266,000 4,381,000
2. Charged to other
account - - -
Deductions: charge-offs 6,055,000 7,546,000 -
---------------------------------------------
Balance at end of
period $ 3,046,000 $ 9,101,000 $ 4,381,000
==============================================
<FN>
<F1> Reserves acquired in connection with acquisition - C.R. Gibson
in 1996.
</TABLE>
INDEX TO EXHIBITS
Exhibit Page
Number Number
- ------- ------
10.14 -- Employment Agreement dated as of July 10, 1995,
between the Company and Eric Heyden
11 -- Statement re Computation of Per Share Earnings
13 -- Thomas Nelson, Inc. Annual Report to Shareholders
for the year ended March 31, 1998 (to the extent
of portions specifically incorporated by reference)
21 -- Subsidiaries of the Company
23 -- Consent of Independent Public Accountants
27 -- Financial Data Schedule (for SEC purposes only)
EXHIBIT 13
<TABLE>
Selected Financial Data
=============================================================================
<CAPTION>
YEARS ENDED
March 31, 1998 1997 1996<F1> 1995 1994
(Dollars in thousands,
except per share data)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING
RESULTS <F2><F4>
Net revenues $252,958 $243,436 $219,838 $174,609 $152,418
====================================================
Operating income $ 24,780 $ 22,954 $ 5,887 $ 21,212 $ 16,131
====================================================
Income (loss) from
continuing
operations <F5> $ 12,673 $ 9,522 ($ 923) $ 10,101 $ 7,736
Income (loss) from
discontinued
operations <F6><F7> -- 16,555 ( 9,991) 1,609 1,345
----------------------------------------------------
Net income (loss) $ 12,673 $ 26,077 ($ 10,914) $ 11,710 $ 9,081
====================================================
- -----------------------------------------------------------------------------
FINANCIAL POSITION <F2>
Total assets $285,291 $301,571 $355,083 $232,386 $203,750
Working capital 140,256 131,852 197,127 145,860 119,522
Long-term debt and
other non-current
liabilities 84,131 89,233 185,019 121,797 106,876
Shareholders' equity 156,396 146,812 122,065 72,178 62,725
Long-term debt to
total capitali-
zation 35.0% 37.8% 60.3% 62.8% 63.0%
- -----------------------------------------------------------------------------
PER SHARE
DATA <F2><F3><F4>
Income (loss) per share
from continuing
operations <F5> $ 0.74 $ 0.56 ($ 0.06) $ 0.76 $ 0.58
Income (loss) per share
from discontinued
operations <F6><F7> -- 0.96 ( 0.64) 0.12 0.10
----------------------------------------------------
Net income (loss)
per share $ 0.74 $ 1.52 ($ 0.70) $ 0.88 $ 0.68
Dividends declared
per share $ 0.16 $ 0.16 $ 0.16 $ 0.14 $ 0.13
Book value per share 9.14 8.58 7.13 5.37 4.70
Weighted average number
of shares outstanding
(in thousands) <F8> 17,113 17,119 15,580 13,374 13,355
- --------------------------------------------------------------------------------
<FN>
<F1> Includes C.R. Gibson operations subsequent to acquisition on
October 31, 1995.
<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 accumulative
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.
<F8> Represents basic weighted average number of shares outstanding
restated per SFAS 128.
</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 grew significantly for
fiscal 1997 as compared to the prior year. In fiscal 1998, gift
revenues declined from fiscal 1997 due to a strategic decision
to shift sales focus from high volume, low margin mass merchant
segment to higher margin product.
On January 6, 1997, the Company sold the assets, subject to
certain liabilities, of the music division ("Music Business")
for $120 million and realized a net gain of $16 million (net of
goodwill of $17 million). The proceeds from the sale were used
primarily to retire long-term debt. The operating results of
the Music Business are reported as discontinued operations for
all years presented.
As a result of operating trends and the softness of the retail
markets for the Company's products, which began to adversely
affect operating results in the second quarter of fiscal 1996,
the Company decided during the fourth quarter of fiscal 1996 to
discontinue the operations of its Royal Media division, a
division which published magazines and operated radio networks
directed toward Christian markets. The disposal of the Royal
Media division has been consummated. The operating results of
the Royal Media division for fiscal 1996 are reported as a loss
from discontinued operations.
The following table sets forth for the periods indicated
certain selected statements of operations data of the Company
expressed as a percentage of net revenues and the percentage
change in dollars of such data from the prior fiscal year.
<TABLE>
<CAPTION>
Fiscal Year-to-Year
Years Ended March 31, Increase (Decrease)
----------------------------------------------------
1998 1997 1996 1997 to 1998 1996 to 1997
----------------------------------------------------
(%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C>
Net revenues:
Publishing 64.8 63.0 75.1 6.9 ( 7.1)
Gift 35.2 37.0 24.9 ( 1.1) 64.5
----------------------------------------------------
Total net revenues 100.0 100.0 100.0 3.9 10.7
Expenses:
Cost of goods sold 54.7 54.3 57.6 4.7 4.4
Selling, general and
administrative
expenses 34.8 35.5 39.2 2.0 --
Amortization of
goodwill and
non-compete
agreements 0.7 0.8 0.5 ( 9.1) 82.3
----------------------------------------------------
Total expenses 90.2 90.6 97.3 3.5 3.1
----------------------------------------------------
Operating income 9.8 9.4 2.7 8.0 289.9
====================================================
Income (loss) from
continuing
operations 5.0 3.9 ( 0.4) 33.1 --
Income (loss) from
discontinued
operations -- 6.8 ( 4.6) ( 100.0) --
----------------------------------------------------
Net income (loss) 5.0 10.7 ( 5.0) ( 51.4) --
====================================================
</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 1999 fiscal year.
RESULTS OF OPERATIONS
Fiscal 1998 compared to Fiscal 1997.
Net revenues for fiscal 1998 increased $9.5 million, or 3.9%,
over fiscal 1997. Net revenues from publishing products
increased for fiscal 1998 from fiscal 1997 by $10.5 million, or
6.9%, primarily due to favorable acceptance of new product
offerings and reductions in product returns. Net revenues from
gift products decreased by $1.0 million, or 1.1%, primarily due
to the Company's business decision to reduce sales of the
stationery category to mass merchandisers. Price increases did
not have a material effect on net revenues.
The Company's cost of goods sold for fiscal 1998 increased
$6.2 million, or 4.7%, and, as a percentage of net revenues,
increased from 54.3% to 54.7%. The slight increase in cost of
goods sold, as a percentage of net revenues, resulted primarily
from lower licensing revenues in fiscal 1998. In fiscal 1997,
the Company had higher licensing revenues which have minimal
associated cost of goods sold. The Company periodically receives
licensing revenues from companies that request permission to
reprint the Company's publishing products and market them through
a channel that might not otherwise be served.
Selling, general and administrative expenses for fiscal 1998
increased $1.7 million over the comparable period in fiscal 1997.
These expenses, expressed as a percentage of net revenues,
decreased from 35.5% for fiscal 1997 to 34.8% for fiscal 1998
primarily as a result of reduced advertising and fulfillment
costs.
Interest expense decreased by $2.4 million, or 28.0%, for
fiscal 1998 due to decreased borrowings as a result of the use of
a portion of the proceeds from the sale of the Music Business to
repay indebtedness in fiscal 1997.
The Company's effective tax rate in fiscal 1998 was 37.5%
compared to 41.0% for fiscal 1997. The prior year tax rate
reflects the combined tax rate from continuing and discontinued
operations. See Note M of Notes to Consolidated Financial
Statements.
The Company earned net income of $12.7 million for fiscal
1998. There were no discontinued operations in fiscal 1998.
Fiscal 1997 compared to Fiscal 1996.
