SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended April 30, 1994
Commission File Number 1-4925
HARCOURT GENERAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1619609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, MA 02167
(Address of principal executive offices) (Zip Code)
(617) 232-8200
(Registrant's telephone number, including area code)
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 requirements for the past 90 days.
YES X NO
As of June 6, 1994, the number of shares outstanding of each of the issuer's
classes of common stock was:
Class Shares Outstanding
Common Stock, $1 Par Value 55,968,607
Class B Stock, $1 Par Value 21,902,773
HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of
April 30, 1994 and October 31, l993 1-2
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended April 30, l994 and l993 3
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended April 30, l994 and l993 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
11
Item 6. Exhibits and Reports on Form 8-K
11
Signatures 12
Exhibit 11.1 13
<PAGE> 1
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands)
April 30, October 31,
1994 l993
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 423,388 $ 466,925
Accounts receivable - trade, net 512,147 493,384
Inventories 447,610 470,525
Deferred income taxes 75,022 20,016
Other current assets 54,483 53,095
Total current assets 1,512,650 1,503,945
Property and equipment, net 516,227 516,541
Other assets
Prepublication costs, net 154,173 137,959
Intangible assets 394,465 400,028
Other 108,910 111,601
Total other assets 657,548 649,588
Net assets of discontinued theatre operations - 135,804
Insurance assets
Fixed maturity securities, at amortized cost
(market value $2,898,719 and $2,915,850) 2,913,791 2,665,378
Commercial paper 38,082 105,764
Other investments and cash 42,456 45,987
Premiums, accounts, and investment
income receivable 68,894 70,965
Deferred policy acquisition costs 163,817 155,534
Other insurance assets 119,171 127,320
Total insurance assets 3,346,211 3,170,948
Total assets $6,032,636 $ 5,976,826
</TABLE>
(Continued)
See Notes to condensed consolidted financial statements.
<PAGE> 2
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands)
April 30, October 31,
1994 1993
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Notes payable and current maturities of
long-term liabilities $ 58,800 $ 64,904
Accounts payable 224,588 283,693
Accrued liabilities 332,652 358,636
Taxes payable 61,435 35,322
Other current liabilities 104,901 49,331
Total current liabilities 782,376 791,886
Long-term liabilities
Notes and debentures 953,692 923,618
Other long-term liabilities 170,671 167,031
Total long-term liabilities 1,124,363 1,090,649
Deferred income taxes 209,749 200,088
Insurance liabilities
Policyholder reserves and deposits 2,624,478 2,450,023
Unearned premiums 158,419 175,937
Policy and contract claims 121,323 123,621
Other insurance liabilities 91,490 93,044
Total insurance liabilities 2,995,710 2,842,625
Shareholders' equity
Preferred stock 1,473 1,996
Common stock 77,866 77,307
Paid-in capital 723,717 861,928
Cumulative translation adjustments (6,564) (5,524)
Retained earnings 123,946 115,871
Total shareholders' equity 920,438 1,051,578
Total liabilities and shareholders' equity $ 6,032,636 $ 5,976,826
</TABLE>
See Notes to condensed consolidated financial statements.
<PAGE> 3
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except for per share amounts)
<CAPTION>
For the Six Months For the Three Months
Ended April 30, Ended April 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $1,798,199 $1,740,082 $965,962 $ 933,242
Costs applicable to revenues 1,169,601 1,133,048 643,904 618,845
Selling, general and administrative
expenses 525,565 525,376 276,771 278,481
Corporate expenses 18,939 17,905 9,562 9,491
Operating earnings 84,094 63,753 35,725 26,425
Investment income 7,640 7,555 3,578 3,459
Interest expense (42,865) (41,704) (21,624) (21,042)
Other income - 20,755 - -
Earnings from continuing operations
before income taxes 48,869 50,359 17,679 8,842
Income taxes (17,593) (17,877) (6,365) (3,176)
Earnings from continuing operations 31,276 32,482 11,314 5,666
Earnings from discontinued theatre
operations, net - 5,128 - 139
Net earnings $ 31,276 $ 37,610 $ 11,314 $ 5,805
Weighted average number of common
and common equivalent shares
outstanding 79,829 79,583 79,804 79,605
Earnings per common share:
Earnings from continuing operations $ .39 $ .41 $ .14 $ .07
Earnings from discontinued theatre
operations, net - .06 - -
Net earnings $ .39 $ .47 $ .14 $ .07
Dividends per share:
Common Stock $ .30 $ .28 $ .15 $ .14
Class B Stock $ .27 $ .252 $ .135 $ .126
Series A Stock $ .345 $ .295 $ .1725 $ .1475
</TABLE>
See Notes to condensed financial statements.
