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 January 31, 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 March 7, 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 55,946,263
Class B Stock, $1 Par Value 21,905,306
HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of
January 31, 1994 and October 31, l993 1-2
Condensed Consolidated Statements of Earnings for the
Three Months Ended January 31, l994 and l993 3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended January 31, l994 and l993 4
Notes to Condensed Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Part II. Other Information
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)
January 31, October 31,
1994 l993
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 492,916 $ 466,925
Accounts receivable - trade, net 502,541 493,384
Inventories 564,270 470,525
Deferred income taxes 75,022 20,016
Other current assets 56,388 53,095
Total current assets 1,691,137 1,503,945
Property and equipment, net 515,530 516,541
Other assets:
Prepublication costs, net 142,327 137,959
Intangible assets 396,502 400,028
Other 109,760 111,601
Total other assets 648,589 649,588
Net assets of discontinued theatre operations - 135,804
Insurance assets:
Fixed maturity securities, at amortized cost
(market value $2,998,263 and $2,915,850) 2,780,501 2,665,378
Commercial paper 79,392 105,764
Other investments and cash 47,341 45,987
Premiums, accounts, and investment income receivable 67,276 70,965
Deferred policy acquisition costs 159,279 155,534
Other insurance assets 123,108 127,320
Total insurance assets 3,256,897 3,170,948
Total assets $ 6,112,153 $ 5,976,826
</TABLE>
(Continued)
See Notes to condensed consolidated financial statements.
<PAGE> 2
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands)
January 31, October 31,
1994 1993
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities of
long-term liabilities $ 71,863 $ 64,904
Accounts payable 285,354 283,693
Accrued liabilities 368,835 358,636
Taxes payable 58,802 35,322
Other current liabilities 100,612 49,331
Total current liabilities 885,466 791,886
Long-term liabilities:
Notes and debentures 1,013,640 923,618
Other long-term liabilities 165,978 167,031
Total long-term liabilities 1,179,618 1,090,649
Deferred income taxes 209,749 200,088
Insurance liabilities:
Policyholder reserves and deposits 2,530,909 2,450,023
Unearned premiums 166,121 175,937
Policy and contract claims 126,102 123,621
Other insurance liabilities 92,392 93,044
Total insurance liabilities 2,915,524 2,842,625
Shareholders' equity:
Preferred stock 1,504 1,996
Common stock 77,819 77,307
Paid-in capital 723,644 861,928
Cumulative translation adjustments (5,402) (5,524)
Retained earnings 124,231 115,871
Total shareholders' equity 921,796 1,051,578
Total liabilities and shareholders' equity $ 6,112,153 $ 5,976,826
</TABLE>
See Notes to condensed consolidated financial statements.
<PAGE> 3
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
(In thousands except
for per share amounts)
For the three months
ended January 31,
1994 1993
<S> <C> <C>
Revenues $832,237 $806,840
Costs applicable to revenues 525,697 514,203
Selling, general and administrative expenses 248,794 246,895
Corporate expenses 9,377 8,414
Operating earnings 48,369 37,328
Investment income 4,062 4,096
Interest expense (21,241) (20,662)
Other income - 20,755
Earnings from continuing operations before
income taxes 31,190 41,517
Income taxes (11,228) (14,701)
Earnings from continuing operations 19,962 26,816
Earnings from discontinued theatre operations, net - 4,989
Net earnings $ 19,962 $ 31,805
Weighted average number of common and common
equivalent shares outstanding 79,855 79,562
Earnings per common share:
Earnings from continuing operations $ .25 $ .34
Earnings from discontinued theatre operations - .06
Net earnings $ .25 $ .40
Dividends per share:
Common Stock $ .15 $ .14
Class B Stock $ .135 $ .126
Series A Stock $ .1725 $ .1475
</TABLE>
See Notes to condensed consolidated financial statements.
<PAGE>4
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands)
For the three months
ended January 31,
1994 1993
<S> <C> <C>
Cash flows from operating activities
Net earnings from continuing operations $ 19,962 $ 26,816
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Other income - (20,755)
Deferred income taxes (45,345) -
Depreciation and amortization 39,388 39,915
Other items (379) 5,840
Changes in assets and liabilities:
Accounts receivable (8,884) 7,574
Inventories (93,405) (99,210)
Other current assets (3,241) (15,508)
Current liabilities 85,785 70,567
(6,119) 15,239
Insurance operating activities (8,167) 18,273
Discontinued theatre operating activities - 26,300
Net cash provided (used) by operating activities (14,286) 59,812
Cash flows from investing activities
Discontinued theatre operation - 396
Capital expenditures (38,481) (36,082)
Other items 363 (3,518)
(38,118) (39,204)
Insurance investing activities (80,811) (130,495)
Net cash used by investing activities (118,929) (169,699)
Cash flows from financing activities
Proceeds from borrowing, net 116,200 80,910
Repayment of debt (18,852) (6,596)
Cash dividends paid (11,602) (10,805)
Equity transactions, net (2,468) 533
83,278 64,042
Insurance financing activities 75,928 103,953
Net cash provided by financing activities 159,206 167,995
Cash and equivalents
Increase during the period 25,991 58,108
Beginning balance 466,925 430,728
Ending balance $492,916 $488,836
</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
January 31, 1994 condensed consolidated financial statements include
the October 30, l993 condensed consolidated financial statements of
The Neiman Marcus Group, Inc. (NMG), which were 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. Income taxes
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes" during the
first quarter of fiscal 1994. SFAS No. 109 requires the asset and
liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are recognized based on the differences
between the financial statement carrying amounts and their respective tax
bases using enacted tax rates in effect for the years in which the
differences are expected to reverse. The effect of adopting SFAS No. 109
was not material to the Company's financial position or results of
operations. Prior to October 31, 1993, the Company accounted for income
taxes in accordance with Accounting Principles Board Opinion No. 11.