Net revenues for fiscal 1997 increased $23.6 million, or
10.7%, over fiscal 1996 primarily due to the volume increases
arising from introduction of new products and the acquisition of
Gibson which was included in fiscal 1996 revenues for only five
months subsequent to its October 1995 acquisition. Net revenues
from publishing products decreased for fiscal 1997 from fiscal
1996 by $11.7 million, or 7.1%. The decline in publishing
product revenues from fiscal 1996 was due to a 26% increase in
the rate of returns and fewer major product releases than fiscal
1996 when a new Bible translation and a major hardcover fiction
title were introduced. Net revenues from gift products,
including Gibson, increased by $35.3 million, or 64.5%. Price
increases did not have a material effect on net revenues.
The Company's cost of goods sold for fiscal 1997 increased
$5.6 million, or 4.4%, and, as a percentage of net revenues,
decreased from 57.6% to 54.3%. The decrease in cost of goods
sold, as a percentage of net revenues, was due to a lower
percentage of publishing and gift revenues being derived from
mass market sales in fiscal 1997 as compared to fiscal 1996.
Mass Market sales generally have higher cost of goods sold as a
percentage of revenues than other market channels. In addition,
cost of goods sold, as a percentage of net revenues, decreased
from fiscal 1996, when additional provisions for obsolescence and
unearned royalty advances were made.
Selling, general and administrative expenses for fiscal 1997
increased only $40,000 over the comparable period in fiscal 1996.
These expenses, expressed as a percentage of net revenues,
decreased from 39.2% for fiscal 1996 to 35.5% for fiscal 1997
primarily as a result of the consolidation of two publishing
sales forces, staff reductions implemented in the last half of
fiscal 1996 and reduced advertising and direct-to-consumer
marketing expenditures.
Interest expense increased 5.1% for fiscal 1997 due to
increased average borrowings primarily due to the acquisition of
Gibson.
The Company's effective tax (benefit) rate in fiscal 1997 was
41.0% compared to (39.9%) for fiscal 1996. The current tax rate
reflects the combined tax rate from continuing and discontinued
operations. Prior year rate shows the rate of tax recovery from
operating losses carried to earlier periods. See Note M of Notes
to Consolidated Financial Statements.
The Company earned net income of $26.1 million for fiscal
1997. Included in net income is income from discontinued
operations of $16.6 million as a result of the sale of the Music
Business, including net operating income of $0.7 million. See
Note Q of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $39.7 million in cash and
cash equivalents, primarily cash generated from operations and
from the sale of its Music Business in January 1997. The primary
sources of liquidity to meet the Company's future obligations and
working capital needs are cash generated from operations and
borrowings available under bank credit facilities. At March 31,
1998, the Company had working capital of $140.3 million. Under
its two bank credit facilities, at March 31, 1998, the Company
had no borrowings outstanding, and $85 million available for
borrowing. In January 1997, the Company retired all the existing
borrowings under its two bank credit facilities with a portion of
the proceeds from the sale of the Music Business.
Net cash provided by (used in) operating activities was $8.1
million, $25.8 million and ($30.3) million in fiscal 1998, 1997
and 1996, respectively. The increase in cash provided by
operations during fiscal 1998 was principally attributable to
earnings from continuing operations and reductions in accounts
receivable and prepaid expenses. Accounts receivable decreased
by $1.4 million primarily due to improved collection efforts in
the fourth quarter of fiscal 1998 over fiscal 1997. Prepaid
expenses decreased by $1.2 million primarily due to decreased
royalty advances.
During fiscal 1998, capital expenditures totaled approximately
$3.3 million. The capital expenditures were primarily for
computer, warehousing and manufacturing equipment. In fiscal
1999, the Company anticipates capital expenditures of
approximately $3 million, consisting primarily of additional
computer, manufacturing and warehousing equipment.
The Company's bank credit facilities are unsecured and consist
of a $75 million credit facility and a $10 million credit
facility (collectively, the "Credit Agreements"). The $75
million credit facility bears interest at either the prime rate
or, at the Company's option, LIBOR plus a percentage, subject to
adjustment based on certain financial ratios and matures on
December 13, 2002. The $10 million credit facility bears
interest at the prime rate and matures on July 31, 1999. Due to
the seasonality of the Company's business, borrowings under the
Credit Agreements typically peak during the third quarter of the
fiscal year.
The Company has outstanding $24 million of senior notes
("Senior Notes") which are unsecured. The Senior Notes bear
interest at rates from 6.68% to 9.5% due through fiscal 2006. In
January 1997, the Company retired $35 million of previously held
Senior Notes with a portion of the proceeds from the sale of the
Music Business.
Under the terms of the Credit Agreements and Senior Notes, the
Company has agreed to limit the payment of dividends and to
maintain certain interest coverage and debt-to-total-capital
ratios which are similarly calculated for each debt agreement.
At March 31, 1998, the Company was in compliance with all
covenants of these debt agreements. The Company expects to be in
compliance with all of its covenants for each quarter of fiscal
1999 although no assurance can be given that such compliance will
be maintained.
The Company also has outstanding $55 million of 5.75%
convertible subordinated notes ("Convertible Subordinated Notes")
due November 30, 1999. The Convertible Subordinated Notes
presently are convertible into common stock at $17.00 per share
and are redeemable at the Company's option currently at 101.64%
of the principal amount, declining to 100.82% on November 30,
1998, and to 100% on November 30, 1999.
Management believes cash generated by operations and borrowings
available under the Credit Agreements will be sufficient to fund
anticipated working capital requirements for existing operations
through fiscal 1999.
The Company has announced its intention to repurchase up to 3
million shares of common stock or Class B common stock from time
to time in the open market or through privately negotiated
transactions. As of June 12, 1998, the Company has repurchased
approximately 1.6 million shares.
YEAR 2000 ISSUES
The Company has established a task force to coordinate the
identification, evaluation and implementation of changes to
computer systems and applications necessary to become year 2000
compliant with no material adverse effect on customers or
disruption to business operations. These actions are necessary
to ensure that the systems and applications will recognize and
process the year 2000 and beyond. The Company is also evaluating
non-system issues relative to the year 2000. Major areas of
potential business impact have been identified and are being
evaluated. The Company also is communicating with suppliers,
customers, financial institutions and others with which it does
business to determine the status of their being year 2000
compliant. The Company expensed approximately $100,000 in costs
during fiscal 1998 related to becoming year 2000 compliant and
expect to incur additional costs of $1,000,000 and $400,000 for
fiscal years 1999 and 2000, respectively. These costs are
expected to include programmer costs for modification of software
programs, costs for a testing site, software purchases and
consulting fees and will be expensed as they are incurred.