<PAGE> 4
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<CAPTION>
For the Six Months
Ended April 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities
Net earnings from continuing operations $ 31,276 $ 32,482
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Other income - (20,755)
Deferred income taxes (45,345) -
Depreciation and amortization 79,997 78,548
Other items 3,026 3,340
Changes in assets and liabilities:
Accounts receivable (18,262) (7,896)
Inventories 23,152 (21,416)
Other current assets (1,367) (9,120)
Current liabilities (4,982) (8,753)
67,495 46,430
Insurance operating activities (18,189) 17,741
Discontinued theatre operating activities - 16,877
Net cash provided by operating activities 49,306 81,048
Cash flows from investing activities
Discontinued theatre operation - (3,270)
Capital expenditures (86,666) (71,498)
Other items (645) (2,152)
(87,311) (76,920)
Insurance investing activities (171,173) (260,391)
Net cash used by investing activities (258,484) (337,311)
Cash flows from financing activities
Proceeds from borrowing, net 43,500 40,117
Repayment of debt (19,499) (6,596)
Cash dividends paid (23,209) (21,610)
Equity transactions, net (2,335) 705
(1,543) 12,616
Insurance financing activities 167,184 223,593
Net cash provided by financing activities 165,641 236,209
Cash and equivalents
Decrease during the period (43,537) (20,054)
Beginning balance 466,925 430,728
Ending balance $423,388 $ 410,674
</TABLE>
See Notes to condensed consolidated financial statements.
<PAGE> 5
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The condensed consolidated financial statements of Harcourt General, Inc.
(the Company) are submitted in response to the requirements of Form 10-Q
and should be read in conjunction with the consolidated financial statements
in the Company's Annual Report on Form 10-K. In the opinion of management,
these statements contain all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the results for
the interim periods presented. The April 30, l994 condensed consolidated
financial statements include the January 29, l994 condensed consolidated
financial statements of The Neiman Marcus Group, Inc. (NMG), which are
filed with the Securities and Exchange Commission on Form 10-Q. The Company
owns approximately 65% of the fully-converted equity of NMG. The Company's
businesses are seasonal in nature, and historically the results of
operations for these periods have not been indicative of the results for the
full year.
2. Discontinued operation
On December 15, l993, the Company completed the spinoff of its theatre
operations in a tax-free distribution to its shareholders. The newly
created company is named GC Companies, Inc. (GCC). Under the plan of
distribution, the Company transferred to GCC approximately $135.0 million
of net theatre assets including approximately $64.0 million in cash.
3. Restructuring of Contempo Casuals
NMG has commenced a restructuring of its Contempo Casuals division which
includes Pastille stores, and recorded a charge of $48.4 million in NMG's
third fiscal quarter. Because NMG's financial statements are consolidated
with a lag of one quarter, this charge will be reflected in the Company's
financial statements for the nine months ending July 31, l994. Because of
the continuing weak operating performance of the Contempo Casuals division,
NMG will close up to 50 Contempo Casuals Stores and discontinue all of the
Pastille retail stores which Contempo Casuals had been testing as a new
retail concept. The restructuring charge includes an estimate of lease
termination costs ($20.7 million), the write-down of fixed assets
($12.8 million), inventory liquidation costs ($10.8 million), and other
expenses ($4.1 million). NMG anticipates that the decision to close these
Contempo Casuals and Pastille retail stores will reduce the operating losses
experienced by the Contempo Casuals division. Substantially all of the cash
payments for lease termination costs are expected to be made in NMG's fourth
quarter and fiscal 1995.
