=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
Commission file number 0-4095
------------------------
THOMAS NELSON, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 62-0679364
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
501 Nelson Place, Nashville, Tennessee 37214-1000
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (615)889-9000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, Par Value $1.00 per share New York Stock Exchange
Class B Common Stock, Par Value $1.00 New York Stock Exchange
per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90
days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
As of June 25, 1999, the Registrant had outstanding
13,123,260 shares of common stock and 1,101,524 shares of
Class B common stock. On such date the aggregate market
value of shares of common stock and Class B common stock
held by nonaffiliates was approximately $119.7 million. The
market value calculation was determined using the closing
sale price of the Registrant's common stock and Class B
common stock on June 25, 1999, as reported on The New York
Stock Exchange, and assumes that all shares beneficially
held by executive officers and the directors of the
Registrant and shares held in the Thomas Nelson Employee
Stock Ownership Plan are shares owned by "affiliates," a
status which each of such officers and directors
individually disclaims.
============================================================
DOCUMENTS INCORPORATED BY REFERENCE
Documents from which portions
Part of Form 10-K are incorporated by reference
- ---------------------------- -----------------------------
PART I
Business Page 28 of Annual Report to
Shareholders for year ended
March 31, 1999
PART II
Item 5 - Market for Company's Page 29 of Annual Report to
Common Equity and Shareholders for year ended
Related Shareholder March 31, 1999 (market price
Matters and dividend information
only)
Item 6 - Selected Financial Page 9 of Annual Report to
Data Shareholders for year ended
March 31, 1999
Item 7 - Management's Dis- Pages 10 to 13 of Annual Report
cussion and Analysis to Shareholders for year
of Financial Condition ended March 31, 1999
and Results of
Operations
Item 7A - Quantitative and Page 12 of Annual Report to
Qualitative Dis- Shareholders for year ended
closures about March 31, 1999
Market Risk
Item 8 - Financial Statements Pages 14 to 28 of Annual Report
and Supplementary to Shareholders for year
Data ended March 31, 1999
PART III
Item 10 - Directors and Execu- To be included in Company's
tive Officers of the Proxy Statement for the
Company Annual Meeting of Share-
holders to be held August
19, 1999, to be filed
with the Securities and
Exchange Commission pursuant
to Regulation 14A under the
Securities Exchange Act of
1934, as amended.
Item 11 - Executive Compensation To be included in Company's
Proxy Statement for the
Annual Meeting of Share-
holders to be held August
19, 1999, to be filed
with the Securities and
Exchange Commission pursuant
to Regulation 14A under the
Securities Exchange Act of
1934, as amended.
Item 12 - Security Ownership of To be included in Company's
Certain Beneficial Proxy Statement for the
Owners and Management Annual Meeting of Share-
holders to be held August
19, 1999, to be filed
with the Securities and
Exchange Commission pursuant
to Regulation 14A under the
Securities Exchange Act of
1934, as amended.
Item 13 - Certain Relationships To be included in Company's
and Related Trans- Proxy Statement for the
actions Annual Meeting of Share-
holders to be held August
19, 1999, to be filed
with the Securities and
Exchange Commission pursuant
to Regulation 14A under the
Securities Exchange Act of
1934, as amended.
PART I
Item 1. Business
Thomas Nelson, Inc. (the "Company") is a leading publisher,
producer and distributor of books emphasizing Christian,
inspirational and family value themes, and believes it is the
largest commercial publisher of the Bible in English language
translations. The Company also designs and markets a broad line
of gift and stationery products. The Company believes it is the
largest publisher of Christian and inspirational books in the
United States and is a major supplier of gift and stationery
items.
The Company, incorporated under the laws of the State of
Tennessee in 1961, has grown significantly over the last five
years through a combination of internal product development,
expanded product distribution and acquisitions. In November
1992, the Company acquired Word, Incorporated, a leading producer
and publisher of Christian music with complementary operations in
Christian and inspirational book publishing. The Company also has
enhanced its position in the gift products market and related
distribution channels through the acquisition of The C.R. Gibson
Company ("C.R. Gibson"), effective October 31, 1995. C.R.
Gibson, based in Norwalk, Connecticut, is a leading designer and
distributor of paper gift products, including baby and wedding
memory books, stationery, scrapbooks, gift wrap and other
products. In fiscal 1999, the Company decided to cease the
manufacturing activities at C.R. Gibson. The products formerly
produced at its manufacturing facilities will continue to be
designed and distributed by the Company, but will be manufactured
by outside vendors.
During fiscal 1997, the Company analyzed various strategic
alternatives for maximizing value from its music division and in
the third quarter determined to sell the music division, which
included the production of recorded music and related products,
the distribution of recordings for other companies and music
publishing, including songwriter development, print music
publishing and copyright administration. On January 6, 1997, the
Company sold the assets, subject to certain liabilities, of the
music division ("Music Business") for $120 million and realized a
net gain of $15.8 million (net of a goodwill write-off of $17
million).
The following table sets forth the net revenues (in thousands)
and the percentage of total net revenues for each of the
Company's principal product segments for the periods indicated:
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------------------
1999 1998 1997
----------------------------------------------------
Amount % Amount % Amount %
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Publishing $168,325 64.3 $163,480 64.6 $153,317 63.0
Gift 93,320 35.7 89,478 35.4 90,119 37.0
----------------------------------------------------
$261,645 100.0 $252,958 100.0 $243,436 100.0
====================================================
</TABLE>
Additional information regarding the Company's product segments
is incorporated by reference to Note R on page 28 of Annual
Report to Shareholders for year ended March 31, 1999.
PUBLISHING
The Company's book publishing division publishes and
distributes hardcover and trade paperback books emphasizing
Christian, inspirational and family value themes. The Company
believes it is the largest publisher of Christian and
inspirational books in the United States. Books are published by
the Company under several imprints including Thomas Nelson, Word,
J. Countryman(R) and Tommy Nelson(TM), and consist generally of
inspirational, trade, gift, children's and reference books
emphasizing Christian and family value themes. The Company
distributes books primarily through Christian bookstores, general
bookstores, mass merchandisers and direct sales to consumers.
The Company also distributes books published by other companies
to complement their marketing and distribution capabilities. In
fiscal 1999, publishing net revenues realized from the
distribution of books published by other companies was
immaterial.
In fiscal 1999, 1998 and 1997, the Company released over 200
new book titles annually. The Company publishes some of the most
well-known communicators in the Christian and inspirational
field, including James Dobson, Billy Graham, John Hagee, Barbara
Johnson, Ann Graham Lotz, Max Lucado, John MacArthur, John
Maxwell, Frank Peretti, Robert Schuller, Gary Smalley, Charles
Stanley and Charles Swindoll. The Company also publishes books
emphasizing positive and inspirational themes by famous athletes
and celebrities, such as Evander Holyfield, artist Thomas
Kinkade, Bill McCartney, Nolan Ryan, Deion Sanders, Reggie White
and Zig Ziglar. In addition, the Company maintains a backlist of
approximately 1,100 titles which provide a stable base of
recurring revenues as many popular titles continue to generate
significant sales from year to year. Backlist titles accounted
for approximately 42% of the book division's net revenues in
fiscal 1999. Authors and titles are supported through the use of
radio, television, cooperative advertising, author appearances,
in-store promotions, print advertising and other means.
The Company's book publishing business is enhanced by the
breadth and development of its marketing and distribution
channels. In addition to enhancing sales of its products, the
Company believes its ability to sign and renew contracts with
popular authors is improved because the Company's marketing and
distribution capabilities provide exposure for the authors' books
to a broader audience than its competitors. See "Marketing,
Distribution and Production."
The Company believes it is the largest commercial publisher of
English translations of the Bible. The Bible is based on ancient
manuscripts which are the surviving reproductions of the original
writings. These manuscripts, written in Hebrew, Aramaic or
Greek, have been translated into English and other modern
languages by biblical scholars and theologians, generally under
the auspices of a major Bible society or translation
organization. Each of the many English translations available
differs in some degree from the others, primarily because of
different translation guidelines and principles used as the basis
for each translation. The distinctiveness of each translation is
also, in part, a result of the evolution of the meaning and use
of words within the English language.
Virtually all Bibles and Bible products currently published in
the United States are based on one of 13 major translations. Of
these 13 translations, 12 are protected by copyright laws which
grant the copyright owner the exclusive right, for a limited
term, to control the publication of such translation. The
Company publishes Bibles and Bible products based on nine of the
13 major translations, of which four are exclusive to the Company
as a result of copyright ownership or licensing arrangements.
See "Copyrights and Royalty Agreements." Approximately 71% of
the Company's net revenues from Bible publishing in fiscal 1999
were generated through sales of its proprietary Bible products.
The following table sets forth the nine major Bible
translations currently published by the Company:
<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
New American Standard Bible (NAS) 1972 No
Today's English Version (TEV) 1976 Yes
New King James Version (NKJV) 1982 Yes
New Century Version (NCV) 1984 Yes
New Revised Standard Version (NRSV) 1990 No
Contemporary English Version (CEV) 1995 Yes
New Living Translation (NLT) 1996 No
</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.
Electronic Bibles and biblical reference books are published
under the Nelson Electronic Publishing imprint. These products
include electronic collections centered on Bible study;
electronic libraries featuring well-known authors, such as Jack
Hayford, John MacArthur, John Maxwell and Charles Stanley; and
software for preparing Bible study lessons. The Company has
achieved a leadership position in the industry with its
electronic publications, and is aggressively pursuing new digital
formats of publication and distribution as they develop, such as
the Internet, and emerging portable book technologies.
The Company continually seeks to expand its Bible product line
by developing or aiding in the development of new translations
and editions and seeking new publishing opportunities. The
Company also continually makes editorial, design and other
changes to its existing line of Bibles and other Bible products
in an effort to increase their marketability. The Company
currently publishes over 1,100 different Bibles and biblical
reference products such as commentaries, study guides and other
popular Bible help texts. Styles range from inexpensive
paperbacks to deluxe leather-bound Bibles to CD-Rom. Different
editions of a particular Bible translation are created by
incorporating extra material, such as study helps, concordances,
indices and Bible outlines, or artwork, into the biblical text.
These editions (which are generally proprietary to the Company
regardless of whether or not the Company holds proprietary rights
to the underlying Bible translation) are targeted to the general
market or positioned for sale to specific market segments.
GIFT
The Company's gift division more than doubled in size during
fiscal 1996 through the acquisition of C.R. Gibson and nearly
doubled in size again during fiscal 1997. In fiscal 1998, gift
revenues declined slightly due to a change in product focus away
from the mass merchandisers stationery category. In fiscal 1999,
the increase in gift revenues was primarily due to the increased
sales of a special selection of products, including scrapbooks,
to mass merchandisers. Current product lines offered by the
Company include journals and gift books, photo albums, baby and
wedding memory books, scrapbooks, kitchen accessories and
stationery.
Products are marketed under the C.R. Gibson(R), Creative
Papers(R), C.R. Gibson(R) Kids Kollection(TM), Toccata(R),
Tomorrow's Treasures(TM), Stepping Stones(TM) and Inspirations(R)
brand names, the latter of which incorporates Christian and
inspirational text or themes. Certain product lines are
marketed as collections, with each collection including a
variety of products featuring a common design or theme.
Designs include original artwork designed in-house, as well as
artwork licensed from artists or design groups such as Dena,
Beatrix Potter, Carter's Infant Apparel, Echo and Warner Brothers.
The Company believes the gift division has significant
opportunities for growth as a result of the range of
complementary gift categories not currently offered and the
breadth of the Company's existing and potential distribution
channels. In addition to its product lines, the C.R. Gibson
acquisition provided the Company access to both a dedicated sales
force experienced in marketing to the general gift, department
and specialty stores and C.R. Gibson's distribution facilities.
MARKETING, DISTRIBUTION AND PRODUCTION
The principal market channels through which the Company markets
its products domestically are Christian bookstores, which are
primarily independently owned; general bookstores, including
national chains such as Barnes & Noble and Borders; specialty
gift and department stores, such as SteinMart and May Company;
mass merchandisers such as Target, K-Mart, Wal-Mart and Sam's
Wholesale Club; and directly to consumers through direct mail,
telemarketing and the Internet. The Company services these
market channels through its sales force and through wholesalers
or jobbers servicing bookstores, gift stores, other retail
outlets and libraries. In addition, the Company sells certain of
its products for promotional purposes and sells specially
designed or imprinted products to certain customers.
The Company's direct marketing operations sell publishing
products directly to approximately 100,000 customers consisting
of churches, other religious organizations, pastors and other
individuals by direct mail and telemarketing. Retail sales also
are made during the summer months on a door-to-door, cash sales
basis through a student sales organization operated by the
Company.
As of March 31, 1999, the Company employed a sales force of
approximately 190 people and maintained 24-hour-a-day
telemarketing capability. These employees service over 55,000
retail accounts and 100,000 church related accounts. Customer
orders are usually shipped through a variety of common carriers,
as well as by UPS, RPS and parcel post. No single customer
accounted for more than 10% of net revenues during fiscal 1999.
The Company contracts with a number of foreign publishers to
translate the Company's English titles into foreign languages.
The Company typically retains ownership rights to the titles
translated.
The Company distributes its products internationally in South
America, Europe, Australia, New Zealand, South Africa, the Far
East, Mexico and Canada. In fiscal 1999, the Company's export
operations accounted for approximately $22.9 million, or 9%, of
the Company's total net revenues.
Substantially all of the Company's products are manufactured by
domestic and foreign commercial printers, binders and
manufacturers which are selected on the basis of competitive
bids. The Company may contract separately for paper and certain
other supplies used by its manufacturers.
COPYRIGHTS AND ROYALTY AGREEMENTS
The Company customarily secures copyrights on its books and
Bible editions in order to protect its publishing rights. Almost
all of the Company's book products are published under royalty
agreements with their respective authors or other copyright
proprietors. Many of the Company's gift products incorporate
copyrighted art work, which is licensed directly from the artist
or the owning entity under a royalty agreement.
COMPETITION
The Company believes that it is the largest publisher of
Christian and inspirational books, the largest commercial
publisher of Bibles in English language translations and a major
designer of gift and stationery items. The publishing and gift
divisions each compete with numerous other companies that publish
and distribute Christian and inspirational books or design and
distribute gift products, many of which have significantly longer
operating histories and larger revenue bases than the Company and
certain of which are tax-exempt organizations. While the
Company's prices are comparable to those of its competitors, the
Company believes that its breadth of product line, established
market channels, established sales forces and customer service
give it a competitive advantage.
The most important factor with respect to the competitive
position of the Company's publishing division is the contractual
relationships it establishes and maintains with authors. The
Company competes with other book publishing companies, both
Christian and secular, for signing top authors. The Company's
ability to sign and re-sign popular authors depends on a number
of factors, including distribution and marketing capabilities,
the Company's management team and the royalty and advance
arrangements offered. The Company believes its relationships with
its authors, which are based on its reputation in the book
publishing industry, its marketing experience and its management
expertise give it a competitive advantage in signing and
maintaining contracts with top Christian and inspirational
authors.
The Company's gift division has many competitors with respect
to certain of its product lines, but the Company believes there
are few competitors who distribute all of the Company's gift
product lines. The gift division also competes with numerous
religious publishers and suppliers, including tax-exempt church-
owned organizations, in connection with the sale of its church
supply products, and with numerous large and small companies in
the sale of stationery products, gift wrap and paper tableware.