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Years ended March 31,
--------------------------------------
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Net revenues $ 252,958 $ 243,436 $219,838
Cost of goods sold 138,389 132,199 126,622
--------------------------------------
Gross profit 114,569 111,237 93,216
Selling, general and
administrative 87,950 86,259 86,219
Amortization of goodwill and
non-compete agreements 1,839 2,024 1,110
--------------------------------------
Operating Income 24,780 22,954 5,887
Other income 1,569 590 595
Interest expense 6,073 8,430 8,018
--------------------------------------
Income (loss) from continuing
operations before
income taxes 20,276 15,114 ( 1,536)
Provision (benefit) for
income taxes 7,603 5,592 ( 613)
--------------------------------------
Income (loss) from continuing
operations 12,673 9,522 ( 923)
Discontinued operations:
Operating income (loss),
net of applicable tax
provision (benefit) of
$446 and ($4,891),
respectively - 728 ( 7,358)
Gain (loss) on disposal,
net of applicable tax
provision (benefit) of
$24,096 and ($1,748),
respectively - 15,827 ( 2,633)
---------------------------------------
Income (loss) from discon-
tinued operations - 16,555 ( 9,991)
---------------------------------------
NET INCOME (LOSS) $ 12,673 $ 26,077 ($ 10,914)
=======================================
Weighted average number
of shares outstanding 17,113 17,119 15,580
=======================================
NET INCOME (LOSS) PER SHARE:
Basic--
Income (loss) from
continuing operations $ 0.74 $ 0.56 ($ 0.06)
Income (loss) from
discontinued operations - 0.96 ( 0.64)
---------------------------------------
Net income (loss) per
share $ 0.74 $ 1.52 ($ 0.70)
=======================================
Diluted--
Income (loss) from
continuing operations $ 0.73 $ 0.56 ($ 0.06)
Income (loss) from
discontinued operations - 0.81 ( 0.64)
---------------------------------------
Net income (loss) per
share $ 0.73 $ 1.37 ($ 0.70)
=======================================
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<CAPTION>
March 31,
------------------------
1998 1997
------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 39,713 $ 43,471
Accounts receivable, less
allowances of $6,162 and
$7,000, respectively 63,264 64,626
Inventories 70,590 71,550
Prepaid expenses 8,177 9,421
Deferred tax assets 3,276 8,310
------------------------
Total current assets 185,020 197,378
Property, plant and equipment, net 32,103 32,843
Other assets 9,843 10,466
Deferred charges 1,789 2,785
Goodwill, less accumulated
amortization of $4,804 and
$3,246, respectively 56,536 58,099
------------------------
TOTAL ASSETS $ 285,291 $301,571
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,701 $ 18,880
Accrued expenses 19,117 22,740
Dividends payable 685 685
Income taxes currently payable 4,286 19,974
Current portion of long-term debt 3,733 2,979
Current portion of capital lease
obligations 242 268
------------------------
Total current liabilities 44,764 65,526
Long-term debt 79,476 83,162
Capital lease obligations 84 377
Deferred tax liabilities 3,364 3,640
Other liabilities 1,207 2,054
Shareholders' equity
Preferred stock, $1.00 par
value, authorized 1,000,000
shares; none issued - -
Common stock, $1.00 par value,
authorized 20,000,000 shares;
issued 16,002,817 and
16,001,178 shares,
respectively 16,003 16,001
Class B common stock, $1.00 par
value, authorized 5,000,000
shares; issued 1,111,924
and 1,112,071 shares,
respectively 1,112 1,112
Additional paid-in capital 79,057 79,409
Retained earnings 60,224 50,290
------------------------
Total shareholders' equity 156,396 146,812
------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 285,291 $ 301,571
========================
See Notes to Consolidated Financial Statements
</TABLE>
<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 March 31, 1995 $ 12,362 $ 1,067 $ 18,211 $ 40,538 $ -
Net loss ( 10,914)
Common stock issued:
Option plans --
26,738 common
shares and 18,750
Class B common
shares 27 19 153
Retirement for option
Payments --
7,349 common shares ( 7) ( 141)
Incentive plan stock
awards --
49,294 common shares
and 26,250 Class B
common shares 49 26 614
Common stock offering 2,875 51,521
C.R. Gibson ESOP --
698,308 common
shares 698 8,467
Dividends declared --
$0.16 per share ( 2,672)
Deferred compensation ( 828)
-------------------------------------------------
Balance at March 31, 1996 16,004 1,112 78,825 26,952 ( 828)
Net income 26,077
Common stock issued:
Option plans --
8,841 common shares 9 75
Retirement of stock
awards -- 12,031
common shares ( 12) ( 110)
Dividends declared --
$0.16 per share ( 2,739)
Incentive plan stock awards 619
Deferred compensation 828
------------------------------------------------
Balance at March 31, 1997 16,001 1,112 79,409 50,290 -
Net income 12,673
Common stock issued:
Retirement of stock
awards --
3,888 common shares ( 4) 4
Stock offering adjustment ( 360)
Dividends declared --
$0.16 per share ( 2,739)
Incentive plan stock
awards --
5,380 common shares 6 4
-------------------------------------------------
Balance at March 31, 1998 $ 16,003 $ 1,112 $ 79,057 $ 60,224 $ -
=================================================
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Years ended March 31,
------------------------------------
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing
operations $ 12,673 $ 9,522 ($ 923)
Adjustments to reconcile income
(loss) to net cash provided by
(used in) operations:
Depreciation and amortization 8,577 8,436 7,263
Deferred income taxes 4,758 7,173 ( 2,774)
Gain on sale of property,
plant and equipment - - ( 449)
Deferred compensation - 619 222
Changes in assets and liabilities,
net of acquisitions and
disposals:
Accounts receivable, net 1,362 7,375 2,572
Income tax refunds receivable - 4,440 ( 3,570)
Inventories 960 7,758 ( 8,827)
Prepaid expenses 1,244 1,800 747
Accounts payable and accrued
expenses ( 1,948) ( 9,969) ( 7,338)
Income taxes currently payable ( 15,688) 3,707 -
-------------------------------------
Net cash provided by (used in)
continuing operations 11,938 40,861 ( 13,077)
-------------------------------------
Discontinued operations:
Income (loss) from
discontinued operations - 728 ( 7,358)
Gain (loss) on disposal of
discontinued operations - 15,827 ( 2,633)
Changes in discontinued net
assets 488 ( 24,442) 20
Cash used in discontinued
operations ( 4,342) ( 7,179) ( 7,237)
-------------------------------------
Net cash used in discontinued
operations ( 3,854) ( 15,066) ( 17,208)
-------------------------------------
Net cash provided by (used in)
operating activities 8,084 25,795 ( 30,285)
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 3,319) ( 1,876) ( 3,996)
Proceeds from sales of property,
plant and equipment - 49 854
Proceeds from sales of business
and discontinued net assets - 120,368 -
Purchase of net assets of
acquired companies -
net of cash received - ( 122) ( 70,217)
Changes in other assets and
deferred charges ( 1,336) ( 2,817) 3,241
-------------------------------------
Net cash provided by (used in)
investing activities ( 4,655) 115,602 ( 70,118)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under line of credit - ( 57,800) ( 1,000)
Proceeds from issuance of
long-term debt - - 50,000
Payments under capital lease
obligations ( 308) ( 231) ( 901)
Payments on long-term debt ( 2,975) ( 37,968) ( 9,375)
Dividends paid ( 2,739) ( 2,739) ( 2,524)
Changes in other liabilities ( 1,175) 178 ( 193)
Proceeds from issuance of
common stock 14 84 64,449
Common stock retired ( 4) ( 122) ( 148)
-------------------------------------
Net cash provided by (used in)
financing activities ( 7,187) ( 98,598) 100,308
-------------------------------------
Net increase (decrease) in cash
and cash equivalents ( 3,758) 42,799 ( 95)
Cash and cash equivalents at
beginning of year 43,471 672 767
-------------------------------------
Cash and cash equivalents at
end of year $ 39,713 $ 43,471 $ 672
=====================================
Supplemental disclosures of
noncash investing and financing
activities:
Dividends accrued and unpaid $ 685 $ 685 $ 685
Capital lease obligations
incurred to lease new
equipment - 144 674
Contribution to ESOP using
previously funded advances - 828 -
See Notes to Consolidated Financial Statements
</TABLE>
Notes to Consolidated Financial Statements
====================================================================
Thomas Nelson, Inc. and Subsidiaries
NOTE A-DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS: Thomas Nelson, Inc. (a
Tennessee corporation) and subsidiaries (the "Company"), is
a publisher, producer and distributor of Bibles and books
emphasizing Christian, inspirational and family value
themes. The Company also designs and markets a broad line
of gift and stationery products. The principal markets for
the Company's products are Christian bookstores, general
bookstores, mass merchandisers, gift stores and direct
marketing to consumers in English-speaking countries.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements consist of the accounts of the Company including
its subsidiaries, Worthy, Incorporated (formerly Word,
Incorporated) and The C.R. Gibson Company ("Gibson"). See
Note B for additional information. The consolidated
statement of operations for the year ended March 31, 1996,
includes Gibson operations for the five months ended March
31, 1996. All intercompany transactions and balances have
been eliminated.