4. Statement of Financial Accounting Standards No. 115
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS No. 115). SFAS No. 115 revises the
accounting and reporting for all investments in debt securities and for
investments in equity securities that have determinable fair values. The
Company is required to adopt SFAS No. 115 no later than fiscal 1995 and has
not yet determined its impact on the Company's continuing operations or
financial position.
<PAGE> 6
<TABLE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table illustrates revenues and operating earnings by business
segment.
<CAPTION>
Six Months Ended April 30, Three Months Ended April 30,
<S> <C> <C> <C> <C>
(In thousands) 1994 1993 1994 1993
Revenues:
Publishing $ 305,818 $ 294,462 $144,825 $135,371
Specialty retailing 1,158,324 1,096,239 650,690 617,236
Insurance 261,770 279,252 133,284 141,223
Professional services 72,287 70,129 37,163 39,412
Total revenues $1,798,199 $1,740,082 $965,962 $933,242
Operating earnings (loss):
Publishing ($ 29,997) ($ 40,728) ($ 22,594) ($ 28,766)
Specialty retailing 85,190 75,405 48,149 40,261
Insurance 35,052 33,207 13,117 15,713
Professional services 12,788 13,774 6,615 8,708
Corporate expenses (18,939) (17,905) (9,562) (9,491)
Total operating earnings $ 84,094 $ 63,753 $ 35,725 $ 26,425
</TABLE>
Six Months Ended April 30, l994 Compared to Six Months Ended April 30, l993
Publishing
Publishing revenues in the six months ended April 30, l994 increased 3.9%
compared with revenues in the six months ended April 30, l993. Substantially
all of the publishing businesses contributed to the increase in revenues with
the educational division achieving the highest increase due to strong sales
of science and health textbooks and testing products.
The publishing operating loss decreased 26.3% compared with the same period
last year. The operating loss was reduced by lower prepublication amortization
costs and lower marketing expenses at the educational division, partially
offset by an increase in prepublication amortization costs and higher operating
expenses in the scientific, technical, medical businesses.
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter so that
operating results of The Neiman Marcus Group, Inc. (NMG) for the twenty-six
weeks ended January 29, 1994 are consolidated with the operating results of
the Company for the twenty-six weeks ended April 30, 1994. Revenues in the
twenty-six weeks ended January 29, 1994 increased 5.7% over revenues in the
twenty-six weeks ended January 30, l993. Higher revenues at the Neiman
Marcus division and Bergdorf Goodman were partially offset by lower revenues
at Contempo Casuals. The number of stores was substantially unchanged in the
current period.
Operating earnings increased 13.0%, reflecting higher revenues and finance
charge income, partially offset by volume-related increases in cost of goods
sold and selling costs. NMG recorded a restructuring charge of $48.4 million
in its third quarter, which will be reflected in the Company's financial
statements for its quarter ending July 31, 1994.
<PAGE> 7
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Insurance
Insurance revenues decreased 6.3% compared with the same period last year. The
decrease was primarily related to lower capital gains and the absence of major
medical premium revenue due to the sale of that block of business in April
1993.
Insurance operating earnings increased 5.6% compared to the same period last
year. Operating earnings increased due to favorable claims experience in the
farm and rural accident and health lines of business. Also contributing to
the increase were higher annuity profits stemming from a larger block of
business and increased interest margins. These increases were partially offset
by a $1.5 million decline in capital gains.
Professional Services
Professional services revenues increased $2.2 million compared with the same
period last year. The increase reflects higher volume in executive
outplacement programs.
Professional services operating earnings decreased $986,000 compared to the
same period last year. This decrease is attributable to higher payroll,
benefit and other operating costs.
Interest Expense
Interest expense increased 2.8% from the same period last year. Higher
interest expense at NMG was partially offset by lower interest expense at
the Company.