EMPLOYEES
As of March 31, 1999, the Company employed approximately 1,130
persons. In connection with the recently announced restructuring
at C.R. Gibson, the Company's total employees will be reduced by
approximately 300 persons. The Company has not suffered any work
stoppages as a result of labor disputes in recent years and
considers relations with its employees to be good.
MANAGEMENT
Officers of the Company are elected by the Board of Directors
and serve at the pleasure of the Board of Directors. Following
is certain information regarding the executive officers of the
Company:
<TABLE>
<CAPTION>
Name Age Position with the Company
-------- ----- -------------------------
<S> <C> <C>
Sam Moore 69 Chairman of the
Board, Chief Executive
Officer, President
and Director
S. Joseph Moore 36 Executive Vice President
and Director; President,
Thomas Nelson Gift
Division
Joe L. Powers 53 Executive Vice President
and Secretary
Ray Capp 46 Senior Vice President,
Operations
Charles Z. Moore 65 Senior Vice President
Vance Lawson 40 Vice President, Finance
Phyllis E. Williams 51 Treasurer
Eric Heyden 45 Vice President and
General Counsel
</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.
Ray Capp was appointed Senior Vice President, Operations of the
Company in 1995. Prior to joining the Company, Mr. Capp was the
President and Chief Operating Officer of Ingram Merchandising
Services and Assistant to the Chairman of Ingram Distribution,
Inc. since 1992 and Executive Vice President and Chief Operating
Officer of Ingram Entertainment from 1987 to 1992.
Charles Z. Moore has been a Vice President of the Company since
1983 and was appointed Senior Vice President in 1986. Charles
Moore is the brother of Sam Moore and the uncle of S. Joseph
Moore.
Vance Lawson has been the Vice President, Finance of the
Company since 1993. Mr. Lawson was formerly Senior Vice
President of Finance and Operations at Word since 1988.
Phyllis E. Williams has been the Treasurer of the Company since
1992. Mrs. Williams was previously Controller for the Company
since 1988.
Eric Heyden has been the Vice President and General Counsel of
the Company since 1998, Vice President and Deputy General Counsel
of the Company since 1997 and Assistant General Counsel of the
Company since 1995. Mr. Heyden was previously Vice President and
General Counsel with Knoedler Publishing, Inc. from 1985 to 1995.
Item 2. Properties
The Company's executive, editorial, sales and production
offices are primarily located at its corporate headquarters at
501 Nelson Place in Nashville, Tennessee. These facilities are
housed in a 74,000 square foot building completed in 1981, which
is owned by the Company subject to a mortgage securing a debt
with an outstanding balance at March 31, 1999 of $1,525,000.
The Company's major warehouse facilities for its publishing
division are located in a building containing approximately
215,000 square feet adjacent to its corporate headquarters in
Nashville, Tennessee. This building, which was completed in
fiscal 1978, is owned by the Company. An addition to the
warehouse and distribution center of approximately 120,000 square
feet was completed during fiscal 1993. This addition was
financed by a $5,000,000 construction and term loan secured by a
mortgage with an outstanding balance of $1,667,000 at March 31,
1999. The Company maintains offices and other warehousing
facilities for its gift division in Beacon Falls, Guilford and
Norwalk, Connecticut (of approximately 112,000, 74,000 and
147,000 square feet, respectively) which are owned by the
Company. The Company anticipates selling its Norwalk facilities
during fiscal 2000 due to the restructuring at C.R. Gibson.
The Company leases properties as described below:
<TABLE>
<CAPTION>
Square Annual Lease
Location Use/Segment Feet Rent Expiration
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Miami, FL Editorial office/
publishing 1,400 $ 26,340 08/2000
Atlanta, GA Editorial office/
publishing 800 $ 11,900 10/1999
Carmel, IN Retail store/gift 12,500 $ 79,300 09/1999
Clifton, NJ Manufacturing/gift 11,000 $ 46,800 10/2001
Nashville, TN Creative and sales
office/publishing
and gift 37,400 $642,700 11/2001
Nashville, TN Creative office/
publishing 13,700 $250,600 09/2000
Nashville, TN Warehousing/
publishing 84,700 $273,300 11/2002
Nashville, TN Warehousing/
publishing 84,700 $306,900 12/2005
Norwalk, CT Warehousing/gift 32,000 $144,000 07/1999
Shelton, CT Warehousing/gift 152,000 $612,500 03/2000
Ontario Warehousing and
(Canada) office/gift 25,700 $151,000 08/2003
</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 and Guilford and Norwalk, Connecticut and consist pri-
marily of computer equipment, warehousing and shipping racks,
conveyors and other material handling equipment located at the
various warehousing facilities and office equipment. Such
machinery and equipment are in good repair and adequate for the
Company's present operations. All such equipment, other than a
portion of the computer equipment that is leased under capital
leases, is owned by the Company.
The Company's physical properties are operated at approximate
capacity. Additional personnel are employed as required.
Item 3. Legal Proceedings
The Company is subject to various legal proceedings, claims
and liabilities which arise in the ordinary course of its busi-
ness. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially
affect the financial position or results of operations of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matter to a vote of its
security holders during the last quarter of its fiscal year
ended March 31, 1999.
PART II
Item 5. Market for the Company's Common Equity and Related
Shareholder Matters
Incorporated by reference to the Annual Report to Share-
holders for the year ended March 31, 1999 (the "Annual Report").
Item 6. Selected Financial Data
Incorporated by reference to the Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Incorporated by reference to the Annual Report.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk
Incorporated by reference to the Annual Report.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Annual Report. Includes
selected unaudited quarterly financial data for the years ended
March 31, 1999 and 1998.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Company
Information regarding the directors of the Company and com-
pliance with Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), is incorporated by
reference to the Company's Proxy Statement for the Annual Meeting
of Shareholders to be held on August 19, 1999 (the "Proxy
Statement"), to be filed within 120 days of March 31, 1999 with
the Securities and Exchange Commission (the "Commission")
pursuant to Regulation 14A under the Exchange Act. Information
regarding the Company's executive officers is contained in Part
1, Item 1 herein.
Item 11. Executive Compensation
Incorporated by reference to the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Incorporated by reference to the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Documents filed as part of Report
1. Financial Statements
The following consolidated financial statements of the Company
included in the Annual Report are incorporated herein by reference
as set forth in Part II, Item 8:
Statements of operations--years ended March 31, 1999,
1998 and 1997
Balance sheets--March 31, 1999 and 1998
Statements of shareholders' equity--years ended March 31,
1999, 1998 and 1997
Statements of cash flow--years ended March 31, 1999, 1998
and 1997
Notes to consolidated financial statements
Report of Arthur Andersen LLP, Independent Public Accountants
2. Financial Statement Schedules
The following consolidated financial statement schedules are
included herein:
Page
----
Report of Arthur Andersen LLP, Independent
Public Accountants . . . . . . . . . . . . . . . . 17
Schedule VIII -- Valuation and Qualifying Accounts
and Reserves . . . . . . . . . . . . . . . . . . . 18
Schedules not listed above have been omitted because they are
not required, are inapplicable or the required information has
been given in the financial statements or notes thereto.
3. Exhibits
The following exhibits are included herein or incorporated by
reference as indicated. Exhibit numbers refer to Item 601 of
Regulation S-K.
Exhibit
Number
- ------
3.1 -- Thomas Nelson, Inc. Amended and Restated Charter (filed as
Exhibit 4.1 to the Company's Registration Statement on Form
S-8 (No. 33-80086) and incorporated herein by reference)
3.2 -- Thomas Nelson, Inc. Amended Bylaws
4.1 -- Loan Agreement dated May 18, 1990, between the Company and
The Industrial Development Board of The Metropolitan Govern-
ment of Nashville and Davidson County (filed as Exhibit 4(e)
to the Company's Annual Report on Form 10-K for the year
ended March 31, 1990 and incorporated herein by reference)
4.2 -- Promissory Note dated May 18, 1990, of the Company payable
to The Industrial Development Board of the Metropolitan
Government of Nashville and Davidson County (filed as
Exhibit 4(f) to the Company's Annual Report on Form 10-K
for the year ended March 31, 1990 and incorporated herein
by reference)
4.3 -- Deed of Trust and Security Agreement dated May 18, 1990,
from the Company to SunTrust Bank, Nashville, N.A. (filed
as Exhibit 4.6 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1991 and incorporated herein
by reference)
4.4 -- Construction and Term Loan Agreement dated March 31, 1992,
between the Company and SunTrust Bank, Nashville, N.A.
(filed as Exhibit 4.7 to the Company's Annual Report on
Form 10-K for the year ended March 31, 1992 and incor-
porated herein by reference)
4.5 -- Promissory Note dated March 31, 1992, of the Company
payable to SunTrust Bank, Nashville, N.A. (filed as Exhibit
4.8 to the Company's Annual Report on Form 10-K for the
year ended March 31, 1992 and incorporated herein by
reference)
4.6 -- Deed of Trust and Security Agreement dated March 31, 1992,
from the Company to SunTrust Bank, Nashville, N.A. (filed
as Exhibit 4.9 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1992 and incorporated herein
by reference)
4.7 -- Amended and Restated Credit Agreement dated as of December
13, 1995, and as amended January 3, 1996, among the Company,
SunTrust Bank, Nashville, N.A., National City Bank of
Louisville, First American National Bank in Nashville,
Nationsbank of Texas, N.A. in Dallas, and Creditanstalt
Corporate Finance, Inc. (formerly Creditanstalt-Bankverein)
in New York (filed as Exhibit 4.1 to the Company's Form
10-Q for the quarter ended December 31, 1995 and incor-
porated herein by reference)
4.8 -- June 1996 Amendment and Waiver with Respect to Amended and
Restated Credit Agreement Dated as of December 13, 1995,
among the Company, SunTrust Bank, Nashville, N.A., National
City Bank of Louisville, First American National Bank in
Nashville, Nationsbank of Texas, N.A. in Dallas, and
Creditanstalt Corporate Finance, Inc. (formerly
Creditanstalt-Bankverein) in New York (filed as Exhibit
4.12 to the Company's Annual Report on Form 10-K for the
year ended March 31, 1996 and incorporated herein by
reference)
4.9 -- Second Amendment to Credit Agreement dated as of November
15, 1996, among the Company, SunTrust Bank, Nashville,
N.A., National City Bank of Louisville, First American
National Bank in Nashville, Nationsbank of Texas, N.A.
in Dallas, and Creditanstalt Corporate Finance, Inc.
(formerly Creditanstalt-Bankverein) in New York (filed
as Exhibit 4.1 to the Company's Current Report on Form
8-K dated January 6, 1997 and incorporated herein by
reference)
4.10-- Third Amendment to Credit Agreement dated as of January
7, 1997, among the Company, SunTrust Bank, Nashville,
N.A., National City Bank of Louisville, First American
National Bank in Nashville, Nationsbank of Texas, N.A.
in Dallas, and Creditanstalt Corporate Finance, Inc.
(formerly Creditanstalt-Bankverein) in New York (filed
as Exhibit 4.2 to the Company's Current Report on Form
8-K dated January 6, 1997 and incorporated herein by
reference)
4.11-- Fourth Amendment to Credit Agreement dated as of March
31, 1998, among the Company, SunTrust Bank, Nashville,
N.A., National City Bank of Louisville, First American
National Bank in Nashville, Nationsbank of Texas, N.A.
in Dallas, and Creditanstalt Corporate Finance, Inc.
(formerly Creditanstalt-Bankverein) in New York (filed
as Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q dated September 30, 1998 and incorporated herein by
reference)
4.12-- Fifth Amendment to Credit Agreement dated as of November
30, 1998, among the Company, SunTrust Bank, Nashville,
N.A., National City Bank of Louisville, First American
National Bank in Nashville, Nationsbank of Texas, N.A.
in Dallas, and Creditanstalt Corporate Finance, Inc.
(formerly Creditanstalt-Bankverein in New York) (filed
as Exhibit 4.1 to the Company's Form 10-Q dated December
31, 1998 and incorporated herein by reference)
4.13-- Note Purchase Agreement dated January 3, 1996, among the
Company and Metropolitan Life Insurance Company (filed
as Exhibit 4.1 to the Company's Form 10-Q for the quarter
ended December 31, 1995 and incorporated herein by
reference)
4.14-- Letter Amendment No. 1 dated June 28, 1996, to Note
Purchase Agreement dated January 3, 1996, among the
Company and Metropolitan Life Insurance Company and
related waiver, dated as of March 31, 1996 (filed as
Exhibit 4.14 to the Company's Annual Report on Form
10-K for the year ended March 31, 1996 and incorporated
herein by reference)
4.15-- Assumption and Amendment Agreement dated as of May 30,
1996, and as amended June 28, 1996, between the Company
and Metropolitan Life Insurance Company (filed as Exhibit
4.15 to the Company's Annual Report on Form 10-K for the
year ended March 31, 1996 and incorporated herein by
reference)
4.16-- Loan Agreement dated as of September 21, 1989 between C.R.
Gibson and Metropolitan Life Insurance Company (filed by
C.R. Gibson as Exhibit 4(c) to The C.R. Gibson Company's
Registration Statement on Form S-2 (No. 33-43644) dated
November 4, 1991 and incorporated herein by reference)
4.17-- Loan Agreement dated as of June 23, 1994 between C.R.
Gibson and Metropolitan Life Insurance Company (filed by
C.R. Gibson (Commission File No. 0-4855) as Exhibit 4(b)
to C.R. Gibson's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, filed with the Commission on
March 14, 1995 and incorporated herein by reference)
10.1 -- Thomas Nelson, Inc. Amended and Restated 1990 Deferred
Compensation Option Plan for Outside Directors (filed as
Exhibit 4.5 to the Company's Registration Statement on
Form S-8 (No. 33-80086) dated June 13, 1994 and incor-
porated herein by reference)*
10.2 -- Thomas Nelson, Inc. Amended and Restated 1992 Employee
Stock Incentive Plan (filed as Exhibit 4.6 to the Company's
Proxy Statement dated July 26, 1995, for the Annual Meeting
of Shareholders held on August 24, 1995 and incorporated
herein by reference)*
10.3 -- Severance Agreement dated as of May 17, 1991, between the
Company and Sam Moore (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1991 and incorporated herein by reference)*
10.4 -- Employment Agreement dated as of May 13, 1996, between the
Company and Sam Moore (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1996 and incorporated herein by reference)*
10.5 -- Employment Agreement dated as of May 10, 1996, between the
Company and S. Joseph Moore (filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1996 and incorporated herein by reference)*
10.6 -- Employment Agreement dated as of May 10, 1996, between the
Company and Joe L. Powers (filed as Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1996 and incorporated herein by reference)*
10.7 -- Employment Agreement dated as of May 13, 1996, between the
Company and Charles Z. Moore (filed as Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the year
ended March 31, 1996 and incorporated herein by reference)*
10.8 -- Employment Agreement dated as of December 22, 1994, between
the Company and Raymond T. Capp (filed as Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the year ended
March 31, 1995 and incorporated herein by reference)*
10.9 -- Employment Agreement dated as of June 23, 1993, between the
Company and Vance Lawson (filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1994 and incorporated herein by reference)*
10.10-- Employment Agreement dated as of July 10, 1995, between
the Company and Eric Heyden (filed as Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1998 and incorporated herein by reference)*
10.11-- Asset Purchase Agreement, dated as of November 21, 1996 by
and among the Company, Word, Incorporated and Word Direct
Partners, L.P. as Sellers and Gaylord Entertainment Company
as Buyer (filed as Exhibit 2.1 to the Company's Form 8-K
dated January 6, 1997 and incorporated herein by reference)
10.12-- Amendment No. 1 to the Asset Purchase Agreement dated as of
January 6, 1997, by and among the Company, Word, Incor-
porated and Word Direct Partners, L.P. as Sellers and
Gaylord Entertainment Company as Buyer (filed as Exhibit
2.2 to the Company's Form 8-K dated January 6, 1997 and
incorporated herein by reference)
10.13-- Asset Purchase Agreement dated as of January 6, 1997, by
and between Nelson Word Limited and Word Entertainment
Limited (filed as Exhibit 2.3 to the Company's Form 8-K
dated January 6, 1997 and incorporated herein by reference)
10.14-- Subsidiary Asset Purchase Agreement executed on January 6,
1997, and dated as of November 21, 1996, between Word
Communications, Ltd. and Word Entertainment (Canada), Inc.