SALES RETURNS: Provision is made for the estimated effect of
sales returns where right-of-return privileges exist.
Returns of products from customers are accepted in
accordance with standard industry practice. The full amount
of the returns allowance (estimated returns to be received
net of inventory and royalty costs) is shown, along with the
allowance for doubtful accounts, as a reduction of accounts
receivable in the accompanying financial statements.
INVENTORIES: Inventories are stated at the lower of cost or
market using the first-in, first-out (FIFO) valuation
method. Costs of the production and publication of products
are included in inventory and charged to operations when
sold or when otherwise disposed. Costs of abandoned
publishing projects and appropriate provisions for inventory
obsolescence and decreases in market value are charged to
operations on a current basis.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment
are stated at cost. Depreciation and amortization are
provided for principally on the straight-line method over
the estimated useful lives of the individual assets.
GOODWILL: Goodwill is being amortized on a straight-line
basis over 40 years. Subsequent to acquisitions, the
Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or
that the remaining balance of goodwill may not be
recoverable. In the evaluation of possible impairment, the
Company uses the most appropriate method of evaluation given
the circumstances surrounding the particular acquisition,
which has generally been an estimate of the related business
unit's undiscounted operating income before interest and
taxes over the remaining life of the goodwill.
PREPAID EXPENSES: Prepaid expenses consist primarily of
royalty advances. These costs are expensed over the
expected benefit periods.
DEFERRED CHARGES: Deferred charges consist primarily of loan
issuance costs which are being amortized over the average
life of the related debt. Also included are publication
costs that are expected to be of significant benefit to
future periods and other deferred charges, all of which are
amortized over periods not to exceed 60 months.
OTHER ASSETS: Other assets consist primarily of prepaid royalty
costs for works and projects which are not expected to be
released within the next fiscal year.
STOCK-BASED COMPENSATION: Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), encourages, but does not require, companies to
record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to
continue to account for employee stock-based compensation
using the intrinsic value method as prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB Opinion No. 25"), and related
Interpretations. Under APB Opinion No. 25, no compensation
cost related to employee stock options has been recognized
because all options are issued with exercise prices equal to
or greater than the fair market value at the date of grant.
See Note J for further discussion.
INCOME TAXES: Income taxes are accounted for in accordance
with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Deferred income
taxes are provided for temporary differences between the
financial statement and income tax bases of assets and
liabilities.
COMPUTATION OF NET INCOME PER SHARE: Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), has been issued effective for interim and annual
fiscal periods ending after December 15, 1997. SFAS 128
establishes standards for computing and presenting earnings
per share. The Company adopted the provisions of SFAS 128
in the third quarter of fiscal 1998 and restated earnings
per share for all periods presented. Such adoption did not
have a material effect on the Company's results of
operations or financial position. Basic net income per
share is computed by dividing net income by the weighted
average number of common and Class B common shares
outstanding during the year. Diluted earnings per share
reflects the dilutive effect of stock options outstanding
during the period and common shares contingently issuable
upon conversion of convertible debt securities in periods in
which such exercise would cause dilution and the effect on
net income of converting the debt securities.
STATEMENT OF CASH FLOWS: For purposes of the statement of
cash flows, the Company considers as cash equivalents all
highly liquid debt instruments with a maturity of three
months or less.
ACCOUNTING ESTIMATES: The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reported period. Actual results could differ from those
estimates.
OTHER NEW PRONOUNCEMENTS: In February 1997, the FASB issued
Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS
129"). SFAS 129 establishes standards for disclosing
information about an entity's capital structure. The
Company adopted SFAS 129 in the third quarter of fiscal
1998. The Company did not experience a material impact on
its results of operations, financial conditions or cash
flows as a result of adoption.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS
131 requires public companies to report financial and
descriptive information about its reportable operating
segments in annual financial statements and in interim
financial reports issued to shareholders. The statement
will be effective for fiscal year ended March 31, 1999.
Management is evaluating this standard and determining if it
will be required to revise its current methods of reporting
financial data.
RECLASSIFICATIONS: Certain reclassifications of prior period
amounts have been made to conform to the current year's
presentation.
NOTE B-ACQUISITIONS
The Company completed its $9.00 per share cash tender offer
effective October 31, 1995, for the outstanding shares of common
stock of Gibson for approximately $67 million. The purchase price
was funded by the Company's issuance of $50 million of the
Company's Senior Notes and by borrowings under the Company's Credit
Agreements. See Note H for additional information. Gibson,
headquartered in Norwalk, Connecticut, manufactures and markets a
wide range of paper, gift and stationery products, primarily under
the C.R. Gibson and Creative Papers brand names. Products include
baby and wedding memory books, stationery, giftwrap and paper
tableware.
The Gibson acquisition has been accounted for as a purchase, and
Gibson's results of operations are included in the Company's
consolidated financial statements since the date of acquisition.
The total acquisition cost has been allocated to the net assets
acquired based on the estimated fair values. The purchase price
has been allocated to the purchased assets and assumed liabilities
as follows (in thousands):
Working capital, net $ 7,428
Property, plant and equipment, net 20,138
Goodwill 45,974
Other assets 9,607
Other liabilities ( 15,743)
-----------
$ 67,404
===========
The following unaudited pro forma information combines the
consolidated results of operations of the Company and Gibson as if
the acquisition had occurred on April 1, 1995, after giving effect
to amortization of goodwill and interest expense on borrowings to
finance the acquisition. The pro forma information is not
necessarily indicative of the results of operations which would
have actually been obtained during such periods. While the Company
believes that it will realize certain long-term synergies through
the integration of certain operating functions, there can be no
assurances that such synergies can be realized, and no amounts have
been reflected in the pro forma adjustments to reflect such
anticipated synergies.
Year Ended March 31,
--------------------
1996
----------
(In thousands, except per share data) (Unaudited)
Net revenues $ 260,367
Loss from continuing operations ($ 7,102)
Loss per share from continuing
operations ($ 0.46)
NOTE C-INVENTORIES
Inventories consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
Finished goods $ 54,503 $ 53,634
Work in process and
raw materials 16,087 17,916
-----------------------
$ 70,590 $ 71,550
=======================
</TABLE>
NOTE D-PREPAID EXPENSES
Prepaid expenses consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
Royalties $ 6,888 $ 7,648
Other 1,289 1,773
-----------------------
$ 8,177 $ 9,421
=======================
</TABLE>
NOTE E-PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at
March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
Land $ 5,109 $ 4,948
Buildings 20,483 20,353
Machinery and equipment 26,851 29,762
Furniture and fixtures 6,056 3,620
Other 380 737
-----------------------
58,879 59,420
Less allowance for
depreciation and
amortization ( 26,776) ( 26,577)
-----------------------
$ 32,103 $ 32,843
=======================
</TABLE>
NOTE F-OTHER ASSETS
Other assets consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
Prepaid royalties $ 5,509 $ 6,654
Other 4,334 3,812
-----------------------
$ 9,843 $ 10,466
=======================
</TABLE>
NOTE G-ACCRUED EXPENSES
Accrued expenses consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
Accrued royalties $ 4,152 $ 4,535
Accrued payroll 6,552 4,708
Accrued integration costs 1,568 2,904
Accrued interest 1,510 1,541
Net liability of discontinued
operations 3,046 6,900
Other 2,289 2,152
-----------------------
$ 19,117 $ 22,740
=======================
</TABLE>
Cash payments for interest were $6.1 million in 1998, $10.2
million in 1997 and $9.6 million in 1996.