Other Income
Other income in 1993 represents a gain from the reduction in the level of NMG's
estimated liabilities due to the settlement of various disputes with Carter
Hawley Hale Stores, Inc.
Income Tax Expense
The Company's effective tax rate is estimated to be 36.0% in fiscal l994 and
was 36.9% in fiscal 1993. During the first quarter of 1994, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109
(SFAS No. 109) "Accounting for Income Taxes." SFAS No. 109 requires the asset
and liability method of accounting for income taxes. The effect of adopting
this standard was not material to the Company's financial position or results
of operations.
<PAGE> 8
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Quarter Ended April 30, 1994 Compared to Quarter Ended April 30, 1993
Publishing
Publishing revenues increased 7.0% compared to the same period last year. This
increase was primarily due to higher revenues in all of the publishing
businesses with the educational division achieving the highest increase due to
strong sales of health and science textbooks and testing products.
The publishing operating loss decreased by $6.2 million compared to the same
period last year. The operating loss was reduced because of higher revenues,
lower prepublication amortization costs and higher marketing expenses at the
educational division, partially offset by an increase in prepublication
amortization costs and operating expenses in the scientific, technical, medical
businesses.
Specialty Retail
Results of NMG are reported with a lag of one quarter, so that NMG's operating
results for its quarter ended January 29, l994 are consolidated with the
Company's operating results for the quarter ended April 30, l994. Revenues
in the thirteen weeks ended January 29, l994 increased 5.4% over revenues in
the thirteen weeks ended January 30, l993. Higher revenues at the Neiman
Marcus division and Bergdorf Goodman were offset by lower revenues at the
Contempo Casuals division. The number of stores was substantially unchanged
from the thirteen weeks ended January 30, l993.
Operating earnings increased 19.6%, reflecting higher revenues and finance
charge income, partially offset by volume-related increases in cost of goods
sold and selling costs.
Insurance
Insurance revenues decreased 5.6% compared to the same 1993 period due to
lower capital gains and the absence of major medical premium revenue due
to the sale of that block of business in April 1993. These decreases were
partially offset by higher structured annuity revenues.
Insurance operating earnings decreased $2.6 million compared to the same period
last year. The decline in operating earnings was due to a $3.7 million
decrease in capital gains, partially offset by favorable claims experience in
the farm and rural accident and health lines of business and higher annuity
profits resulting from a higher level of business.
Professional Services
Professional services revenues decreased $2.2 million to $37.2 million in the
1994 second quarter from $39.4 million in the 1993 second quarter. The
decrease reflects lower volume in group outplacement programs.
Professional services operating earnings decreased $2.1 million compared to
the same period in the prior year. This decrease is attributable to lower
revenues and higher payroll and benefit costs.
<PAGE> 9
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Interest Expense
Interest expense increased 3.2% compared to the same period last year primarily
due to higher outstanding balances on bank borrowings during the period at NMG.
Liquidity and Capital Resources
General
The following discussion analyzes liquidity and capital resources by operating,
investing and financing activities as presented in the Company's consolidated
statements of cash flows. The discussion of liquidity and capital resources
for the insurance segment appears separately, because the assets, liabilities
and cash flows of the insurance company are restricted by statute. Because
NMG is a separate public company Harcourt General has no access to NMG's
earnings or cash flow other than through the receipt of cash dividends paid
by NMG. Similarly, NMG has no claim on the Company's assets.
Cash provided by continuing operating activities for the six months ended
April 30, l994 was $67.5 million excluding adjustments for the Company's
insurance operations. The cash provided by the Company's operations was used
to fund working capital, capital expenditures and dividend requirements.
Since October 31, l993, working capital increased $18.2 million. The most
significant items affecting working capital were increases in accounts
receivable of $18.8 million and decreases in accounts payable of $59.1 million
and in accrued liabilities of $26.0 million, which were partially offset
by a $22.9 million decrease in inventories and a $26.1 million increase
in taxes payable.