(filed as Exhibit 2.4 to the Company's Current Report on
Form 8-K dated January 6, 1997 and incorporated herein by
reference)
11 -- Statement re Computation of Per Share Earnings
13 -- Thomas Nelson, Inc. Annual Report to Shareholders for the
year ended March 31, 1999 (to the extent of portions
specifically incorporated by reference)
21 -- Subsidiaries of the Company
23 -- Consent of Independent Public Accountants
27 -- Financial Data Schedule (for SEC use only)
- ------------------
*Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated January 8, 1999 (the
"Form 8-K"), was filed by the Company on January 8, 1999.
The Form 8-K contained information pursuant to Item 5
thereunder relating to a press release describing the
Company's redemption of its 5 3/4% Convertible Subordinated
Notes due 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
THOMAS NELSON, INC.
By: /s/ Sam Moore
----------------------------
Sam Moore, Chief Executive
Officer and President
Date: June 28, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the Company and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -----------------------------------------------------------------
<S> <C> <C>
/s/ Sam Moore Chairman of the Board June 28, 1999
- ----------------------- of Directors, Chief
Sam Moore Executive Officer and
President (Principal
Executive Officer)
/s/ S. Joseph Moore Executive Vice President June 28, 1999
- ----------------------- and Director
S. Joseph Moore
/s/ Joe L. Powers Executive Vice President June 28, 1999
- ----------------------- and Secretary (Prin-
Joe L. Powers cipal Financial and
Accounting Officer)
/s/ Brownlee O.
Currey, Jr. Director June 28, 1999
- -----------------------
Brownlee O. Currey, Jr.
/s/ W. Lipscomb
Davis, Jr. Director June 28, 1999
- -----------------------
W. Lipscomb Davis, Jr.
/s/ Robert J. Niebel Director June 28, 1999
- -----------------------
Robert J. Niebel
/s/ Millard V. Oakley Director June 28, 1999
- -----------------------
Millard V. Oakley
/s/ Joe M. Rodgers Director June 28, 1999
- -----------------------
Joe M. Rodgers
/s/ Andrew Young Director June 28, 1999
- -----------------------
Andrew Young
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thomas Nelson, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in
Thomas Nelson's annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon
dated June 4, 1999. Our audit was made for the purpose of
forming an opinion on those consolidated statements taken as a
whole. The schedules listed in the index are the responsibility
of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and
are not part of the basic consolidated financial statements.
These schedules have been subjected to the auditing procedures
applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as
a whole.
/s/ Arthur Andersen LLP
Nashville, Tennessee
June 4, 1999
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
============================================================================
<CAPTION>
March 31, 1999 March 31, 1998 March 31, 1997
------------------------------------------------
<S> <C> <C> <C>
Reserve for Sales
Returns:
Balance at beginning
of period $ 3,934,000 $ 4,773,000 $ 4,355,000
Additions:
1. Charged to costs
and expenses 910,000 - 418,000
2. Charged to other
accounts - - -
Deductions: charge-offs - 839,000 -
------------------------------------------------
Balance at end of
period $ 4,844,000 $ 3,934,000 $ 4,773,000
================================================
Reserve for Doubtful
Accounts:
Balance at beginning
of period $ 2,228,000 $ 2,227,000 $ 2,714,000
Additions:
1. Charged to costs
and expenses 2,027,000 1,778,000 2,794,000
2. Charged to other
accounts - - -
Deductions: charge-offs 2,117,000 1,777,000 3,281,000
------------------------------------------------
Balance at end of
period $ 2,138,000 $ 2,228,000 $ 2,227,000
================================================
Discontinued Operations:
Balance at beginning
of period $ 5,197,000 $ 9,101,000 $ 4,381,000
Additions:
1. Charged to costs
and expenses - - 12,266,000
2. Charged to other
accounts - - -
Deductions: charge-offs 2,492,000 3,904,000 7,546,000
------------------------------------------------
Balance at end of
period $ 2,705,000 $ 5,197,000 $ 9,101,000
================================================
Restructuring:
Balance at beginning
of period $ - $ - $ -
Additions:
1. Charged to costs
and expenses 4,666,000 - -
2. Charged to other
accounts - - -
Deductions: charge-offs 1,599,000 - -
------------------------------------------------
Balance at end of
period $ 3,067,000 $ - $ -
================================================
</TABLE>
INDEX TO EXHIBITS
Exhibit
Number
- -------
3.2 -- Thomas Nelson, Inc. Amended Bylaws
11 -- Statement re Computation of Per Share Earnings
13 -- Thomas Nelson, Inc. Annual Report to Shareholders for
the year ended March 31, 1999 (to the extent of portions
specifically incorporated by reference)
21 -- Subsidiaries of the Company
23 -- Consent of Independent Public Accountants
27 -- Financial Data Schedule (for SEC purposes only)
Exhibit 13
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
YEARS ENDED
March 31, 1999 1998 1997 1996<F1> 1995
(Dollars in thousands,
except per share data)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS <F3>
Net revenues $261,645 $252,958 $243,436 $219,838 $174,609
=====================================================
Operating income $ 20,549 $ 24,780 $ 22,954 $ 5,887 $ 21,212
=====================================================
Income (loss) from
continuing
operations $ 8,855 $ 12,673 $ 9,522 ($ 923) $ 10,101
Income (loss) from
discontinued
operations <F4><F5> - - 16,555 ( 9,991) 1,609
-----------------------------------------------------
Net income (loss) $ 8,855 $ 12,673 $ 26,077 ($ 10,914) $ 11,710
=====================================================
- ------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $255,330 $287,442 $301,571 $355,083 $232,386
Working capital 118,794 141,342 131,852 197,127 145,860
Long-term debt and
other non-current
liabilities 85,392 85,217 89,233 185,019 121,797
Shareholders' equity 125,649 156,396 146,812 122,065 72,178
Long-term debt to
total capitalization 40.5% 35.3% 37.8% 60.3% 62.8%
- ------------------------------------------------------------------------------
PER SHARE DATA <F2><F3>
Income (loss) per share
from continuing
operations $ 0.58 $ 0.74 $ 0.56 ($ 0.06) $ 0.76
Income (loss) per share
from discontinued
operations <F4><F5> - - 0.96 ( 0.64) 0.12
-----------------------------------------------------
Net income (loss)
per share $ 0.58 $ 0.74 $ 1.52 ($ 0.70) $ 0.88
=====================================================
Dividends declared
per share $ 0.16 $ 0.16 $ 0.16 $ 0.16 $ 0.14
Book value per share 8.73 9.14 8.58 7.13 5.37
Weighted average
number of shares
outstanding
(in thousands) <F6> 15,279 17,113 17,119 15,580 13,374
- ------------------------------------------------------------------------------
<FN>
<F1> Includes C.R. Gibson operations subsequent to acquisition on
October 31, 1995.
<F2> Per share data has been restated for stock dividends.
<F3> For fiscal years 1995 through 1997, operating results and per
share data have been restated for discontinued operations and,
for fiscal 1999, reflects pre-tax restructuring and other
related charges of $4.7 million pertaining primarily to
severance and reserves for inventory to be liquidated.
<F4> In fiscal 1996, the Company recorded a loss on disposal and
results of operations for its Christian-lifestyle magazines
and the radio networks of the Royal Media division.
<F5> 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.
<F6> Represents basic weighted average number of shares outstanding
restated per SFAS 128.
</TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's net revenues from continuing operations have
grown in recent years as a result of increased sales of existing
product lines and through the development of new product lines.
In fiscal 1999, the Company decided to phase out manufacturing
operations at its C.R. Gibson subsidiary ("Gibson") and recorded
a charge for restructuring and other related costs of $4.7
million pertaining primarily to severance and reserves for
inventory to be liquidated.
On January 6, 1997, the Company sold the assets, subject to
certain liabilities, of the music division ("Music Business")
for $120 million and realized a net gain of $16 million (net of
goodwill of $17 million). The proceeds from the sale were used
primarily to retire long-term debt. The operating results of
the Music Business are reported as discontinued operations for
fiscal 1997.
The following table sets forth for the periods indicated
certain selected statements of operations data of the Company
expressed as a percentage of net revenues and the percentage
change in dollars of such data from the prior fiscal year.
<TABLE>
<CAPTION>
Fiscal Year-to-Year
Years Ended March 31, Increase (Decrease)
----------------------------------------------------
1999 1998 1997 1998 to 1999 1997 to 1998
----------------------------------------------------
(%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C>
Net revenues:
Publishing 64.3 64.6 63.0 3.0 6.9
Gift 35.7 35.4 37.0 4.3 ( 1.1)
---------------------
Total net revenues 100.0 100.0 100.0 3.4 3.9
Expenses:
Cost of goods sold 55.1 54.7 54.3 4.2 4.7
Selling, general and
administrative
expenses 35.7 34.8 35.5 6.2 2.0
Restructuring charges 0.7 - - - -
Amortization of
goodwill and non-
compete agreements 0.6 0.7 0.8 ( 12.2) ( 9.1)
---------------------
Total expenses 92.1 90.2 90.6 5.7 3.5
---------------------
Operating income 7.9 9.8 9.4 ( 17.1) 8.0
=====================
Income from continuing
operations 3.4 5.0 3.9 ( 30.1) 33.1
Income from discontinued
operations - - 6.8 - (100.0)
---------------------
Net income 3.4 5.0 10.7 ( 30.1) ( 51.4)
=====================
</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,
even though fiscal years 1999 and 1998 varied somewhat from this
pattern. The typical seasonality is the result of increased
consumer purchases of the Company's products during the
traditional year-end holidays. Due to this seasonality, the
Company has historically incurred a loss or recognized a small
profit during the first quarter of each fiscal year. In
addition, the Company's quarterly operating results may fluctuate
significantly due to the seasonality of new product
introductions, the timing of selling and marketing expenses and
changes in sales and product mixes. In fiscal 1999 and 1998,
timing of new product releases caused atypical revenue results by
quarter, which are not expected to be repeated in the foreseeable
future. See Note N of Notes to Consolidated Financial
Statements.
The following discussion includes certain forward-looking
statements. Actual results could differ materially from those
reflected by the forward-looking statements and a number of
factors may affect future results, liquidity and capital
resources. These factors include softness in the general retail
environment, the timing of products being introduced to the
market, the level of returns experienced by the operating
divisions, the level of margins achievable in the marketplace and
the ability to minimize operating expenses. Although the Company
believes it has the business strategy and resources needed for
improved operations, future revenue and margin trends cannot be
reliably predicted and may cause the Company to adjust its
business strategy during the 2000 fiscal year. The Company
disclaims any intent or obligation to update forward-looking
statements.
RESULTS OF OPERATIONS
Fiscal 1999 compared to Fiscal 1998.
Net revenues for fiscal 1999 increased $8.7 million, or 3.4%,
over fiscal 1998. Net revenues from publishing products
increased for fiscal 1999 from fiscal 1998 by $4.9 million, or
3.0%, primarily due to favorable acceptance of new product
offerings. Publishing results would have been more favorable
were it not for absence of revenues from certain agreements which
had expired April 1, 1998, whereby the Company acted as a
distributor of publishing products. The Company does not plan to
enter into any material distribution agreements in the near
future. Net revenues from gift products increased by $3.8
million, or 4.3%, primarily due to the increased sales of a
special selection of products, including scrapbooks, to mass
merchandisers. Price increases did not have a material effect on
net revenues.
The Company's cost of goods sold for fiscal 1999 increased $5.8
million, or 4.2%, and, as a percentage of net revenues, increased
from 54.7% to 55.1%. The increase in cost of goods sold, as a
percentage of net revenues, resulted primarily from the portion of
the fiscal 1999 one-time restructuring charge related to reserves
in the gift division for inventory to be liquidated in the amount
of $2.8 million, or 1.1% of net revenues. The absence of revenues
from the above mentioned publishing distribution agreements, which
carry a higher cost of sales percentage, somewhat offset other
increases in the cost of sales percentage.
Selling, general and administrative expenses for fiscal 1999
increased $5.4 million over the comparable period in fiscal 1998.
These expenses, expressed as a percentage of net revenues,
increased from 34.8% for fiscal 1998 to 35.7% for fiscal 1999
primarily as a result of increased marketing costs in the
Company's direct-to-consumer market. In addition, the increase is
due to a decline in fees charged for operations services provided
to the purchaser of the Company's Music Business, which was sold
in January 1997. The fees for these services were credited to
selling, general and administrative expenses and have declined as
certain services were discontinued. All services were
discontinued as of December 31, 1998.
The operating expenses restructuring charge for fiscal 1999 was
$1.9 million. This charge relates to costs for discontinuation of
manufacturing and certain administrative functions at Gibson. The
costs primarily include employee severance benefits reduced by a
gain on the sale of the manufacturing equipment.
Interest expense increased by $0.6 million, or 9.6%, for
fiscal 1999.
The Company's effective tax rate in fiscal 1999 was 36.5%
compared to 37.5% for fiscal 1998. See Note M of Notes to
Consolidated Financial Statements.
The Company earned net income of $8.9 million for fiscal 1999.
There were no discontinued operations in fiscal 1999.
Fiscal 1998 compared to Fiscal 1997.
Net revenues for fiscal 1998 increased $9.5 million, or 3.9%,
over fiscal 1997. Net revenues from publishing products increased
for fiscal 1998 from fiscal 1997 by $10.5 million, or 6.9%,
primarily due to favorable acceptance of new product offerings and
reductions in product returns. Net revenues from gift products
decreased by $1.0 million, or 1.1%, primarily due to the Company's
business decision to reduce sales of the stationery category to
mass merchandisers. Price increases did not have a material effect
on net revenues.
The Company's cost of goods sold for fiscal 1998 increased
$6.2 million, or 4.7%, and, as a percentage of net revenues,
increased from 54.3% to 54.7%. The slight increase in cost of
goods sold, as a percentage of net revenues, resulted primarily
from lower licensing revenues in fiscal 1998. In fiscal 1997,
the Company had higher licensing revenues which have minimal
associated cost of goods sold. The Company periodically receives
licensing revenues from companies that request permission to
reprint the Company's publishing products and market them through
a channel that might not otherwise be served.
Selling, general and administrative expenses for fiscal 1998
increased $1.7 million over the comparable period in fiscal 1997.
These expenses, expressed as a percentage of net revenues,
decreased from 35.5% for fiscal 1997 to 34.8% for fiscal 1998
primarily as a result of reduced advertising and fulfillment
costs.
Interest expense decreased by $2.4 million, or 28.0%, for fiscal
1998 due to decreased borrowings as a result of the use of a portion
of the proceeds from the sale of the Music Business to repay
indebtedness in fiscal 1997.