NOTE H-LONG-TERM DEBT
Long-term debt consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
Industrial Revenue Bonds,
7.95% to 8.35%, due
through 2005 $ 1,725 $ 1,900
Loan Agreement 2,332 3,000
Senior Notes 24,000 26,000
Convertible Subordinated
Notes 55,000 55,000
Other 152 241
-----------------------
83,209 86,141
Less current portion ( 3,733) ( 2,979)
-----------------------
$ 79,476 $ 83,162
=======================
</TABLE>
At March 31, 1998, Industrial Revenue Bonds were secured by
property, plant and equipment with a net book value of
approximately $1.6 million.
The Loan Agreement indebtedness is secured by property, plant
and equipment related to the Company's Nashville warehouse and
distribution center expansion completed in June 1992. Interest
payable monthly is at the London Interbank Offered Rate ("LIBOR")
plus 1.25%, for a total rate of 6.9375% at March 31, 1998. Semi-
annual principal payments are due through March 2002.
The Company has Credit Agreements with borrowing limits
totaling $85 million as of March 31, 1998. In January 1997, the
primary credit facility ("Credit Facility") was amended, in
connection with the sale of the Company's Music Business, to
decrease the Credit Facility borrowing limit to $75 million
maturing in fiscal 2003. The Credit Facility bears interest at
either the lender's prime rate or, at the Company's option, the
LIBOR plus a percentage, based on certain financial ratios. The
Credit Facility is guaranteed by all of the Company's material
subsidiaries and the Company has agreed, among other things, to
limit the payment of cumulative cash dividends and to maintain
certain interest coverage and debt-to-total-capital ratios. The
maximum dividends which the Company may pay for fiscal 1999 are
$16.8 million. Additionally, the Company has a $10 million
credit facility which matures July 31, 1999, and bears interest
at the lender's prime rate, with covenants which are the same as
the Credit Facility. At March 31, 1998, the Company was in
compliance with all covenants of the Credit Agreements. At March
31, 1998, the Company had $85 million available under its Credit
Agreements.
The Company has outstanding $24 million of Senior Notes, which
bear interest at rates from 6.68% to 9.5% and are due through
fiscal 2006. The Company retired $35 million of the Senior Notes
in January 1997, subsequent to the sale of the Music Business.
See Note Q for further discussion. Under the terms of the Senior
Notes, the Company has agreed, among other things, to limit the
payment of cash dividends and to maintain certain interest
coverage and debt-to-total- capital ratios. The maximum
dividends which the Company may pay for fiscal 1999 are $16.8
million. At March 31, 1998, the Company was in compliance with
all covenants of the Senior Notes.
The Company has issued $55 million of Convertible Subordinated
Notes due November 30, 1999, priced at par to yield 5.75%. The
notes presently are convertible into common stock at $17.00 per
share and are redeemable at the Company's option currently at
101.64% of the principal amount, declining to 100.82% on November
30, 1998, and to 100% on November 30, 1999. This conversion
would result in 3,235,294 additional shares outstanding.
Maturities of long-term debt for the years ending March 31 are
as follows (in thousands):
1999 $ 3,733
2000 59,734
2001 3,888
2002 3,581
2003 3,322
2004 and thereafter 8,951
------------
$ 83,209
============
NOTE I-LEASES
Total rental expense for all operating leases, including
short-term leases of less than a year, amounted to approximately
$4.0 million in 1998, $3.2 million in 1997, and $2.5 million in
1996. Generally, the leases provide that, among other things,
the Company shall pay for utilities, insurance, maintenance and
property taxes in excess of base year amounts.
Minimum rental commitments under non-cancelable leases for the
years ending March 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
-----------------------
<S> <C> <C>
1999 $ 2,952 $ 266
2000 1,784 52
2001 886 22
2002 498 11
2003 454 --
2004 and thereafter 238 --
-----------------------
Total minimum lease payments $ 6,812 351
Less amount representing ==========
interest ( 25)
----------
Present value of net lease
payments 326
Less current portion ( 242)
----------
$ 84
==========
</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 option grant date and must be
exercised not later than five years after the date of grant.
Stock options issued to a person then owning more than 10% of the
voting power in all classes of the Company's outstanding stock
were granted at a purchase price of not less than 110% of the FMV
and must be exercised within five years from the date of grant.
The options vest 1/4 each year for four years beginning on the
first anniversary date of the option grant and, at March 31,
1998, there were 92,718 shares of common stock and 46,875 shares
of Class B common stock exercisable in the 1986 Plan. The
weighted average life of the options outstanding in the 1986 Plan
at March 31, 1998, was one year. The 1986 Plan terminated in
March 1996 and options outstanding remain in effect until
exercised or expired. Options outstanding under this plan are as
follows:
<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, 1995 -- 273,750 906 81,250 $ 13.22
Exercised -- ( 21,094) -- ( 18,750) 4.44
Canceled 29,344 ( 29,344) -- -- 11.97
Plan terminated ( 29,344) -- ( 906) --
--------------------------------------------------------
March 31, 1996 -- 223,312 -- 62,500 14.58
Canceled -- ( 74,375) -- -- 14.40
--------------------------------------------------------
March 31, 1997 -- 148,937 -- 62,500 14.64
Canceled -- ( 25,312) -- -- 14.40
--------------------------------------------------------
March 31, 1998 -- 123,625 -- 62,500 14.67
========================================================
</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, 1998,
there were 13,050 shares of common stock exercisable. The
Outside Directors Plan terminated in August 1995 and options
outstanding remain in effect until exercised or expired. The
weighted average life of the options outstanding in the Outside
Directors Plan at March 31, 1998, was one year. Options granted
and outstanding under this plan are as follows:
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
Remaining Weighted
Shares Outstanding Average
Reserved Optioned Exercise
For Grant Shares Price
-------------------------------------
<S> <C> <C> <C>
April 1, 1995 155,113 20,765 $ 0.66
Granted ( 3,030) 3,030 1.00
--------------------------
March 31, 1996 152,083 23,795 0.71
Exercised -- ( 5,943) 0.53
Plan terminated (152,083) --
--------------------------
March 31, 1997 -- 17,852 0.76
Exercised -- ( 4,802) 0.53
--------------------------
March 31, 1998 -- 13,050 0.85
==========================
</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 earned 50% of the award
in fiscal years 1995 and 1996 based upon achieving performance
goals in each year provided the employee did not terminate his or
her employment for two years subsequent to when an award was
earned. The Company recognizes expense associated with
restricted stock awards as the awards are earned. During fiscal
1998, the Company issued 333 shares of common stock pursuant to
such restricted stock awards. The options in the Stock Incentive
Plan vest over one to three year periods beginning on the first
or fourth anniversary date of the option grant, and at March 31,
1998, there were 123,835 shares of common stock and 115,000
shares of Class B common stock exercisable. The weighted average
life of the options outstanding in the Stock Incentive Plan at
March 31, 1998, was six years.