Cash flows used by investing activities excluding insurance operations were
$87.3 million. The Company's investing activities in the 1994 period included
capital expenditures totaling $86.7 million. Publishing capital expenditures
in the 1994 six month period totaled $59.4 million and were related principally
to expenditures for prepublication costs. Capital expenditures in the
publishing business are expected to approximate $140.0 million in fiscal 1994.
Specialty retailing capital expenditures in the 1994 period totaled $26.1
million and were primarily related to store renovation and expansion of the
mail order facility. Capital expenditures for NMG in fiscal 1994 are expected
to approximate $65.0 million.
Financing activities primarily reflect additional borrowings of $43.4 million
under NMG's revolving credit agreements, the purchase of $18.9 million of the
remaining Harcourt Brace debt and the payment of $23.2 million in dividends.
At April 30, 1994, the Company's consolidated long-term liabilities totaled
$1.1 billion. That amount includes $481.1 million of NMG long-term liabilities
which are not guaranteed by the Company.
The Company has uncommitted borrowing capacity with three banks totaling
$75.0 million and committed borrowing capacity of $400.0 million. The
Company had no committed or uncommitted borrowings outstanding at April 30,
l994. NMG has committed borrowing capacity totaling $400.0 million of which
$275.7 million was outstanding at January 29, l994 and uncommitted borrowing
capacity totaling $70.0 million.
<PAGE> 10
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Insurance
Cash used by insurance operations totaled $18.2 million in the first six months
of fiscal 1994. This amount reflects realized capital gains of $7.8 million
and an increase in deferred policy acquisition costs of $8.3 million which
were partially offset by net increases in policyholder reserves and
unearned premiums. The insurance companies used $171.2 million in investing
activities, primarily to purchase fixed maturity securities. Cash generated
from insurance financing activities consisted of proceeds from policyholder
deposits of $167.2 million.
In the first quarter of 1994, the Company announced that it is exploring
various options related to the potential sale of the insurance business,
although no decision has been made.
<PAGE> 11
HARCOURT GENERAL, INC.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on March 11, 1994. The
following matters were voted upon at the meeting:
1. Election of the following people as Class A Directors for a term of
three years:
Jack M. Greenberg Herbert W. Jarvis
For 66,547,269 For 66,558,083
Withheld 176,519 Withheld 165,705
Richard A. Smith Robert J. Tarr, Jr.
For 66,557,197 For 66,557,372
Withheld 166,591 Withheld 167,416
2. Ratification of the appointment of Deloitte & Touche as the Company's
independent auditors for the 1994 fiscal year.
For 66,014,309
Against 42,709
Abstain 666,771
Non-Voting 0
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1 Computation of average number of shares outstanding used in
determining primary and fully diluted earnings per share.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter
ended April 30, 1994.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARCOURT GENERAL, INC.
Date: June 10, 1994 s/John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: June 10, 1994 s/Stephen C. Richards
Stephen C. Richards
Vice President and Controller
Principal Accounting Officer
<PAGE> 13
EXHIBIT 11.1
<TABLE>
HARCOURT GENERAL, INC.
Computation of average number of shares outstanding used in determining primary
and fully diluted earnings per share:
<CAPTION>
(In thousands) For the six months For the three months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
PRIMARY
1. Weighted average number of common
shares outstanding 77,726 76,381 77,850 76,436
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,746 2,831 1,631 2,788
3. Assumed exercise of certain stock
options based on average market
value 357 371 323 381
4. Weighted average number of shares
used in primary per share
computations 79,829 79,583 79,804 79,605
FULLY DILUTED (A)
1. Weighted average number of common
shares outstanding 77,726 76,381 77,850 76,436
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,746 2,831 1,631 2,788
3. Assumed exercise of all dilutive
options based on higher of
average or closing market value 361 399 324 381
4. Weighted average number of shares
used in fully diluted per share
computations 79,833 79,611 79,805 79,605
</TABLE>
(A) This calculation is submitted in accordance with Securities Exchange Act
of 1934 Release No. 9083 although not required by Footnote 2 to Paragraph
14 of APB Opinion No. 15 because it results in dilution of less than 3%.