The Company's effective tax rate in fiscal 1998 was 37.5%
compared to 37.0% for fiscal 1997. The prior year tax rate
reflects the combined tax rate from continuing and discontinued
operations. See Note M of Notes to Consolidated Financial
Statements.
The Company earned net income of $12.7 million for fiscal
1998. There were no discontinued operations in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had $0.6 million in cash and
cash equivalents, primarily cash generated from operations. The
primary sources of liquidity to meet the Company's future
obligations and working capital needs are cash generated from
operations and borrowings available under bank credit facilities.
At March 31, 1999, the Company had working capital of $118.8
million. Under its two bank credit facilities, at March 31,
1999, the Company had $59.8 million of borrowings outstanding,
and $50.2 million available for borrowing.
Net cash provided by operating activities was $1.6 million,
$7.0 million and $25.8 million in fiscal 1999, 1998 and 1997,
respectively. The cash provided by operations during fiscal 1999
was principally attributable to earnings from continuing
operations and reductions in inventories with an offsetting
increase in accounts receivable. Inventories decreased by $4.8
million due primarily to lower publishing inventories, as well as
additions to the reserve for inventory to be liquidated of $2.8
million from restructuring. Accounts receivable increased by
$11.9 million due, in part, to a shift from selling directly to
one major mass merchandiser account to distributors with longer
payment terms, who service the account.
During fiscal 1999, capital expenditures totaled approximately
$4.2 million. The capital expenditures were primarily for
computer, warehousing and manufacturing equipment. In fiscal
2000, the Company anticipates capital expenditures of
approximately $2.5 million, consisting primarily of additional
computer and warehousing equipment.
The Company's bank credit facilities are unsecured and consist
of a $100 million credit facility and a $10 million credit
facility (collectively, the "Credit Agreements"). The $100
million credit facility bears interest at either the prime rate
or, at the Company's option, the London Interbank Offered Rate
("LIBOR") plus a percentage, subject to adjustment based on
certain financial ratios. The $100 million credit facility was
amended on November 30, 1998, to increase the aggregate amount
available for borrowing from $75 million to $100 million and to
extend the maturity from December 13, 2002 to December 13, 2005.
The $10 million credit facility bears interest at LIBOR plus a
percentage subject to adjustment based on certain financial
ratios and matures on July 31, 2000. Due to the seasonality of
the Company's business, borrowings under the Credit Agreements
typically peak during the third quarter of the fiscal year.
The Company has outstanding $21.3 million of senior notes
("Senior Notes") which are unsecured. The Senior Notes bear
interest at rates from 6.68% to 9.50% due through fiscal 2006.
Under the terms of the Credit Agreements and Senior Notes, the
Company has agreed to limit the payment of dividends and to
maintain certain interest coverage and debt-to-total-capital
ratios which are similarly calculated for each debt agreement.
At March 31, 1999, the Company was in compliance with all
covenants of these debt agreements. The Company expects to be in
compliance with all of its covenants for each quarter of fiscal
2000, although no assurance can be given that such compliance
will be maintained.
On March 1, 1999, the Company redeemed the remaining
outstanding $39.9 million of 5.75% convertible subordinated notes
("Convertible Subordinated Notes") due November 30, 1999. The
Convertible Subordinated Notes were redeemed at $1,008.20 per
$1,000 principal amount, together with accrued and unpaid
interest. During the first nine months of fiscal 1999, the
Company had purchased $15.1 million in principal amount of the
Convertible Subordinated Notes.
Management believes cash generated by operations and borrowings
available under the Credit Agreements will be sufficient to fund
anticipated working capital requirements for existing operations
through fiscal 2000.
On June 10, 1998, the Company announced its intention to
repurchase up to three million shares of common stock and/or
Class B common stock from time to time in the open market or
through privately negotiated transactions. At March 31, 1999,
the Company had repurchased approximately 2.7 million shares of
common stock at an aggregate cost to the Company of $37.5
million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes
in interest rates based on its financing, investing and cash
management activities. The Company utilizes a mix of debt
maturities along with both fixed-rate and variable-rate debt to
manage its exposures to changes in interest rates. See Note H of
Notes to Consolidated Financial Statements. The Company does not
expect changes in interest rates to have a material effect on
income or cash flows in fiscal 2000, although there can be no
assurances that interest rates will not significantly change.
YEAR 2000 ISSUES
The Company has established a task force to coordinate the
assessment and implementation of changes to computer systems and
applications necessary to become year 2000 compliant. These
actions are necessary to ensure that the systems and applications
will recognize and process the year 2000 and beyond with no
material adverse effect on customers or disruption to business
operations. The task force has also evaluated non-systems
issues, e.g. security, elevators, timekeeping, etc., relative to
the year 2000.
In addition, the task force has been actively communicating
with third parties, with whom the Company has material
relationships, concerning the status of their year 2000
readiness. These third parties include the Company's financial
institutions, as well as selected customers, vendors, landlords
and suppliers of telecommunication services and other utilities.
As part of the process of attempting to mitigate third party
risks, the task force is collecting and analyzing information
from these third parties. To date, no third party has advised
the Company that it anticipates specific problems regarding non-
performance risk for the year 2000.
As of March 31, 1999, the Company has completed all known
programming revisions required in its computer systems and has
completed initial testing of its systems for receipt of
electronic orders, customer invoicing and other processes for
transactions dated in year 2000. The Company anticipates that
further compliance tests will include electronic and other
communications with appropriate customers. The Company has also
engaged consultants to test that specific systems are year 2000
compliant. In addition, the Company has also completed
remediation necessary for its non-systems issues.
The effect of year 2000 non-compliance on the business of the
Company is difficult to predict. The Company believes that
possible risks if compliance is not accomplished could include
delays in receiving and/or shipping of products and in invoicing
to and/or receiving payments from customers in the days
immediately after January 1, 2000. The Company considers that
its primary risk relates to third parties with whom the Company
has material relationships, and over which the Company has no
control. At this time, the Company does not believe its year
2000 risks will have a material adverse effect on the Company's
results of operations, liquidity or financial condition.
The Company expensed approximately $429,000 in costs during
fiscal 1999, primarily for programmer costs and software upgrades
related to becoming year 2000 compliant, and expects to incur
additional costs of $300,000 for fiscal 2000. These fiscal 2000
costs will include costs for a testing site and consulting fees,
and will be expensed as they are incurred.
As of March 31, 1999, the task force has completed a
contingency plan to address financial and operational problems
that might arise on and around January 1, 2000. This contingency
plan identifies alternate vendors and back-up processes that do
not rely on computers, whenever possible. The following areas
have been addressed in the contingency plan: purchasing, product
development, distribution, collections, royalties, marketing,
sales, facilities and telecommunications. The task force will
reevaluate this plan on a quarterly basis particularly to address
risks that may be identified in communications with third
parties.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Years ended March 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Net revenues $ 261,645 $ 252,958 $ 243,436
Cost of goods sold 144,221 138,389 132,199
----------------------------------------------
Gross profit 117,424 114,569 111,237
Selling, general and
administrative 93,394 87,950 86,259
Restructuring charge 1,866 - -
Amortization of goodwill and
non-compete agreements 1,615 1,839 2,024
----------------------------------------------
Operating Income 20,549 24,780 22,954
Other income 59 1,569 590
Interest expense 6,653 6,073 8,430
----------------------------------------------
Income from continuing
operations before income
taxes 13,955 20,276 15,114
Provision for income taxes 5,100 7,603 5,592
----------------------------------------------
Income from continuing
operations 8,855 12,673 9,522
Discontinued operations:
Operating income, net of
applicable tax provision
of $446 - - 728
Gain on disposal, net of
applicable tax provision
of $24,096 - - 15,827
----------------------------------------------
Income from discontinued
operations - - 16,555
----------------------------------------------
NET INCOME $ 8,855 $ 12,673 $ 26,077
==============================================
Weighted average number
of shares outstanding 15,279 17,113 17,119
==============================================
NET INCOME PER SHARE:
Basic--
Income from continuing
operations $ 0.58 $ 0.74 $ 0.56
Income from discontinued
operations - - 0.96
----------------------------------------------
Net income per share $ 0.58 $ 0.74 $ 1.52
==============================================
Diluted--
Income from continuing
operations $ 0.58 $ 0.73 $ 0.56
Income from discontinued
operations - - 0.81
----------------------------------------------
Net income per share $ 0.58 $ 0.73 $ 1.37
==============================================
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<CAPTION>
March 31,
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 609 $ 39,713
Accounts receivable, less
allowances of $6,982 and
$6,162, respectively 77,298 65,415
Inventories 65,805 70,590
Prepaid expenses 12,656 8,177
Deferred tax assets 6,715 3,276
----------------------------------
Total current assets 163,083 187,171
Property, plant and equipment, net 25,557 32,103
Other assets 10,260 9,843
Deferred charges 1,421 1,789
Goodwill, less accumulated
amortization of $6,361 and
$4,804, respectively 55,009 56,536
----------------------------------
TOTAL ASSETS $ 255,330 $ 287,442
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,355 $ 16,701
Accrued expenses 19,720 20,182
Dividends payable 576 685
Income taxes currently payable 2,793 4,286
Current portion of long-term debt 4,765 3,733
Current portion of capital lease
obligations 80 242
----------------------------------
Total current liabilities 44,289 45,829
Long-term debt 79,542 79,476
Capital lease obligations - 84
Deferred tax liabilities 4,432 3,364
Other liabilities 1,418 2,293
Shareholders' equity:
Preferred stock, $1.00 par value,
authorized 1,000,000 shares;
none issued - -
Common stock, $1.00 par value,
authorized 20,000,000 shares;
issued 13,286,860 and
16,002,817 shares,
respectively 13,287 16,003
Class B common stock, $1.00 par
value, authorized 5,000,000
shares; issued 1,103,524 and
1,111,924 shares, respectively 1,104 1,112
Additional paid-in capital 44,537 79,057
Retained earnings 66,721 60,224
----------------------------------
Total shareholders' equity 125,649 156,396
----------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 255,330 $ 287,442
==================================
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
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, 1996 $ 16,004 $ 1,112 $ 78,825 $ 26,952 ($ 828)
Net income 26,077
Common stock issued:
Option plans --
8,841 common shares 9 75
Retirement of stock
awards -- 12,031
common shares ( 12) ( 110)
Dividends declared --
$0.16 per share ( 2,739)
Incentive plan stock
awards 619
Deferred compensation 828
------------------------------------------------
Balance at March 31, 1997 16,001 1,112 79,409 50,290 -
Net income 12,673
Common stock issued:
Retirement of stock
awards --
3,888 common shares ( 4) 4
Stock offering adjustmen ( 360)
Dividends declared --
$0.16 per share ( 2,739)
Incentive plan stock
awards -- 5,380 common
shares 6 4
------------------------------------------------
Balance at March 31, 1998 16,003 1,112 79,057 60,224 -
Net income 8,855
Class B stock converted
to common 8 ( 8)
Common stock issued:
Option plans --
14,449 common shares 15 239
Convertible notes con-
verted -- 1,470 common
shares 1 24
Common stock repurchased --
2,741,911 common shares ( 2,742) ( 34,803)
Dividends declared --
$0.16 per share ( 2,358)
Incentive plan stock
awards -- 1,635 common
shares 2 20
-----------------------------------------------
Balance at March 31, 1999 $ 13,287 $ 1,104 $ 44,537 $ 66,721 $ -
===============================================
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Years ended March 31,
-----------------------------------
1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 8,855 $ 12,673 $ 9,522
Adjustments to reconcile income
to net cash provided by
(used in) operations:
Depreciation and amortization 8,965 8,577 8,436
Deferred income taxes ( 2,371) 4,758 7,173
Deferred compensation - - 619
Changes in assets and liabilities,
net of acquisitions and disposals:
Accounts receivable, net ( 11,883) ( 789) 7,375
Income tax refunds receivable - - 4,440
Inventories 4,785 960 7,758
Prepaid expenses ( 4,479) 1,244 1,800
Accounts payable and accrued
expenses 1,684 ( 3,034) ( 9,969)
Income taxes currently payable ( 1,493) ( 15,688) 3,707
-------------------------------------
Net cash provided by continuing
operations 4,063 8,701 40,861
-------------------------------------
Discontinued operations:
Income from discontinued
operations - - 728
Gain on disposal of discontinued
operations - - 15,827
Changes in discontinued net assets ( 2,492) 488 ( 24,442)
Cash used in discontinued
operations - ( 2,191) ( 7,179)
-------------------------------------
Net cash used in discontinued
operations ( 2,492) ( 1,703) ( 15,066)
-------------------------------------
Net cash provided by operating
activities 1,571 6,998 25,795
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 4,173) ( 4,815) ( 1,876)
Proceeds from sales of property,
plant and equipment 5,346 - 49
Proceeds from sales of business
and discontinued net assets - - 120,368
Purchase of net assets of acquired
companies - net of cash received - - ( 122)
Changes in other assets and
deferred charges ( 2,114) 160 ( 2,817)
-------------------------------------
Net cash provided by (used in)
investing activities ( 941) ( 4,655) 115,602
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under
line of credit 59,800 - ( 57,800)
Payments under capital lease
obligations ( 246) ( 308) ( 231)
Payments on long-term debt ( 58,702) ( 2,975) ( 37,968)
Dividends paid ( 2,467) ( 2,739) ( 2,739)
Changes in other liabilities ( 853) ( 89) 178
Proceeds from issuance of
common stock 279 14 84
Common stock retired ( 37,545) ( 4) ( 122)
-------------------------------------
Net cash used in financing
activities ( 39,734) ( 6,101) ( 98,598)
-------------------------------------
Net increase (decrease) in cash
and cash equivalents ( 39,104) ( 3,758) 42,799
Cash and cash equivalents at
beginning of year 39,713 43,471 672
-------------------------------------
Cash and cash equivalents at
end of year $ 609 $ 39,713 $43,471
=====================================
Supplemental disclosures of
noncash investing and
financing activities:
Dividends accrued and unpaid $ 576 $ 685 $ 685
Capital lease obligations
incurred to lease new equipment - - 144
Contribution to ESOP using
previously funded advances - - 828
See Notes to Consolidated Financial Statements
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS: Thomas Nelson, Inc. (a
Tennessee corporation) and subsidiaries (the "Company"), is
a publisher, producer and distributor of Bibles and books
emphasizing Christian, inspirational and family value
themes. The Company also designs and markets a broad line
of gift and stationery products. The principal markets for
the Company's products are Christian bookstores, general
bookstores, mass merchandisers, gift stores and direct
marketing to consumers in English-speaking countries.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements consist of the accounts of the Company including
its subsidiaries, Worthy, Incorporated (formerly Word,
Incorporated) and The C.R. Gibson Company ("Gibson"). All
intercompany transactions and balances have been eliminated.
SALES RETURNS: Provision is made for the estimated effect of
sales returns where right-of-return privileges exist.
Returns of products from customers are accepted in
accordance with standard industry practice. The full amount
of the returns allowance (estimated returns to be received
net of inventory and royalty costs) is shown, along with the
allowance for doubtful accounts, as a reduction of accounts
receivable in the accompanying financial statements.
INVENTORIES: Inventories are stated at the lower of cost or
market using the first-in, first-out (FIFO) valuation
method. Costs of the production and publication of products
are included in inventory and charged to operations when
sold or when otherwise disposed. Costs of abandoned
publishing projects and appropriate provisions for inventory
obsolescence and decreases in market value are charged to
operations on a current basis.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment
are stated at cost. Depreciation and amortization are
provided for principally on the straight-line method over
the estimated useful lives of the individual assets.