<TABLE>
<CAPTION>
Outstanding Outstanding
Remaining Award Shares Optioned Shares Weighted Weighted
Shares ---------------------------------- Average Average
Reserved Common Class B Common Class B Exercise Fair
For Grant Stock Stock Stock Stock Price Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 1,
1995 750,416 132,084 55,000 -- --
Awards
canceled 21,136 ( 17,804) ( 3,332) -- --
Awards
issued -- ( 51,376) ( 24,168) -- --
Options
granted ( 635,500) -- -- 305,500 330,000 $19.48 $11.70
Additional
shares
author-
ized 1,202,500 -- -- -- --
---------------------------------------------------------------
March 31,
1996 1,338,552 62,904 27,500 305,500 330,000 19.48
Awards
canceled 87,239 ( 61,821) ( 25,418) -- --
Options
canceled 198,000 -- -- (183,000)( 15,000) 17.19
Awards
issued -- ( 1,083) ( 2,082) -- --
Options
granted ( 320,000) -- -- 185,000 135,000 14.34 8.52
Stock
incentive
issued ( 1,815) -- -- -- --
---------------------------------------------------------------
March 31,
1997 1,301,976 -- -- 307,500 450,000 17.91
Options
canceled 80,000 -- -- ( 70,000)( 10,000) 14.00
Options
granted (1,319,000) -- -- 319,000 1,000,000 14.60 4.64
Stock
incentive
issued ( 580) -- -- -- --
---------------------------------------------------------------
March 31,
1998 62,396 -- -- 556,500 1,440,000 15.88
===============================================================
</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.
SFAS 123 established new financial accounting and reporting
standards for stock-based compensation plans. The Company has
adopted the disclosure-only provision of SFAS 123. As a result,
no compensation cost has been recognized for the Company's
employee stock option plans. Had compensation cost for the
employee stock option plans been determined based on the fair
value at the grant date for awards in fiscal 1998, 1997 and 1996
consistent with the provisions of SFAS 123, the Company's net
income (loss) and net income (loss) per share would have been
reduced (increased) to the following pro forma amounts for the
1998, 1997 and 1996 fiscal years:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $ 12,673 $ 26,077 ($ 10,914)
====================================
Pro forma $ 10,967 $ 24,683 ($ 12,309)
====================================
Net income (loss)
per share:
Basic-- As reported $ 0.74 $ 1.52 ($ 0.70)
====================================
Pro forma $ 0.64 $ 1.44 ($ 0.79)
====================================
Diluted--
As reported $ 0.73 $ 1.37 ($ 0.70)
====================================
Pro forma $ 0.64 $ 1.31 ($ 0.79)
====================================
</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>
1998 1997 1996
-------------------------------
<S> <C> <C> <C>
Expected dividend payment $ 0.16 $ 0.16 $ 0.16
Expected stock price
volatility 53.69% 45.96% 54.49%
Risk free interest rate 6.29% 6.55% 6.36%
Expected life of options 6 years 8 years 8 years
</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 were released and
allocated to the participants as the loan was paid by
contributions. At March 31, 1997, the Gibson ESOP loan had been
retired. The Company's contributions to these retirement plans,
including matching contributions, totaled $2.9 million, $3.1
million and $1.5 million in 1998, 1997 and 1996, respectively.
NOTE L-COMMON STOCK
On July 24, 1995, the Company sold 2,875,000 shares of common
stock at $20.00 per share to a group of underwriters in a
registered public offering. The net proceeds to the Company of
approximately $54.0 million, after taking into account a
voluntary return of proceeds of $0.4 million to the purchasers in
the stock offering, were used to repay amounts outstanding under
the Company's bank Credit Agreements.
NOTE M-INCOME TAXES
The income tax provision is comprised of the expense (benefit)
as follows at March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------
<S> <C> <C> <C>
Current:
U.S. federal $ 2,126 $ 19,180 ($ 3,604)
State 544 1,692 150
Foreign 175 2,089 126
---------------------------
Total current 2,845 22,961 ( 3,328)
Deferred 4,758 7,173 ( 3,924)
---------------------------
Total tax provision $ 7,603 $ 30,134 ($ 7,252)
============================
</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>
1998 1997
---------------------
<S> <C> <C>
Accelerated depreciation ($ 2,735) ($ 2,571)
Deferred charges ( 576) ( 571)
Contributions 1,774 --
Inventory obsolescence reserve 1,843 1,877
Bad debt and returns reserves 2,252 2,303
Inventory-unicap tax adjustment 1,155 1,129
Advances and prepaid expenses 560 92
Accrued liabilities 812 2,127
Other -- 5,457
Valuation allowance ( 5,173) ( 5,173)
--------------------
Net deferred tax asset ($ 88) $ 4,670
====================
</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>
1998 1997 1996
---------------------------
<S> <C> <C> <C>
U.S. federal statutory tax
rate provision (benefit) 34.0% 34.0% ( 34.0%)
State taxes on income 3.5% 3.0% ( 6.7%)
Other -- -- .8%
---------------------------
Effective tax rate 37.5% 37.0% ( 39.9%)
===========================
</TABLE>
Cash payments for income taxes were $20.0 million, $1.0
million, and $0.9 million in 1998, 1997 and 1996, respectively.
NOTE N-QUARTERLY RESULTS (UNAUDITED)
Summarized results for each quarter in the fiscal years ended
March 31, 1998 and 1997 are as follows (dollars in thousands,
except per share data):
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------
<S> <C> <C> <C> <C>
1998
- -----
Net revenues $ 54,459 $ 68,618 $ 64,658 $ 65,223
Gross profit 24,873 30,800 29,494 29,402
Net income 991 4,603 4,417 2,662
Net income per
share 0.06 0.27 0.26 0.16
1997
- -----
Net revenues $ 55,179 $ 65,206 $ 63,557 $ 59,494
Gross profit 26,034 30,973 27,958 26,272
Income from
continuing
operations 218 3,571 3,443 2,290
Income (loss) from
discontinued
operations ( 1,613) 1,538 803 15,827
Net income (loss) ( 1,395) 5,109 4,246 18,117
Income per share
from continuing
operations 0.01 0.21 0.20 0.14
Income (loss) per
share from
discontinued
operations ( 0.09) 0.09 0.05 0.92
Net income (loss)
per share ( 0.08) 0.30 0.25 1.06
</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 $14.4 million
at March 31, 1998. The timing of payments will be dependent upon
the performance by the authors of conditions provided in the
applicable contracts. It is anticipated that a substantial
portion of the commitments will be completed within the next five
years.
The Company is subject to various legal proceedings, claims and
liabilities, which arise in the ordinary course of business. In
the opinion of management, the amount of ultimate liability with
respect to these actions will not materially affect the financial
position or results of operations of the Company.
NOTE P-FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of financial
instruments as of March 31, 1998 is made in accordance with SFAS
107, "Disclosures about Fair Value of Financial Instruments."
The estimated fair value amounts have been determined by the
Company using available market information as of March 31, 1998
and 1997, respectively. The estimates presented are not
necessarily indicative of amounts the Company could realize in a
current market transaction (in thousands):
<TABLE>
<CAPTION>
1998 1997
----------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------------------------------------
<S> <C> <C> <C> <C>
CASH AND
CASH EQUIVALENTS $ 39,713 $ 39,713 $ 43,471 $ 43,471
LONG-TERM DEBT:
Industrial Revenue
Bonds $ 1,725 $ 1,725 $ 1,900 $ 1,900
Capital Lease
Obligations 326 326 645 645
Loan Agreement 2,332 2,332 3,000 3,000
Senior Notes 24,000 23,325 26,000 24,720
Convertible Sub-
ordinated Notes 55,000 55,275 55,000 50,600
</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 quoted
prices from financial institutions. The carrying value of the
Company's Loan Agreement approximates the fair value. Due to the
variable rate nature of the instruments, the interest rate paid
by the Company approximates the current market rate demanded by
investors; therefore, the instruments are valued at par. The
carrying value of the Industrial Revenue Bonds and the Capital
Lease Obligations approximates the fair value.
Outstanding letters of credit totaled $1.8 million and $1.4
million as of March 31, 1998 and 1997, respectively. The letters
of credit guarantee performance to third parties of various trade
activities. Fair value estimated on the basis of fees paid to
obtain the obligations is not material at March 31, 1998 and
1997.
Financial instruments which potentially subject the Company to
credit risk consist primarily of trade receivables. Credit risk
on trade receivables is minimized as a result of the large and
diverse nature of the Company's customer base.