GOODWILL: Goodwill is being amortized on a straight-line
basis over 40 years. Subsequent to acquisitions, the
Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or
that the remaining balance of goodwill may not be
recoverable. In the evaluation of possible impairment, the
Company uses the most appropriate method of evaluation given
the circumstances surrounding the particular acquisition,
which has generally been an estimate of the related business
unit's undiscounted operating income before interest and
taxes over the remaining life of the goodwill.
PREPAID EXPENSES: Prepaid expenses consist primarily of
royalty advances. These costs are expensed over the
expected benefit periods.
DEFERRED CHARGES: Deferred charges consist primarily of
loan issuance costs which are being amortized over the
average life of the related debt and publication costs that
are expected to be of significant benefit to future periods
and other deferred charges, all of which are amortized over
periods not to exceed 60 months.
OTHER ASSETS: Other assets consist primarily of prepaid
royalty costs for works and projects which are not expected
to be released within the next fiscal year.
STOCK-BASED COMPENSATION: Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), encourages, but does not require, companies to
record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to
continue to account for employee stock-based compensation
using the intrinsic value method as prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB Opinion No. 25"), and related
Interpretations. Under APB Opinion No. 25, no compensation
cost related to employee stock options has been recognized
because all options are issued with exercise prices equal to
or greater than the fair market value at the date of grant.
See Note J for further discussion.
INCOME TAXES: Income taxes are accounted for in accordance
with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Deferred income
taxes are provided for temporary differences between the
financial statement and income tax bases of assets and
liabilities.
COMPUTATION OF NET INCOME PER SHARE: Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), has been issued effective for interim and annual
fiscal periods ending after December 15, 1997. SFAS 128
establishes standards for computing and presenting earnings
per share. The Company adopted the provisions of SFAS 128
in the third quarter of fiscal 1998 and restated earnings
per share for all periods presented. Such adoption did not
have a material effect on the Company's results of
operations or financial position. Basic net income per
share is computed by dividing net income by the weighted
average number of common and Class B common shares
outstanding during the year. Diluted earnings per share
reflects the dilutive effect of stock options outstanding
during the period and common shares contingently issuable
upon conversion of convertible debt securities in periods in
which such exercise would cause dilution and the effect on
net income of converting the debt securities. These
convertible debt securities were fully redeemed by March 1,
1999, and are excluded from all calculations from that date
forward.
STATEMENT OF CASH FLOWS: For purposes of the statement of
cash flows, the Company considers as cash equivalents all
highly liquid debt instruments with an original maturity of
three months or less.
ACCOUNTING ESTIMATES: The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
OTHER NEW PRONOUNCEMENTS: In April 1998, the Accounting
Standards Executive Committee ("AcSEC") of the American
Institute of Certified Public Accountants ("AICPA") issued
Statement of Position 98-5, "Reporting on the Costs of Start-
up Activities" ("SOP 98-5"). SOP 98-5 requires the costs of
start-up activities and organization costs, as defined, to
be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998. The Company will
adopt the pronouncement during the first quarter of fiscal
2000. The Company does not expect the adoption to have a
material impact on its results of operations, financial
condition or cash flows.
Effective March 31, 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 requires a public company to report
financial and descriptive information about its reportable
operating segments in annual financial statements and in
interim financial reports issued to shareholders. The
Company has two reportable segments: Publishing products and
Gift products. See Note R for disclosure on segment
reporting.
Effective April 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes
standards for reporting and displaying comprehensive income
and its components in a full set of general purpose
financial statements. Comprehensive income encompasses all
changes in shareholders' equity and includes net income, net
unrealized capital gains or losses on available for sale
securities and foreign currency translation adjustments.
Adoption of this pronouncement has not had a material impact
on the Company's results of operations, as comprehensive
income for fiscal 1999 was the same as net income for the
Company.
RECLASSIFICATIONS: Certain reclassifications of prior
period amounts have been made to conform to the current
year's presentation.
NOTE B-RESTRUCTURING CHARGE
During fiscal 1999, the Company recorded a restructuring charge,
including related asset write-downs of $4.7 million ($3 million
or $0.19 per basic share, after-tax). The restructuring
initiatives involve the Company's gift manufacturing operations
located in Connecticut and include two plant closings and
reduction of certain administrative functions. During the third
quarter of fiscal 1999, certain machinery and equipment at one of
the Connecticut plants were sold and the related manufacturing
activities were outsourced to a third party. During the fourth
quarter of fiscal 1999, management decided to cease all remaining
manufacturing activities in Connecticut. The restructuring is
expected to result in workforce reductions of approximately 300
employees, of which approximately 100 were terminated during the
third quarter of fiscal 1999. The products formerly produced at
these manufacturing facilities will continue to be designed and
distributed by the Company, but will be manufactured by outside
vendors. This restructuring charge is recorded in the
accompanying 1999 consolidated statements of operations as cost
of goods sold ($2.8 million) and operating expenses ($1.9
million). The remaining liability as of March 31, 1999 ($3.1
million) is recorded in the accompanying consolidated balance
sheets as accrued expenses. The restructuring charge and its
utilization are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 Original Accrual 1999 Utilized Balance at
---------------------------------------------- March 31,
3rd Qtr 4th Qtr Total Cash Noncash 1999
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee
severance and
termination $ 727 $2,050 $2,777 $ 727 $ - $ 2,050
Gain on sale
of long-lived
assets ( 1,928) - ( 1,928) ( 1,928) - -
Other facility
shutdown costs - 1,017 1,017 - - 1,017
----------------------------------------------------------
Operating
expenses ( 1,201) 3,067 1,866 ( 1,201) - 3,067
Inventory write-
down 600 2,200 2,800 - 2,800 -
----------------------------------------------------------
Total charge ( $601) $5,267 $4,666 ($1,201) $2,800 $ 3,067
==========================================================
</TABLE>
For plants and buildings to be closed, the tangible assets have
been recorded at the lesser of their net book value or their
estimated fair value, less cost of disposal. It is expected that
restructuring actions will be substantially completed by the end
of the third quarter of fiscal 2000.
NOTE C-INVENTORIES
Inventories consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------
<S> <C> <C>
Finished goods $ 56,610 $ 54,503
Work in process and raw materials 9,195 16,087
------------------------
$ 65,805 $ 70,590
========================
</TABLE>
NOTE D-PREPAID EXPENSES
Prepaid expenses consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------
<S> <C> <C>
Royalties $ 10,124 $ 6,888
Other 2,532 1,289
------------------------
$ 12,656 $ 8,177
========================
</TABLE>
NOTE E-PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at
March 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------
<S> <C> <C>
Land $ 3,798 $ 5,109
Buildings 18,170 20,483
Machinery and equipment 23,216 26,851
Furniture and fixtures 3,604 6,056
Other 616 380
------------------------
49,404 58,879
Less allowance for depreciation
and amortization ( 23,847) ( 26,776)
------------------------
$ 25,557 $ 32,103
========================
</TABLE>
NOTE F-OTHER ASSETS
Other assets consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------
<S> <C> <C>
Prepaid royalties $ 5,740 $ 5,509
Other 4,520 4,334
------------------------
$ 10,260 $ 9,843
========================
</TABLE>
NOTE G-ACCRUED EXPENSES
Accrued expenses consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------
<S> <C> <C>
Accrued royalties $ 5,210 $ 4,152
Accrued payroll 5,623 6,552
Accrued integration costs 135 1,568
Accrued interest 700 1,510
Net liability of discontinued
operations 2,705 5,197
Restructuring reserve 3,067 0
Other 2,280 1,203
------------------------
$ 19,720 $ 20,182
========================
</TABLE>
Cash payments for interest were $7.5 million in 1999, $6.1
million in 1998 and $10.2 million in 1997.
NOTE H-LONG-TERM DEBT
Long-term debt consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------
<S> <C> <C>
Credit Agreements $ 59,800 $ 0
Industrial Revenue Bonds 1,525 1,725
Loan Agreement 1,667 2,332
Senior Notes 21,285 24,000
Convertible Subordinated Notes 0 55,000
Other 30 152
------------------------
84,307 83,209
Less current portion ( 4,765) ( 3,733)
------------------------
$ 79,542 $ 79,476
========================
</TABLE>
The Company has Credit Agreements with borrowing limits
totaling $110 million as of March 31, 1999. On November 30, 1998,
the primary credit facility ("Credit Facility") was amended to
increase the aggregate amount available for borrowing from $75
million to $100 million and to extend the maturity from December
13, 2002 to December 13, 2005. The Credit Facility bears interest
at either the lender's prime rate or, at the Company's option, the
LIBOR plus a percentage, based on certain financial ratios. The
Credit Facility is guaranteed by all of the Company's material
subsidiaries and the Company has agreed, among other things, to
limit the payment of cumulative cash dividends and to maintain
certain interest coverage and debt-to-total-capital ratios. The
maximum dividends which the Company may pay for fiscal 2000 are
$18.7 million. Additionally, the Company has a $10 million credit
facility which matures July 31, 2000, and bears interest at LIBOR
plus a percentage, with covenants which are the same as the Credit
Facility. At March 31, 1999, the Company was in compliance with
all covenants of the Credit Agreements. At March 31, 1999, the
Company had $50.2 million available for borrowing under its Credit
Agreements.
The Company has outstanding Industrial Revenue Bonds, which
bear interest at rates from 8.05% to 8.35% and are due through
2005. At March 31, 1999, the Industrial Revenue Bonds were
secured by property, plant and equipment with a net book value of
approximately $1.4 million.
The Company has outstanding indebtedness of $1.7 million in a
loan agreement which is secured by property, plant and equipment
related to the Company's Nashville warehouse and distribution
center expansion completed in June 1992. Interest payable
monthly is at LIBOR plus 1.25%, for a total rate of 6.2125% at
March 31, 1999. Semi-annual principal payments are due through
March 2002.
The Company has outstanding $21.3 million of Senior Notes,
which bear interest at rates from 6.68% to 9.50% and are due
through fiscal 2006. Under the terms of the Senior Notes, the
Company has agreed, among other things, to limit the payment of
cash dividends and to maintain certain interest coverage and debt-
to-total-capital ratios. The maximum dividends which the Company
may pay for fiscal 2000 are $18.7 million. At March 31, 1999,
the Company was in compliance with all covenants of the Senior
Notes.
On March 1, 1999, the Company redeemed the remaining
outstanding $39.9 million of 5.75% Convertible Subordinated Notes
due November 30, 1999. The Convertible Subordinated Notes were
redeemed at $1,008.20 per $1,000 principal amount, together with
accrued and unpaid interest. During the first nine months of
fiscal 1999, the Company purchased $15.1 million in principal
amount of the Convertible Subordinated Notes.
Maturities of long-term debt for the years ending March 31 are
as follows (in thousands):
2000 $ 4,765
2001 3,889
2002 3,580
2003 3,322
2004 3,322
2005 and thereafter 65,429
------------
$ 84,307
============
NOTE I-LEASES
Total rental expense for all operating leases, including
short-term leases of less than a year, amounted to approximately
$4.3 million in 1999, $4.0 million in 1998 and $3.2 million in
1997. Generally, the leases provide that, among other things,
the Company shall pay for utilities, insurance, maintenance and
property taxes in excess of base year amounts.
Minimum rental commitments under non-cancelable leases for the
years ending March 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
------------------------
<S> <C> <C>
2000 $ 2,872 $ 85
2001 1,982 0
2002 1,474 0
2003 757 0
2004 354 0
2005 and thereafter 0 0
------------------------
Total minimum lease
payments $ 7,439 85
==============
Less amount representing
interest ( 5)
----------
Present value of net
lease payments 80
Less current portion ( 80)
----------
$ 0
==========
</TABLE>
NOTE J-STOCK PLANS
1992 EMPLOYEE STOCK INCENTIVE PLAN: The Company has adopted the
1992 Amended and Restated Employee Stock Incentive Plan (the
"Stock Incentive Plan"), which is administered by the Company's
Compensation Committee. Stock options, stock appreciation rights,
restricted stock, deferred stock, stock purchase rights and other
stock-based awards may be granted to employees under this plan.
In addition, 140,000 shares of common stock have been authorized
for issuance under this plan for annual stock option grants to
each of the Company's outside directors for the purchase of 2,000
shares of common stock. Stock options have been granted under
this plan as indicated in the table below. The options in the
Stock Incentive Plan vest over one to three year periods beginning
on the first or fourth anniversary date of the option grant, and
at March 31, 1999, there were 266,669 shares of common stock and
1,140,000 shares of Class B common stock exercisable. The
weighted average life of the options outstanding in the Stock
Incentive Plan at March 31, 1999, was five years.
<TABLE>
<CAPTION>
Remaining Outstanding Outstanding Weighted Weighted
Shares Award Shares Optioned Shares Average Average
Reserved Common Class B Common Class B Exercise Fair
For Grant Stock Stock Stock Stock Price Value
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 1,
1996 1,338,552 62,904 27,500 305,500 330,000 $19.48
Awards
canceled 87,239 (61,821) (25,418) - -
Options
canceled 198,000 - - (183,000) ( 15,000) 17.19
Awards
issued - ( 1,083) ( 2,082) - -
Options
granted ( 320,000) - - 185,000 135,000 14.34 $8.52
Stock
incentive
issued ( 1,815) - - - -
------------------------------------------------------------------
March 31,
1997 1,301,976 - - 307,500 450,000 17.91
Options
canceled 80,000 - - ( 70,000) ( 10,000) 14.00
Options
granted (1,319,000) - - 319,000 1,000,000 14.60 4.64
Stock
incentive
issued ( 580) - - - -
------------------------------------------------------------------
March 31,
1998 62,396 - - 556,500 1,440,000 15.88
Options
canceled 151,500 - - ( 91,500) ( 60,000) 15.55
Options
granted ( 74,000) - - 49,000 25,000 14.29 6.01
Options
exercised - - - ( 7,000) - 11.25
Stock
incentive
reversed 2,395 - - - -
------------------------------------------------------------------
March 31,
1999 142,291 - - 507,000 1,405,000 15.86
==================================================================
</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 1999, 1998 and 1997
consistent with the provisions of SFAS 123, the Company's net
income and net income per share would have been reduced to the
following pro forma amounts for the 1999, 1998 and 1997 fiscal
years:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 8,855 $ 12,673 $ 26,077
===================================
Pro forma $ 6,445 $ 10,967 $ 24,683
===================================
Net income per share:
Basic--
As reported $ 0.58 $ 0.74 $ 1.52
===================================
Pro forma $ 0.42 $ 0.64 $ 1.44
===================================
Diluted--
As reported $ 0.58 $ 0.73 $ 1.37
===================================
Pro forma $ 0.42 $ 0.64 $ 1.31
===================================
</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>
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Expected dividend
payment $ 0.16 $ 0.16 $ 0.16
Expected stock price
volatility 33.17% 53.69% 45.96%
Risk free interest
rate 5.43% 6.29% 6.55%
Expected life of
options 5 years 6 years 8 years
</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 ("FMV") of the
shares on the option date less $1.00 per share. The amount of
annual retainer fee for options was expensed by the Company as
earned. The options in the Outside Directors Plan vest on the
first anniversary date of the option grant and, at March 31,
1999, there were 6,600 shares of common stock exercisable. The
Outside Directors Plan terminated in August 1995 and options
outstanding remain in effect until exercised or expired. The
weighted average life of the options outstanding in the Outside
Directors Plan at March 31, 1999, was less than one year.
Options granted and outstanding under this plan are as follows:
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------
Remaining Weighted
Shares Outstanding Average
Reserved Optioned Exercise
For Grant Shares Price
------------------------------------
<S> <C> <C> <C>
April 1, 1996 152,083 23,795 $ 0.71
Exercised - ( 5,943) 0.53
Plan terminated (152,083) -
-----------------------
March 31, 1997 - 17,852 0.76
Exercised - ( 4,802) 0.53
-----------------------
March 31, 1998 - 13,050 0.85
Exercised - ( 6,450) 0.82
-----------------------
March 31, 1999 - 6,600 0.87
=======================
</TABLE>
1986 STOCK INCENTIVE PLAN: The Company adopted the 1986 Stock
Incentive Plan (the "1986 Plan"), which is administered by the
Company's Compensation Committee. Stock options were granted
under the 1986 Plan at a price not less than the FMV of the stock
on the option grant date and must be exercised not later than
five years after the date of grant. Stock options issued to a
person then owning more than 10% of the voting power in all
classes of the Company's outstanding stock were granted at a
purchase price of not less than 110% of the FMV and must be
exercised within five years from the date of grant. The options
vest 1/4 each year for four years beginning on the first
anniversary date of the option grant and, at March 31, 1999,
there were 101,125 shares of common stock and 62,500 shares of
Class B common stock exercisable in the 1986 Plan. The weighted
average life of the options outstanding in the 1986 Plan at March
31, 1999, was less than one year. The 1986 Plan terminated in
March 1996 and options outstanding remain in effect until
exercised or expired. Options outstanding under this plan are as
follows:
<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, 1996 - 223,312 - 62,500 $14.58
Canceled - ( 74,375) - - 14.40
---------------------------------------------------------------
March 31, 1997 - 148,937 - 62,500 14.64
Canceled - ( 25,312) - - 14.40
---------------------------------------------------------------
March 31, 1998 - 123,625 - 62,500 14.67
Canceled - ( 20,000) - - 14.40
---------------------------------------------------------------
March 31, 1999 - 103,625 - 62,500 14.64
===============================================================
</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 $2.7 million,
$2.9 million and $3.1 million in 1999, 1998 and 1997,
respectively.
NOTE L-COMMON STOCK
On June 10, 1998, the Company announced its intention to
repurchase up to three million shares of common stock and/or
Class B common stock from time to time in the open market or
through privately negotiated transactions. As of March 31, 1999,
the Company has repurchased approximately 2.7 million shares of
common stock at an aggregate cost to the Company of $37.5
million.
NOTE M-INCOME TAXES
The income tax provision is comprised of the expense as follows
at March 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Current:
U.S. federal $ 6,018 $ 2,126 $ 19,180
State 1,278 544 1,692
Foreign 175 175 2,089
----------------------------------
Total current 7,471 2,845 22,961
Deferred ( 2,371) 4,758 7,173
----------------------------------
Total tax provision $ 5,100 $ 7,603 $ 30,134
==================================
</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>
1999 1998
-----------------------
<S> <C> <C>
Accelerated depreciation ($ 3,728) ($ 2,735)
Deferred charges ( 1,021) ( 576)
Contributions 3,944 1,774
Inventory obsolescence reserve 3,138 1,843
Bad debt and returns reserves 1,308 2,252
Inventory-unicap tax adjustment 1,138 1,155
Advances and prepaid expenses 278 560
Accrued liabilities 3,074 812
Valuation allowance ( 5,848) ( 5,173)
-----------------------
Net deferred tax
asset (liability) $ 2,283 ($ 88)
=======================
</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>
1999 1998 1997
-------------------------
<S> <C> <C> <C>
U.S. federal statutory tax
rate provision 34.0% 34.0% 34.0%
State taxes on income, net
of federal 2.5% 3.5% 3.0%
-------------------------
Effective tax rate 36.5% 37.5% 37.0%
=========================
</TABLE>
Cash payments for income taxes were $2.8 million, $20.0 million
and $1.0 million in 1999, 1998 and 1997, respectively.
NOTE N-QUARTERLY RESULTS (UNAUDITED)
Summarized results for each quarter in the fiscal years ended
March 31, 1999 and 1998 are as follows (dollars in thousands,
except per share data):
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---------------------------------------------------
<S> <C> <C> <C> <C>
1999
- ----
Net revenues $ 55,994 $ 70,445 $ 66,584 $ 68,622
Gross profit 25,660 33,295 30,394 28,075
Net income (loss) 1,256 4,383 4,157 ( 941)
Net income (loss)
per share 0.08 0.29 0.28 ( 0.06)
1998
- ----
Net revenues $ 54,459 $ 68,618 $ 64,658 $ 65,223
Gross profit 24,873 30,800 29,494 29,402
Net income 991 4,603 4,417 2,662
Net income per 0.06 0.27 0.26 0.16
share
</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 $12.5 million
at March 31, 1999. The timing of payments will be dependent upon
the performance by the authors of conditions provided in the
applicable contracts. It is anticipated that a substantial
portion of the commitments will be completed within the next five
years.
The Company has been named as a defendant in a lawsuit in
which the plaintiff is seeking damages relating to a dispute
involving an acquired company. The case is scheduled to go to
trial during fiscal 2000 and the Company intends to defend its
position vigorously. Despite the uncertainties associated with
any litigation, management believes, after consultation with
counsel, that this matter is without merit. Further, management
believes that resolution of this matter will not have a material
adverse effect on the Company's financial position, although an
unfavorable decision could have a material adverse effect on
results of operations.
The Company is subject to various other legal proceedings,
claims and liabilities, which arise in the ordinary course of
business. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially affect
the financial position or results of operations of the Company.
NOTE P-FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of financial
instruments as of March 31, 1999 is made in accordance with SFAS
107, "Disclosures about Fair Value of Financial Instruments."
The estimated fair value amounts have been determined by the
Company using available market information as of March 31, 1999
and 1998, respectively. The estimates presented are not
necessarily indicative of amounts the Company could realize in a
current market transaction (in thousands):
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-----------------------------------------------
<S> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 609 $ 609 $ 39,713 $ 39,713
LONG-TERM DEBT:
Credit Agreements $ 59,800 $ 59,800 $ 0 $ 0
Industrial Revenue
Bonds 1,525 1,525 1,725 1,725
Capital Lease Obli-
gations 80 80 326 326
Loan Agreement 1,667 1,667 2,332 2,332
Senior Notes 21,285 21,799 24,000 23,325
Convertible Subordinated
Notes 0 0 55,000 55,275
</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 $1.0 million and $1.8
million as of March 31, 1999 and 1998, respectively. The
letters of credit guarantee performance to third parties of
various trade activities. Fair value estimated on the basis of
fees paid to obtain the obligations is not material at March 31,
1999 and 1998.
Financial instruments which potentially subject the Company to
credit risk consist primarily of trade receivables. Credit risk
on trade receivables is minimized as a result of the large and
diverse nature of the Company's customer base.
NOTE Q-DISCONTINUED OPERATIONS
On January 6, 1997, the Company sold the assets, net of certain
liabilities, of the Music Business, which included production of
recorded music and related products, the distribution of
recordings for other companies and music publishing, including
songwriter development, print music publishing and copyright
administration, for approximately $120 million. Net revenues,
operating costs and expenses, other income and expense, and
income taxes for all periods presented have been reclassified for
amounts associated with the discontinued operations.
Revenues, income and income tax provisions associated with the
discontinued operations were as follows at March 31 (in
thousands):
1997
---------
Net revenues $ 74,687
=========
Income from operations before
income tax provision $ 1,174
Income tax provision 446
---------
Income from operations 728
---------
Gain on disposal before
income tax provision 39,923
Income tax provision 24,096
---------
Gain on disposal 15,827
---------
Total income from discontinued
operations $ 16,555
=========
NOTE R-OPERATING SEGMENTS
The Company adopted SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information," at March 31, 1999,
which changes the way the Company reports information about its
operating segments. The Company is organized and managed based
upon its products.
The Company has two reportable business segments, identified
as publishing and gift. The publishing segment primarily creates
and markets Bibles, inspirational books and videos. The gift
segment primarily designs and markets stationery items including
albums, journals, etc.
Summarized financial information concerning the Company's
reportable segments is shown in the following table. The "Other"
column includes corporate related items not allocated to
reportable segments (in thousands).
<TABLE>
<CAPTION>
Publishing Gift<F1> Other Total
------------------------------------------------------
<S> <C> <C> <C> <C>
1999
- ----
Revenues $ 168,325 $ 93,320 $ 0 $ 261,645
Operating income 18,823 1,726 0 20,549
Identifiable assets 126,620 66,986 61,724 255,330
Capital expenditures 2,139 2,034 0 4,173
Depreciation and
amortization
expense 2,889 6,076 0 8,965
1998
- ----
Revenues $ 163,480 $ 89,478 $ 0 $ 252,958
Operating income 19,732 5,048 0 24,780
Identifiable assets 119,072 70,024 98,346 287,442
Capital expenditures 2,285 2,530 0 4,815
Depreciation and
amortization
expense 2,964 5,613 0 8,577
1997
- ----
Revenues $ 153,317 $ 90,119 $ 0 $ 243,436
Operating income 15,458 7,496 0 22,954
Identifiable assets 136,536 69,218 95,817 301,571
Capital expenditures 1,555 321 0 1,876
Depreciation and
amortization
expense 3,353 5,083 0 8,436
<FN>
<F1> For fiscal 1999, reflects pre-tax restructuring and other
related charges of $4.7 million pertaining primarily to
severance and reserves for inventory to be liquidated.
</TABLE>
Additional information regarding the Company's revenue sources
follow. No single customer accounted for as much as 10% of
consolidated revenues in fiscal 1999, 1998 or 1997. Foreign
revenues accounted for less than 10% of consolidated revenues in
fiscal 1999, 1998 and 1997.
Report of Independent Public Accountants
To the Board of Directors of Thomas Nelson, Inc. and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Thomas Nelson, Inc. (a Tennessee corporation) and Subsidiaries as
of March 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1999.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Thomas Nelson, Inc. and Subsidiaries as of
March 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended
March 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Nashville, Tennessee
June 4, 1999
=================================================================
Other Financial Information (Unaudited)
The common stock and the Class B common stock are traded on the
NYSE under the symbols "TNM" and "TNM.B," respectively. The
following table sets forth, for the periods indicated, the high
and low closing sales prices as reported on the NYSE composite
tape:
<TABLE>
<CAPTION>
Common Class B
Stock Common Stock Dividends
---------------------------------------- Paid
High Low High Low Per Share
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal 1999
- -----------
First Quarter $14.5000 $11.8750 $16.0000 $13.1875 $ .04
Second Quarter 15.6875 11.5000 15.3750 12.5000 .04
Third Quarter 14.0000 12.0000 14.0000 12.1250 .04
Fourth Quarter 13.5000 10.0000 13.5000 9.2500 .04
------
$ .16
======
Fiscal 1998
- -----------
First Quarter $14.0000 $ 8.8750 $20.2500 $16.2500 $ .04
Second Quarter 14.0000 12.0000 18.7500 17.3750 .04
Third Quarter 14.0000 10.2500 18.0000 12.0000 .04
Fourth Quarter 14.1875 10.5000 16.0000 11.2500 .04
------
$ .16
======
</TABLE>
As of June 18, 1999, there were 975 record holders of the
common stock and 650 record holders of the Class B common stock.
Declaration of dividends is within the discretion of the Board of
Directors of the Company. The Board considers the payment of
dividends on a quarterly basis, taking into account the Company's
earnings and capital requirements, as well as financial and other
conditions existing at the time. Certain covenants of the
Company's Credit Agreements and Senior Notes limit the amount of
cash dividends payable based on the Company's cumulative
consolidated net income. See Note H of Notes to Consolidated
Financial Statements.
On May 20, 1999, the Company declared a cash dividend of $0.04
per share on its common stock and Class B common stock to be paid
on August 16, 1999 to shareholders of record on August 2, 1999.
<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 United Kingdom 100%
Elm Hill Press, Inc. Tennessee 100%
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K of our report dated
June 4, 1999 included in Thomas Nelson, Inc.'s annual report to
shareholders. In addition, we hereby consent to the
incorporation of our reports incorporated by reference in this
Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (File No. 33-80086 and File No. 333-4503).
/s/ ARTHUR ANDERSEN LLP
Nashville, Tennessee
June 25, 1999
<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, 1999, 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-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 609
<SECURITIES> 0
<RECEIVABLES> 84,280
<ALLOWANCES> 6,982
<INVENTORY> 65,805
<CURRENT-ASSETS> 163,083
<PP&E> 49,404
<DEPRECIATION> 23,847
<TOTAL-ASSETS> 255,330
<CURRENT-LIABILITIES> 44,289
<BONDS> 79,542
0
0
<COMMON> 14,391
<OTHER-SE> 111,258
<TOTAL-LIABILITY-AND-EQUITY> 255,330
<SALES> 259,317
<TOTAL-REVENUES> 261,645
<CGS> 144,221
<TOTAL-COSTS> 239,481
<OTHER-EXPENSES> 1,615
<LOSS-PROVISION> 2,734
<INTEREST-EXPENSE> 6,653
<INCOME-PRETAX> 13,955
<INCOME-TAX> 5,100
<INCOME-CONTINUING> 8,855
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,855
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.58
</TABLE>
<TABLE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Dollars and Shares in thousands, except per share data)
<CAPTION>
March 31, 1999 March 31, 1998 March 31, 1997
--------------- -------------- --------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Weighted average shares
outstanding 15,279 17,113 17,119
========== ========== ==========
Income from continuing
operations $ 8,855 $ 12,673 $ 9,522
Income from discontinued
operations - - 16,555
---------- ---------- ----------
Net income $ 8,855 $ 12,673 $ 26,077
========== ========== ==========
Income per share from
continuing operations $ 0.58 $ 0.74 $ 0.56
Income per share from
discontinued operations - - 0.96
---------- ---------- ----------
Net income per share $ 0.58 $ 0.74 $ 1.52
========== ========== ==========
DILUTED EARNINGS PER SHARE:
Basic weighted average
shares outstanding 15,279 17,113 17,119
Convertible notes 2,598 3,235 3,235
Dilutive stock options -
based on treasury stock
method using the average
market price 52 40 16
---------- ---------- ----------
Total shares 17,929 20,388 20,370
========== ========== ==========
Income from continuing
operations<F1> $ 10,620 $ 14,793 $ 11,629
Income from discontinued
operations - - 16,555
---------- ---------- ----------
Net income $ 10,620 $ 14,793 $ 28,184
========== ========== ==========
Income per share from
continuing operations $ 0.58<F2> $ 0.73 $ 0.56<F2>
Income per share from
discontinued operations - - 0.81
---------- ---------- ----------
Net income per share $ 0.58 $ 0.73 $ 1.37
========== ========== ==========
<FN>
<F1> Adjusted for interest on convertible debt
<F2> Anti-dilutive; use basic earnings per share on Consolidated Statements
of Operations
</TABLE>
Exhibit 3.2
THE BYLAWS
OF
THOMAS NELSON, INC.
AS AMENDED MAY 20, 1999
ARTICLE I
Offices
--------
The Company shall maintain an office of the Company in the
State of Tennessee as required by law. The Company may also have
an office or offices, and keep the books and records of the
Company, except as may otherwise be required by law, at such
other place or places, either within or without the State of
Tennessee, as the Board of Directors of the Company (the "Board")
may from time to time designate or as the business of the Company
may require.