NOTE Q-DISCONTINUED OPERATIONS
On January 6, 1997, the Company sold the assets, net of certain
liabilities, of the Music Business, which included production of
recorded music and related products, the distribution of
recordings for other companies and music publishing, including
songwriter development, print music publishing and copyright
administration, for approximately $120 million.
During March 1996, the Company adopted plans to sell the
Christian-lifestyles magazines and the radio networks of the
Company's Royal Media division, and those sales have been
completed. These operations are accounted for as discontinued
operations, and accordingly, their assets, liabilities and
results of operations are segregated in the accompanying
consolidated statements of operations, balance sheets and
statements of cash flows.
Net revenues, operating costs and expenses, other income and
expense, and income taxes for all periods presented have been
reclassified for amounts associated with the discontinued
operations.
Revenues, income (losses) and income tax provisions (benefits)
associated with the discontinued operations were as follows at
March 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------------
<S> <C> <C>
Net revenues $ 74,687 $ 91,830
=========================
Income (loss) from operations
before income tax provision
(benefit) $ 1,174 ($ 12,249)
Income tax provision (benefit) 446 ( 4,891)
-------------------------
Income (loss) from operations 728 ( 7,358)
-------------------------
Gain (loss) on disposal before
income tax provision (benefit) 39,923 ( 4,381)
Income tax provision (benefit) 24,096 ( 1,748)
-------------------------
Gain (loss) on disposal 15,827 ( 2,633)
-------------------------
Total income (loss) from
discontinued operations $ 16,555 ($ 9,991)
=========================
</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
=========================
</TABLE>
Report of Independent Public Accountants
=================================================================
Thomas Nelson, Inc. and Subsidiaries
To the Board of Directors of Thomas Nelson, Inc. and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Thomas Nelson, Inc. (a Tennessee corporation) and Subsidiaries as
of March 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1998.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Thomas Nelson, Inc. and Subsidiaries as of
March 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended
March 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Nashville, Tennessee
June 4, 1998
Other Financial Information
=================================================================
The common stock and the Class B common stock are traded on the
NYSE under the symbols "TNM" and "TNM.B," respectively. The
following table sets forth, for the periods indicated, the high
and low closing sales prices as reported on the NYSE composite
tape:
<TABLE>
<CAPTION>
Common Class B
Stock Common Stock Dividends
--------------------------------------- Paid
High Low High Low Per Share
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal 1998
- -----------
First Quarter $14.0000 $ 8.8750 $20.2500 $16.2500 $ .04
Second Quarter 14.0000 12.0000 18.7500 17.3750 .04
Third Quarter 14.0000 10.2500 18.0000 12.0000 .04
Fourth Quarter 14.1875 10.5000 16.0000 11.2500 .04
---------
$ .16
=========
Fiscal 1997
- -----------
First Quarter $15.1250 $11.5000 $19.3750 $16.0000 $ .04
Second Quarter 13.2500 10.2500 16.7500 12.5000 .04
Third Quarter 14.8750 9.3750 21.0000 13.2500 .04
Fourth Quarter 15.2500 10.5000 23.0000 18.8750 .04
---------
$ .16
=========
</TABLE>
As of June 19, 1998, there were 1,076 record holders of the
common stock and 708 record holders of the Class B common stock.
Declaration of dividends is within the discretion of the Board
of Directors of the Company. The Board considers the payment of
dividends on a quarterly basis, taking into account the Company's
earnings and capital requirements as well as financial and other
conditions existing at the time. Certain covenants of the
Company's Credit Agreements and Senior Notes limit the amount of
cash dividends payable based on the Company's cumulative
consolidated net income. See Note H of Notes to Consolidated
Financial Statements. On May 21, 1998, the Company declared a
cash dividend of $.04 per share on its common stock and Class B
common stock to be paid on August 17, 1998 to shareholders of
record on August 3, 1998.
<TABLE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<CAPTION>
Percentage
Jurisdiction of Ownership of
Subsidiary Incorporation Capital Stock
===========================================================
<S> <C> <C>
Worthy, Incorporated Delaware 100%
Nelson Direct Marketing
Services, Inc. Delaware 100%
Nelson Direct, Inc. Texas 100%
Nelson Direct
Partners, LP Texas 100%
Editorial Caribe, Inc. Florida 100%
The C.R. Gibson Company Delaware 100%
855763 Ontario Limited Ontario, Canada 100%
C.R. Gibson (UK) Limited
(formerly Nelson Media
[U.K.] Limited) United Kingdom 100%
Nelson Media (Canada)
Limited British Columbia, 100%
Canada
Elm Hill Press, Inc. Tennessee 100%
PPC, Inc. North Carolina 100%
C.R. Gibson, Japan Japan 100%
</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 reports dated
June 4, 1998 included in Thomas Nelson, Inc.'s annual report to
shareholders. In addition, we hereby consent to the
incorporation of our reports incorporated by reference in this
Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (File No. 33-80086 and File No. 333-4503).
/s/ ARTHUR ANDERSEN LLP
Nashville, Tennessee
June 25, 1998
<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, 1998, 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-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 39,713
<SECURITIES> 0
<RECEIVABLES> 69,426
<ALLOWANCES> 6,162
<INVENTORY> 70,590
<CURRENT-ASSETS> 185,020
<PP&E> 58,879
<DEPRECIATION> 26,776
<TOTAL-ASSETS> 285,291
<CURRENT-LIABILITIES> 44,764
<BONDS> 79,560
0
0
<COMMON> 17,115
<OTHER-SE> 139,281
<TOTAL-LIABILITY-AND-EQUITY> 285,291
<SALES> 250,366
<TOTAL-REVENUES> 252,958
<CGS> 138,389
<TOTAL-COSTS> 226,339
<OTHER-EXPENSES> 1,839
<LOSS-PROVISION> 1,725
<INTEREST-EXPENSE> 6,073
<INCOME-PRETAX> 20,276
<INCOME-TAX> 7,603
<INCOME-CONTINUING> 12,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,673
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.73
</TABLE>
<TABLE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Dollars and Shares in thousands, except per share data)
<CAPTION>
March 31, 1998 March 31, 1997 March 31, 1996
--------------- -------------- --------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Weighted average shares
outstanding 17,113 17,119 15,580
========== ========== ==========
Income (loss) from
continuing operations $ 12,673 $ 9,522 ($ 923)
Income (loss) from
discontinued operations - 16,555 ( 9,991)
---------- ---------- ----------
Net income (loss) $ 12,673 $ 26,077 ($10,914)
========== ========== ==========
Income (loss) per share
from continuing
operations $ 0.74 $ 0.56 ($ 0.06)
Income (loss) per share
from discontinued
operations - 0.96 ( 0.64)
---------- ---------- ----------
Net income (loss) per share $ 0.74 $ 1.52 ($ 0.70)
========== ========== ==========
DILUTED EARNINGS PER SHARE:
Weighted average shares
outstanding 17,113 17,119 15,580
Convertible notes 3,235 3,235 3,235
Dilutive stock options -
based on treasury stock
method using the average
market price 40 16 214
---------- ---------- ----------
Total shares 20,388 20,370 19,029
========== ========== ==========
Income from continuing
operations<F1> $ 14,793 $ 11,629 $ 1,095
Income (loss) from
discontinued
operations - 16,555 ( 9,991)
---------- ---------- ----------
Net income (loss) $ 14,793 $ 28,184 ($ 8,896)
========== ========== ==========
Income (loss) per share
from continuing
operations $ 0.73 $ 0.56<F2> ($ 0.06)<F2>
Income (loss) per share
from discontinued
operations - 0.81 ( 0.64)<F2>
---------- ---------- ----------
Net income (loss) per share $ 0.73 $ 1.37 ($ 0.70)<F2>
========== ========== ==========
<FN>
<F1> Adjusted for interest on convertible debt
<F2> Anti-dilutive; use basic earnings per share on Statement of Operations
</TABLE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
----------------------
This contract of employment is made and entered into by and
between Thomas Nelson, Inc., a Tennessee corporation, hereinafter
referred to as "Employer", and Eric D. Heyden, hereinafter
referred to as "Employee".