ARTICLE II
Seal
----
The seal of the Company shall be in such form as may be
required by law and as shall be approved by the Board. Until
changed by the Board, the seal of the Company shall be in the
form impressed immediately following this Article II. The seal
may be used by causing it, or a facsimile thereof, to be
impressed or affixed or reproduced or otherwise. The absence of
the seal shall not affect the validity or enforceability of any
corporate document.
ARTICLE III
Stockholders' Meetings
----------------------
Section 1. Place of Meetings. Meetings of the
stockholders of the Company (the "Stockholders") shall be held at
such place either within or without the State of Tennessee as may
from time to time be designated by the Board and stated in the
notice of meeting.
Section 2. Annual Meeting of Stockholders. The annual
meeting of the Stockholders (the "Annual Meeting") shall be held
at such time and on such date, which shall be a business day
within one hundred fifty (150) days after the end of each fiscal
year of the Company, as may from time to time be fixed by the
Board. The purpose of the meeting shall be the election of
directors and the transaction of such other business as properly
may be brought before the meeting.
Section 3. Special Stockholders' Meetings. Except as
otherwise required by law, special meetings of the Stockholders
for any purpose or purposes shall be called only by (i) the Chief
Executive Officer, (ii) on the written request of the holders of
shares of stock of the Company representing the minimum
percentage allowed by law of the combined voting power of the
issued and outstanding shares of stock of all classes of the
Company entitled to vote ("Voting Stock"), or (iii) on the
written request of a majority of the entire Board. Any request
pursuant to clause (ii) or (iii) of this Article III, Section 3
shall state the purposes of the proposed meeting.
Section 4. Notices of Meetings. Notices of both special
and annual Stockholders' meetings shall be given in writing and
shall be signed (originally or by facsimile) by the persons
calling the meeting or by the Secretary if called by the Chief
Executive Officer. Each such notice shall state the place, date
and hour of the meeting, the purpose or purposes for which it is
called and, if such purpose is to amend the Charter of the
Company as the same may be amended or restated from time to time,
shall describe the proposed amendment, the reasons for its
proposal and the general effects thereof. Such notices shall be
given personally or sent by mail to each Stockholder of record
entitled to vote at the meeting. If mailed, such notice shall be
delivered not less then ten (10) nor more than sixty (60) days
before the date of such meeting and shall be deemed delivered
when deposited in the United Stated mail, postage prepaid,
directed to the Stockholder at his address as shown on the
records of the Company. If delivered personally, such notice
shall be delivered not less than five (5) nor more than sixty
(60) days before such meeting. Notice need not be given of any
adjourned meeting of the Stockholders if the time and place to
which the meeting is adjourned are announced at the meeting at
which the adjournment is taken; provided, however, that if after
the adjournment the board fixed a new record date for the
adjourned meeting, a notice of the adjourned meeting shall be
given to each Stockholder of record on the new record date
entitled to notice.
Section 5. Notice of Shareholder Business. At an annual
meeting of the Shareholders, only such business shall be
conducted as shall have been properly brought before the meeting.
To be properly brought before an annual meeting business must be
(a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly
brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's
notice (other than a request for inclusion of a proposal in the
Corporation's proxy statement pursuant to Rule 14a-8 of the
Securities Exchange Act of 1934) must be delivered to or mailed
and received at the principal executive offices of the
Corporation, not less than 60 days nor more then 90 days prior to
the meeting; provided, however, that in the event that less than
70 days notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such
public disclosure was made. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder
proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at
the annual meeting, (b) the name and record address of the
shareholder proposing such business, (c) the class and number of
shares of the Corporation which are beneficially owned by the
shareholder, and (d) any material interest of the shareholder in
such business. Notwithstanding anything in the bylaws to the
contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this
Section. The Chairman of the annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was
not properly brought before the meeting and in accordance with
the provisions of this Section, and if he should so determine, he
shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted. At
any special meeting of the shareholders, only such business shall
be conducted as shall have been brought before the meeting by or
at the direction of the Board of Directors.
Section 6. Quorum. At any meeting of the Stockholders,
the presence, either in person or by proxy, of the holders of a
majority in voting power of the Voting Stock shall constitute a
quorum; provided, however, that if the vote of a greater
percentage shall be required to take any action to be considered
at such meeting, the presence at the meeting , either in person
or by proxy, of the holders of the percentage so required shall
constitute a quorum for purposes of considering such action. If
the holders of the number of votes necessary to constitute a
quorum for any purpose shall fail to attend the meeting at the
time and place fixed in the notice of the meeting, the meeting
shall be continued from time to time, until the holders of the
number of votes requisite to constitute the quorum shall attend.
At such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at
the meeting as originally notified.
Section 7. Voting. At each meeting of Stockholders,
every Stockholder having the right to vote shall be entitled to
vote, either in person or by proxy, the number of votes as
provided for in or pursuant to the Charter of the Company for
each share of Voting Stock registered in his name on the books of
the Company of the record date determined for such meeting in
accordance with Section 7 of this Article III. When a quorum is
present, the affirmative vote of majority of the votes cast by
the Stockholders entitled to vote, present in person or
represented by proxy at the meeting, shall decide any matter
brought before such meeting, unless the question is one upon
which, by express provision of the laws of the State of Tennessee
or of the Charter of the Company, a different vote is required,
in which case such express provision shall govern and control the
decision of such question. Except as otherwise expressly
required by the laws of the State of Tennessee, as then in
effect, the holders of the Common Stock of the Company and the
holders of the Class B Common Stock of the Company shall vote
with the holders of voting shares of the Preferred Stock of the
Company, if any, as one class for the election of directors and
for all other purposes.
Section 8. Record Date. In order to determine the
holders of record of the Company's stock who are entitled to
notice of meetings, to vote at a meeting or adjournment thereof,
and to receive payment of any dividend, or to make a
determination of the Stockholders of record for any proper
purpose, the Board may fix in advance a date as the record date
for any such determination of Stockholders, such date in any case
to be not less than ten (10) days prior to the date of the action
which requires such determination. If no record date is fixed
for the determination of Stockholders entitled to notice of or
entitled to vote at a Stockholders' meeting, or Stockholders
entitled to receive payment of a dividend, the date on which
notice of the Stockholders' meeting is mailed or the date on
which the resolution of the Board declaring such dividend is
adopted, as the case may be, shall be the record date for such
determination. Unless otherwise required by law, a determination
of Stockholders of record entitled to notice of or to vote at any
meeting shall apply to any adjournment of such meeting, except
that the Board may fix a new record date for any adjourned
meeting.
Section 9. Presiding Officer; Order of Business; Conduct
of Meeting.
(a) Meetings of the Stockholders shall be
presided over by the Chairman of the Board, or if he
is not present, by the President, or if the President
is not present, by a Vice President. The Secretary
of the Company, or, in his absence, an Assistant
Secretary, shall act as secretary of every meeting,
but in the absence of the Secretary or Assistant
Secretary, the chairman of the meeting may choose any
person present to act as secretary of the meeting.
(b) Subject to the provisions of this Section,
meetings of Stockholders shall generally follow
accepted rules of parliamentary procedure.
1. The chairman of the meeting shall have
absolute authority over matters of procedure
and to state the rules under which the voting
shall be conducted.
2. If disorder shall arise which prevents
continuation of the legitimate business of the
meeting, the chairman may quit the chair and
announce the adjournment of the meeting; and
upon his so doing, the meeting shall be
automatically adjourned.
3. The chairman may ask or require that
anyone not a bona fide Stockholder or proxy
leave the meeting.
4. A resolution or motion shall be
considered for a vote only if proposed by a
Stockholder or duly authorized proxy, and
seconded by an individual, who is a
Stockholder or a duly authorized proxy, other
than the individual who proposed the
resolution or motion.
(c) The following order of business shall be
observed at all Annual Meetings insofar as is
practicable:
1. Calling the roll.
2. Reading, correcting and approving
minutes of a previous meeting, unless the same
be waived.
3. Special business stated in the notice of
meeting.
4. Election of directors.
5. New business.
At any special meeting of Stockholders, the business transacted
shall be confined to the purposes described in the notice of the
meeting.
Section 10. Proxies. Each Stockholder entitled to vote
at any meeting of Stockholders may vote his shares through a
proxy or attorney-in-fact appointed by a written instrument
signed by the Stockholder and delivered to the secretary of the
meeting at or prior to the time designated for holding such
meeting, but in any event not later than the time designated in
the order of business for so delivering such proxies. No proxy
shall be valid after eleven (11) months from the date of its
execution unless a longer period is expressly provided therein.
No proxy shall be valid and voted on after the meeting of the
Stockholders, or any adjournment thereof, to which it applies.
Every proxy shall be revocable at the pleasure of the Stockholder
executing it, except in those cases where an irrevocable proxy is
duly executed and permitted by law.
Section 11. Voting List. A complete list of the
Stockholders entitled to vote at the ensuing meeting, arranged in
alphabetical order, and showing the address of and number and
class of shares entitled to vote at such meeting owned by each
Stockholder shall be prepared and certified by the Secretary or
other officer of the Company or the transfer agent, transfer
clerk or registrar of the Company having charge of the stock
transfer books. Such list shall be produced and kept available
at the time and places required by law. Failure to comply with
the requirements of this Section shall not affect the validity of
any action taken at such meeting of the Stockholders.
ARTICLE IV
Board of Directors
------------------
Section 1. General Authority. The property, business and
affairs of the Company shall be managed and controlled by the
Board, which may exercise all such powers of the Company and do
all such lawful acts and things as are not by applicable law or
the Charter of the Company or these Bylaws directed or required
to be exercised or done by the Stockholders.
Section 2. Number and Term of Office.
(a) The number of directors shall be not less
than three (3) nor more than fifteen (15). The
number of directors shall be fixed by the Board from
time to time by the affirmative vote of at least
three-quarters (75%) of the entire Board; provided
that no decrease in the number of directors shall
have the effect of shortening the term of any
incumbent director. Each director shall be of legal
age. The directors need not be Stockholders and need
not be residents of the State of Tennessee.
(b) The directors shall be divided into three
classes with each class consisting, as nearly as possible,
of one-third of the entire Board. The directors of at
least one class shall be elected at each Annual Meeting
of Stockholders, as provided by the Charter of the Company,
to hold office for a term to expire at the third succeeding
Annual Meeting after their election and, subject to their
earlier death, resignation or removal in accordance with
the Charter of the Company, these Bylaws and the laws of
the State of Tennessee, until their respective successors
are elected and take office. If the number of directors is
changed, any increase or decrease shall be apportioned among
the classes so as to maintain all classes as equal in number
as possible.
(c) Notwithstanding the foregoing, no Director
who did not hold office as such on January 1, 1985,
shall retain office after his/her 70th birthday,
provided, however, that by vote of the entire Board
of Directors, the term of a director may be extended
for one year after his/her 70th birthday. For
purposes of filling the vacancy created upon such
Director reaching his 70th birthday, or 71st birthday
if his term is extended, the Director shall be
considered to have resigned on such date, so that a
successor may be elected in accordance with Section 3
of this Article IV.
Section 3. Notice of Shareholder Nominees. Only persons
who are nominated in accordance with the procedures set forth in
this Section shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of
the Company may be made at a meeting of shareholders by or at the
direction of the Board of Directors by any nominating committee
or person appointed by the Board of Directors or by any
shareholder of the Company entitled to vote for the election of
Directors at the meeting who complies with the notice procedures
set forth in this Section. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the
Company. To be timely, a shareholder's notice shall be delivered
to or mailed and received at the principal executive offices of
the Company not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than
70 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth
(a) as to each person whom the shareholder proposes to nominate
for election or re-election as a Director, (i) the name, age,
business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the
class and number of shares of the Company which are beneficially
owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including without limitation
such person's written consent to be named in the proxy statement
as a nominee and to serving as a Director if elected); and (b) as
to the shareholder giving the notice (i) the name and record
address of such shareholder and (ii) the class and number of
shares of the Company which are beneficially owned by such
shareholder. No person shall be eligible for election as a
Director of the Company unless nominated in accordance with the
procedures set forth in this Section. The Chairman of the
meeting shall, if the facts warrant, determine and declare to the
meeting that a nomination was not made in accordance with the
procedures prescribed by the Bylaws, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 4. Vacancies; Newly Created Directorships. Any
vacancy occurring in the Board caused by death, resignation,
removal (whether such removal is without or for "cause," as such
term is defined in Section 48-807 of the Tennessee General
Corporation Act as in effect at the time these Bylaws shall have
been adopted) or otherwise, and any newly created directorship
resulting from an increase in the number of directors, may be
filled only by the affirmative vote of three-quarters (75%) of
the directors then in office, although such directors are less
than a quorum, or by the sole remaining director. Each director
chosen to fill a vacancy or a newly created directorship shall
hold office until the next election of the class for which such
director shall have been chosen, and, subject to his earlier
death, resignation or removal in accordance with the Charter of
the Company, these Bylaws and applicable law, until his successor
shall be duly elected and shall take office.
Section 5. Removal of Directors. Any one or more of the
directors of the Company may be removed for "cause" (as defined
in Section 4 of this Article IV), at any time, by the affirmative
vote of at least three-quarters (75%) of the entire Board.
Section 6. Place of Meetings. The directors may hold
their meetings in such place or places, within or without the
State of Tennessee, as the Board may from time to time by
resolution determine.
Section 7. Regular Meetings. Regular meetings of the
Board shall be held at such times and places as the Board shall
from time to time by resolution determine. If any day fixed for
a regular meeting shall be a legal holiday under the laws of the
place where the meeting shall be held, the meeting which would
otherwise be held on that day shall be held at the same hour on
the next succeeding business day. A regular meeting shall follow
each Annual Meeting as promptly as is practicable for the purpose
of organization, election and appointment of officers and the
transaction of other business.
Section 8. Special Meetings. Special Meetings of the
Board shall be held whenever called by the Chief Executive
Officer, or by the Secretary on the written request of a majority
of the directors.
Section 9. Notice of Meetings. Notice of regular
meetings of the Board or of any adjourned meeting thereof need
not be given. Notice of each special meeting of the Board shall
be mailed to each director, addressed to such director at such
director's residence or usual place of business, at least five
days before the day on which the meeting is to be held, or shall
be sent to such director at such place by telegraph or be given
personally or by telephone not later than the day before the
meeting is to be held, but notice need not be given to any
director who shall, either before or after the meeting, submit a
signed waiver of such notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of
notice to such director. Every such notice shall indicate the
time and place of the meeting and shall state with reasonable
certainty the nature and purposes thereof.
Section 10. Quorum and Manner of Acting. Except as
otherwise provided by law, the Charter of the Company, or these
Bylaws, a majority of the entire Board shall constitute a quorum
for the transaction of business at any meeting of the Board and,
except as so provided, the vote of a majority of the directors
present at any meeting at which there is a quorum shall be the
act of the Board. In the absence of a quorum, a majority of the
directors present may adjourn the meeting to another time and
place. At any adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted
at the meeting as originally called.
Section 11. Meetings Held Other Than in Person. Members
of the Board or any committee thereof may participate in a
meeting of the Board or such committee, as the case may be, by
means of a conference telephone network or similar communications
method by which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in
person at the meeting. Each person participating in any meeting
in which any director participating by such means shall sign the
minutes thereof, and such minutes may be signed in counterpart.
Section 12. Action Without Meeting. Any action required
or permitted to be taken at any meeting of the Board or any
committee of the Board may be taken without a meeting if a
consent in writing describing the action so taken shall be signed
by all of the directors or members of such committee entitled to
vote with respect to the subject matter thereof. Each such
consent in writing shall be filed with the minutes of the
proceedings of the Board.