Employer desires to employ Employee in the capacity of Assistant
General Counsel, with all principal powers, duties and
responsibilities attendant thereto, and such other duties as
shall be requested of Employee by the Company, and Employee
desires to be so employed by Employer. In consideration
therefore, the parties mutually agree as follows:
A. TERM OF AGREEMENT
The term of this contract shall be for a period of one (1)
year commencing on July 10, 1995 and thereafter shall
automatically renew for additional thirty (30) day periods
unless 1) cancelled upon thirty (30) days written notice by
either party or 2) superseded by a new employment agreement.
B. EMPLOYEE COMPENSATION
Employee's remuneration shall be as set forth in Schedule A
attached to this Agreement and incorporated herein.
C. EMPLOYEE CONDUCT
As Assistant General Counsel, Employee recognizes and
understands his fiduciary relationship with and
responsibilities to Employer and Employee therefore promises
to act always in good faith and in the best interests of
Employer in the discharge of his duties and obligations.
Further, Employee agrees to devote his full time and efforts
to his employment with Employer. Should Employee during the
term of this Agreement fail to so devote his full working
time and efforts to the benefit of Employer for any reason
other than illness or disability, or should he engage in any
activity or business enterprise competing or conflicting
with the business or activities of Employer, its
subsidiaries, partners, or agents, or should he engage in
any illegal or criminal conduct or acts of insubordination
or moral turpitude (such as fornication, adultery, theft,
embezzlement and/or fraud), or should he violate any of the
terms and provisions of Subparagraph D(1) hereunder, then
Employer, at its sole discretion, may terminate the
employment of Employee immediately. All Employee's rights
hereunder shall end upon such termination by Employer and
Employee's only rights in such event shall be to receive all
salary accrued through the date of termination.
D. CONFIDENTIAL CLAUSES AND NON-COMPETITION AGREEMENT
Employee further agrees as follows:
(1) During Employment by Employer:
Confidential Information
Employee recognizes and acknowledges that there are
certain trade secrets related to Employer's Bible,
book, gift, music and audio/video businesses including,
but not limited to, the names, royalties, account
information and/or business relationships pertaining to
Employer's artists, authors, writers, customers, and
manufacturers, as well as certain information related
to manufacturing schedules and procedures, new
products, future plans, marketing practices, sales
volumes of various products, and other items of
Employer's businesses not specifically mentioned
herein.
Employee recognizes and understands that he holds a
position of fiduciary privilege, and except as
authorized in writing by Employer, he agrees during the
term of this Agreement and thereafter to refrain from
disclosing to any person, firm, corporation,
partnership, association or other business entity, or
to use for his own benefit, any trade secrets, unique
business information, plans, products, manufacturing
data, customer lists, author or artist lists, or any
other confidential information relating to any and all
ongoing business activities of Employer, or its parent
company, or its subsidiaries, the disclosure of which
he knows, or in the exercise of reasonable care should
have reason to know, may, can, or will be damaging or
harmful to Employer's business activities or those of
its parent company, or subsidiaries, or which
disclosure shall serve to direct or divert
corporate opportunities, product sales, and/or profits
away from Employer, its parent company, its subsidiaries,
partners, or agents, to the person, firm, corporation,
partnership, association, or the given entity to whom
or to which such disclosure is made.
(2) Subsequent to Termination of Employment:
Non-Competition
Employee agrees that for a period extending two (2)
years from the date of Employee's termination with
Employer for any reason:
(i) He will not negotiate or enter into any contract
with any songwriter, recording artist, author,
writer, editor, designer, packager or other person
who, at the time of termination, is under contract
to Employer, or its subsidiaries, or with whom
Employer or its subsidiaries is negotiating at
such time, or with whom Employer or any of its
subsidiaries enters into any contract or agreement
during the non-compete period hereunder. Employee
further agrees not to negotiate or enter into
contract with any of the above persons for a
period of two (2) years following the expiration
of any such person's contract with Thomas Nelson
or any of its subsidiaries.
(ii)He will not attempt to procure, nor encourage
others to procure, the employment of any employees
of Employer or its subsidiaries who are employed
at the time of execution hereof or such employees
as may become employed by Employer or any of its
subsidiaries during the non-compete period
hereunder.
(iii) He will not engage in publishing, producing
or distributing Bibles, religious books, religious
music, religious audio/video product, or religious
or secular gift and stationery products, nor
divert to other companies any recording artists,
songwriters, authors, writers, editors, designers,
packagers, or any other person under contract with
Employer or its subsidiaries or with whom Employer
is negotiating at the time of termination, in any
geographical region in which Employer or any of
its subsidiaries conduct such business or sell
such products both as of the time of execution
hereof and throughout the non-compete period
hereunder.
(iv)He agrees never to make, utter, write, nor
otherwise publish derogatory or defamatory
statements which can, may, or do cause harm,
whether intended or not, to the relationship
between Employer or its parent and any of its
customers, personnel, producers, artists, authors,
or writers.
E. REMEDIES
Employee acknowledges that he will receive privileged
information from Employer during his employment and that he
will have substantial access to Employer's trade secrets,
business information and personnel data. In consideration
of his employment and the privilege of access to Employer's
trade secrets, information, business methods and procedures,
and personnel data, Employee acknowledges that the
restrictions contained within paragraph D are reasonable and
necessary in order to preserve Employer's legitimate
interests and that any violation thereof would result in
irreparable injury to Employer for which monetary damages
would be an inadequate remedy. Therefore, Employee
acknowledges and agrees that in the event of any violations
thereof, Employer may seek from any court of competent
jurisdiction preliminary and permanent injunctive relief as
well as an equitable accounting of all Employee's profits or
benefits arising out of such violation, which rights shall
be cumulative and in addition to any other action or
remedies to which Employer may be entitled.
In the event that any Non-Competition provision of this
Agreement shall be held by a court of competent jurisdiction
to be, in any respect, an unreasonable restriction of
Employee, then the court so holding may reduce the territory
to which it pertains and/or the period of time to which it
operates or effect any other change to the extent necessary
to render the Non-Competition provisions and the Non-
Disclosure of Information provisions of this Contract
enforceable by the said court.
F. WAIVERABILITY OF PROVISIONS
In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any
way be affected nor impaired thereby and such provisions
shall be enforced to the fullest extent possible in
accordance with the mutual intent of the parties hereto.
G. NON-WAIVER AGREEMENT
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and is signed by the Employee and an
executive officer of Employer. No waiver by either party
hereto of the other party's compliance with, or breach
of, any condition or provision herein to be performed by said
party shall constitute a simultaneous waiver of any other terms,
provisions or conditions herein nor shall such waiver by
either party constitute a continuing waiver of said
pertinent term, provision, or condition subsequent thereto
unless such continuation of waiver is agreed to in writing
by the parties pursuant to the terms of this paragraph.
H. WARRANTIES AND REPRESENTATION
This Agreement, including attachments, contains the entire
agreement between the parties hereto and no agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by
either party which are not set forth expressly in this
Agreement.
I. APPLICABLE LAW
The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State
of Tennessee.
Agreement is made and entered into this 18th day of May, 1995.
ACCEPTED BY THOMAS NELSON, INC.
/s/ Eric Heyden 5-17-95 By: /s/ Stuart A. Heaton
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Name: Stuart A. Heaton
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Title: Vice President
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