Section 13. Order of Business. At any meeting of the
Board, business shall be transacted in such order as the Board
may by resolution determine. At all meetings of the Board, the
Chairman of the Board, or in his absence the President, or in his
absence the director designated as the chairman of the meeting by
the majority of the directors present, shall preside.
Section 14. Minutes. The Board and each committee
thereof shall keep written minutes of its meetings.
Section 15. Directors' Compensation. Directors shall
receive such compensation for attendance at any meetings of the
Board and any expenses incidental to the performance of their
duties as the Board shall determine by resolution. Such
compensation may be in addition to any compensation received by
the members of the Board in any other capacity.
ARTICLE V
Section 1. Executive Committee. The Board may, by
resolution adopted by at least three-quarters (75%) of the entire
Board, designate two or more of its members to constitute members
or alternate members of an Executive Committee. The Chief
Executive Officer shall be an ex officio member of the Executive
Committee.
Section 2. Powers and Authority of Executive Committee.
The Executive Committee shall have and may exercise, between
meetings of the Board, all the powers and authority of the Board
in the management of the business and affairs of the Company,
including, if such Committee is so empowered and authorized by
resolution adopted by the affirmative vote of that percentage of
the entire Board that would be required for the Board to act in
the particular instance, to fill vacancies on any committee of
the Board except the Executive Committee, and to submit to the
Stockholders any action that requires Stockholders authorization,
except that the Executive Committee shall not have such power or
authority in reference to:
(a) amending the Charter or any provision of the
Bylaws of the Company requiring a vote of at least
three-quarters (75%) of the entire Board for any
purpose;
(b) declaring a dividend or other corporate
distribution;
(c) removing any member of the Board or fill any
vacancy on the Board of Directors;
(d) adopting an agreement of merger or consolidation
of the Company with or into any other corporation;
(e) recommending to the Stockholders the sale, lease,
or exchange of all, or substantially all, of the
property and assets of the Company;
(f) recommending to the Stockholders a dissolution of
the Company or a revocation of a dissolution; or
(g) amending or repealing any resolution of the Board
which by its terms may be amended or repealed only by
the Board.
The Board shall have the power at any time to change the
membership of the Executive Committee, to fill all vacancies
occurring in it and to discharge it, either for or without cause;
provided, however, that no such action shall be taken without the
affirmative vote of at least three-quarters (75%) of the entire
Board.
Section 3. Other Committees. The Board may, by
resolution adopted by the affirmative vote of a majority of the
entire Board, designate one or more other committees, each of
which shall, except as otherwise prescribed by law, have such
authority of the Board as shall be specified in the resolution of
the Board designating such committee. A majority of all the
members of such committee may determine its action and fix the
time and place of its meetings, unless the Board shall otherwise
provide. The Board shall have the power at any time to change
the membership of, to fill any vacancies in and to discharge any
such committee, either for or without cause.
Section 4. Procedure; Meetings; Quorum. Regular meetings
of the Executive Committee or any other committee of the Board,
of which no notice shall be necessary, may be held at such times
and places as shall be fixed by resolution adopted by a majority
of the members thereof. Special meetings of the Executive
Committee or any other committee of the Board shall be called at
the request of any member thereof. So far as applicable, the
provisions of Article IV of these Bylaws relating to notice,
quorum and voting requirements applicable to meetings of the
Board shall govern meetings of the Executive Committee or any
other committee of the Board. The Executive Committee or any
other committee of the Board may adopt rules and regulations not
inconsistent with the provisions of law, the Charter of the
Company or these Bylaws for the conduct of its meetings. The
Executive Committee or any other committee of the Board shall
keep written minutes of its proceedings and shall report on such
proceedings to the Board at the next meeting of the Board.
ARTICLE VI
Officers
--------
Section 1. Number; Tenure; Compensation. The officers of
the Company shall be a Chairman of the Board, a President, one or
more Vice Presidents, one or more of whom may be designated as
Executive, Group or Senior Vice President, a Treasurer, a
Secretary and such other officers or agents with such titles and
such duties as the Board may from time to time determine, each to
have such authority, functions or duties as provided in these
Bylaws or as the Board may from time to time determine. The
Chairman of the Board and the President Shall be elected from
among the Directors at the first meeting of the Board following
each Annual Meeting of the Stockholders, and their compensation
shall be fixed by the Board. Subject to such directions, if any,
as may be given by the Board, the Chief Executive Officer may
appoint and fix the compensation of the remaining officers. Each
officer of the Company shall hold office for a term of one year
and until his successor is chosen and takes office, unless
earlier removed from office by the Chief Executive Officer, if
such officer was appointed by the Chief Executive Officer, or by
the affirmative vote of a majority of the entire Board. One
person may hold the offices and perform the duties of any two or
more officers; provided, however, that one person shall not hold
the offices of both the Chairman of the Board or President and
Secretary.
Section 2. Vacancies. A vacancy in any office because of
death, resignation, removal or otherwise, may be filled for the
unexpired portion of the term in the manner prescribed in these
Bylaws for election or appointment to such office. In its
discretion, the Board, by the vote of a majority of the entire
Board, may leave any office un-filled for such period as it may
fix by resolution except that the offices of Treasurer and
Secretary and either Chairman of the Board or President shall be
filled.
Section 3. Chairman and President; Chief Executive
Officer. The Chairman, or in his absence the President, shall
preside at all meetings of the Board and Stockholders, and such
officers shall have such additional duties as may be assigned to
them by the Board. The Board shall designate either the Chairman
or the President as the Chief Executive Officer of the Company
who shall have general chare of and control over the affairs of
the Company, subject to the directions of the Board of Directors.
Section 4. Vice Presidents. The Vice Presidents shall
perform such duties as may be assigned to them by the Chief
Executive Officer or the Board. In the case of the death,
disability or absence of the President, the Executive Vice
President shall perform and be vested with all the duties and
powers of the President until the Board appoints a new President.
Section 5. Secretary. The Secretary shall keep a record
of the minutes of the proceedings of the meetings of the Board
and Stockholders, and shall give notice of such meetings as
required by these Bylaws. He shall have custody of all books,
records and papers of the Company, except such as shall be in the
custody of the Treasurer, and shall perform and be vested with
all other duties and powers assigned to him by the Chief
Executive Officer or the Board.
Section 6. Treasurer. The Treasurer shall keep account
of all moneys of the Company received or disbursed, and shall
deposit all moneys and valuables in the name of and to the credit
of the Company in such banks and depositories as the Board shall
approve or designate. He shall perform and be vested with all
other duties and powers assigned to him by the Chief Executive
Officer or the Board.
Section 7. Bank Accounts. In addition to such bank
accounts as may be authorized in the usual manner by resolution
of the Board, the Treasurer, with approval of the Chief Executive
Officer, may authorize such bank accounts to be opened or
maintained in the name and on behalf of the Company as he may
deem necessary or appropriate, provided payments from such bank
accounts are to be made upon and according to the check of the
Company, which may be signed jointly or singly by either the
manual or facsimile signature or signatures of such officers or
bonded employees of the Company as shall be specified in the
written instructions of the Treasurer or Assistant Treasurer of
the Company with the approval of the Chief Executive Officer of
the Company.
Section 8. Proxies. Unless otherwise directed by the
Board, the Chief Executive Officer, or his designee, shall have
full power and authority on behalf of the Company to attend and
to vote upon all matters and resolutions at any meeting of
stockholders of any corporation in which the Company may hold
stock, and may exercise on behalf of the Company any and all of
the rights and powers incident to the ownership of such stock at
any such meeting, whether regular or special, and at all
adjournments thereof, and shall have power and authority to
execute and deliver proxies and consents on behalf of the Company
in connection with the exercise by the Company of the rights and
powers incident to the ownership of such stock, with full power
of substitution or revocation.
ARTICLE VII
Indemnification of Directors, Officers, Employees and Agents
------------------------------------------------------------
Section 1. Third Party Actions. Except as otherwise provided
herein and subject to the limitations of the law, the Company
shall indemnify any person who was or is a party or is threatened
to be made a party to any action, suit or proceeding (other than
by or in the right of the Company), whether civil or criminal,
including actions by or in the right of any other corporation
which any director or officer of the Company served in any
capacity at the request of the Company, by reason of the fact
that such person is or was a director or officer of the Company,
or is or was serving, at the request of the Company, such other
corporation, or any partnership, joint venture, trust or other
enterprise in any capacity, against judgments, fines, amounts
paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred by such person in
connection with such action, suit or proceeding, or any appeal
therein, if such interests of the Company, and, with respect to
any criminal action or proceeding, in addition, had no reasonable
cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by any judgment, settlement,
conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did
not act in good faith for a purpose which such person reasonably
believed to be in the best interests of the Company, and, with
respect to any criminal action or proceeding, that such person
had reasonable cause to believe that his conduct was unlawful.
Section 2. Derivative Actions. Except as otherwise
provided herein and subject to the limitations of law, the
Company shall indemnify any person who is or was a party or is
threatened to be made a party to any suit by or in the right of
the Company to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company
another corporation, partnership, joint venture, trust or other
enterprise in any capacity, against amounts paid in settlement
and reasonable expenses, including attorney's fees, actually and
necessarily incurred by such person in connection with such
action, suit or proceeding, or any appeal therein, except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to have
breached his duty to the Company under Section 48-813 of the
Tennessee General Corporation Act or any successor provision of
Tennessee law.
Section 3. Determination of Indemnification. Any
indemnification under Section 1 or 2 of this Article VII to a
person who has not been wholly successful, on the merits or
otherwise, in the defense of a civil or criminal action of the
character described therein (unless ordered by a court) shall be
made by the Company only if authorized in the specific case upon
a determination that indemnification of the director or officer
is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 1 or 2 of
this Article VII. Such determination shall be made (i) by the
Board by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable with due diligence, by the Board
based upon the written opinion by independent legal counsel or
(iii) by the Stockholders holding a majority of the combined
voting power of the Voting Stock.
Section 4. Right to Indemnification. To the extent that
a director or officer of the Company has been wholly successful,
on the merits or otherwise, in the defense of a civil or criminal
action of the character described in Secion 1 or 2 of this
Article VII, or in defense of any claim, issue or matter therein,
such person shall be indemnified as authorized in said Sections.
The provisions of this Article VII shall be deemed to be a
contract between the Company and each director and officer who
serves in such capacity at any time while this Article VII is in
effect, and any repeal or modification thereof shall not affect
any rights or obligations then existing with respect to any state
of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in
part upon any such state of facts.
Section 5. Advance of Expenses. Expenses incurred in
defending a civil or criminal action, suit or proceeding may be
paid by the Company in advance of the final disposition of such
action, suit or proceeding if authorized in the manner provided
in Section 3 of this Article VII and upon receipt of an
undertaking by or on behalf of the director or officer to repay
such amount unless it shall ultimately be determined that such
person is entitled to be indemnified by the Company as authorized
in this Article VII.
Section 6. Indemnification Not Exclusive. The
indemnification provided by this Article VII shall not be deemed
exclusive of any other rights to which any person seeking
indemnification may be entitled under any law, agreement, vote of
Stockholders or disinterested directors or otherwise, both as to
action in such person's official capacity as to a person who has
ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such a person.
Section 7. Indemnification of Employees and Agents. The
Company may indemnify any employee or agent of the Company, or
any employee or agent serving at the request of the Company as an
employee or agent of any other corporation, partnership, joint
venture, trust or other enterprise, in the manner and to the
extent that it shall indemnify any director or officer under this
Article VII.
Section 8. Insurance. The Company may purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer,
enterprise, against any liability asserted against such person
and incurred by such person in any such capacity, or arising out
of such person's status as such, whether or not the Company would
have the power to indemnify such person against such liability
under the provisions of this Article VII.
ARTICLE VIII
Certificates of Stock
---------------------
Section 1. Form.
(a) The interest of each Stockholder of the Company
shall be evidenced by certificates for shares of
stock, certifying the class and number of shares
represented thereby and in such form, not
inconsistent with the Charter of the Company, as the
Board may from time to time prescribe.
(b) The certificates fo stock shall be signed by the
Chairman of the Board, the President or a Vice
President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer,
and sealed with the seal of the Company. Such seal
may be a facsimile, engraved or printed. Where any
certificate is countersigned or otherwise
authenticated by a transfer agent or by a transfer
clerk, and by a registrar, the signatures of any such
officers upon such certificate may be a facsimile,
engraved or printed. In case any officer, transfer
agent or registrar who has signed or whose facsimile
signature has been placed upon any certificate shall
have ceased to be such before the certificate is
issued, it may be issued by the Company with the same
effect as if such officer, transfer agent or
registrar had not ceased to be such at the time of
its issue.
Section 2. Transfers.
(a) Transfers of shares of the capital stock of the
Company shall be made only on the books of the
Company by the registered owner thereof, or by his
duly authorized attorney, and on surrender of the
certificate or certificates for shares properly
endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, and
with all taxes thereon paid.
(b) The person in whose name shares of stock stand on
the books of the Company shall be deemed by the
Company to be the owner thereof for all purposes, and
the Company shall not be bound to recognize any
equitable or other claim to or interest in such share
or shares on the part of any other person, whether or
not it shall have express or other notice thereof,
except as otherwise provided by the laws of the State
of Tennessee.
Section 3. Lost or Destroyed Certificates. The Board
shall have the power to direct new stock certificates to be
issued to any Stockholder in place of any certificates
theretofore issued by the Company when such Stockholder proves to
the satisfaction of the Board that a stock certificate is lost or
destroyed, or upon the posting of an indemnity bond by the owner
of such lost or destroyed certificates, or his legal
representative, in such amount as the Board shall deem
appropriate, to hold the Company harmless from any loss or claim
arising out of or in connection with the issuance of a duplicate
certificate, unless such requirement be dispensed with by the
Board, in its discretion, in any instance or instances.
Section 4. Transfer Agent and Registrar. The Board may
appoint one or more transfer agents or transfer clerks and one or
more registrars, and may require all certificates for shares to
bear the manual or facsimile signature or signatures of any of
them. The Company's transfer agent and registrar may be the same
if the person or entity acting in such dual capacities
countersigns certificates for shares required to bear his or its
signature in both capacities.
ARTICLE IX
General Provisions
------------------
Section 1. Fiscal Year. The fiscal year of the Company
shall commence on the first day of April of each year, unless
otherwise determined by the Board.
Section 2. Checks. All checks or demands for the payment
of money and all notes and other instruments of a negotiable
nature shall be signed by the person designated by appropriate
resolution of the Board or these Bylaws.
Section 3. Contracts. The Board may authorize any
officer or officers or agent or agents to enter into any contract
or execute and deliver any instrument in the name and on behalf
of the Company, and such authority may be general or confined to
specific instances.
Section 4. Dividends. Subject to the provisions of the
laws of the State of Tennessee and the Charter of the Company,
the Board shall have full power in its sole discretion to
determine whether any, and if so what part, of the funds legally
available for the payment of dividends shall be declared in
dividends and paid to the Stockholders of the Company. Dividends
upon the shares of stock of the Company, subject always to the
mentioned provisions, may be declared by the Board at any regular
or special meeting, payable in cash, property or shares of the
Company's stock.
Section 5. Saving Clause. In the event any provision of
these Bylaws is inconsistent with the Charter of this Company or
the laws of the State of Tennessee, such provision shall be
invalid to the extent only of such conflict; and such conflict
shall not affect the validity of any other provision of these
Bylaws.