<PAGE> 6
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Income taxes (continued)
Significant components of the net deferred tax liabilities stated on a
gross basis are as follows:
<TABLE>
<CAPTION>
(In thousands) November 1,
1993
<S> <C>
Gross deferred tax assets:
Accrued liabilities and reserves $ 78,014
Employee benefits 33,661
Postretirement health care benefits 34,937
Inventories 28,848
Difference in basis of assets acquired 42,772
Total gross deferred tax assets 218,232
Valuation allowance (25,538)
Net deferred tax assets 192,694
Gross deferred tax liabilities:
Property, equipment, prepublishing costs and intangibles 152,710
Pension and employee benefits accrual 23,041
Difference in basis of assets acquired 124,073
Accrued liabilities and reserves 27,597
Total gross deferred tax liabilities 327,421
Net deferred tax liabilities $ 134,727
</TABLE>
Income taxes paid during the thirteen weeks ended January 31, l994 were
$19.6 million. There was no change in the valuation allowance in the
three months ended January 31, l994. The valuation allowance will be
allocated to reduce the difference in basis of assets acquired when
realization of the tax benefit occurs.
Included in the Harcourt General Insurance Companies' assets and
liabilities are net deferred tax liabilities of approximately $19.8
million. Gross deferred tax assets of $5.0 million are offset by gross
deferred tax liabilities of $24.8 million. The deferred income tax
assets arise primarily from accrued liabilities and reserves. The
deferred income tax liabilities consist of amortization on deferred
policy acquisition costs and in force insurance acquired.
<PAGE> 7
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended January 31, 1994 versus Three Months Ended
January 31, 1993
<TABLE>
The following table illustrates revenues and operating earnings by business
segment for the three months ended January 31.
<CAPTION>
<S> <C> <C>
(In thousands) 1994 1993
Revenues:
Publishing $160,993 $159,091
Specialty retailing 507,634 479,003
Insurance 128,486 138,029
Professional services 35,124 30,717
Total revenues $832,237 $806,840
Operating earnings (loss):
Publishing ($ 7,403) ($ 11,962)
Specialty retailing 37,041 35,144
Insurance 21,935 17,494
Professional services 6,173 5,066
Corporate expenses (9,377) (8,414)
Total operating earnings $ 48,369 $ 37,328
</TABLE>
Publishing
Publishing revenues increased 1.2% compared to the same period last year. This
increase was primarily due to an increase in the scientific, technical and
medical business which benefited from higher domestic and foreign sales,
partially offset by lower revenues from the professional publishing business.
Publishing operating loss decreased by $4.6 million compared to the same
period last year. The operating loss was reduced because of lower
prepublication costs and lower marketing expenses at Harcourt Brace School,
partially offset by lower operating earnings in the scientific, technical
and medical business due to increased operating expenses.
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter so that
the operating results of The Neiman Marcus Group, Inc. (NMG) for the quarter
ended October 30, 1993, were consolidated with the operating results of the
Company for the quarter ended January 31, 1994. Revenues in the thirteen
weeks ended October 30, 1993 increased 6.0% over revenues in the thirteen
weeks ended October 31, 1992. Higher revenues at Neiman Marcus and Bergdorf
Goodman were partially offset by lower revenues at Contempo Casuals. The
number of stores was substantially unchanged in the current period.
The 5.4% increase in operating earnings was attributable to higher revenues
and finance charge income which were partially offset by an increase in costs
of goods sold and volume-related selling costs.
<PAGE> 8
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Insurance
Insurance revenues decreased 6.9% compared to the same period last year. The
decrease in revenues was primarily related to the absence of major medical
premium revenue due to the sale of that block of business in April of 1993.
Insurance operating earnings increased 25.4% compared to the same period last
year. Operating earnings increased due to $2.2 million of additional capital
gains, favorable claims experience in the farm and rural accident and health
line of business and increased spreads on annuity contracts in force due to
the decline in interest rates.
Professional services
Professional services revenues increased $4.4 million to $35.1 million in the
1994 first quarter from $30.7 million in the 1993 first quarter. The increase
reflects higher volume in group and executive outplacement programs.
Professional services operating earnings increased 21.9% compared to the same
period in the prior year. This increase is attributable to higher revenues
which more than offset the increase in payroll and benefit costs needed to
support the higher volume.
Corporate Expenses
Corporate expenses increased $963,000 compared to the same period last year.
This increase was primarily due to higher professional fees.
Interest Expense
Interest expense remained relatively unchanged from the same period last year.
Higher interest expense at NMG was 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 expected to be 36% in fiscal 1994 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> 9
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
Cash used by continuing operating activities for the quarter ended January 31,
l994 was $6.1 million excluding adjustments for Harcourt General's insurance
operations. The publishing and professional services business segments
provided $91.7 million of cash from operating activities while NMG's
operating activities consumed $97.8 million of cash. The cash provided by
the Company's operations was sufficient to fund working capital, capital
expenditures and dividend requirements. NMG increased its borrowing in
order to fund working capital for the holiday season, capital expenditures
and dividend requirements.
Since October 31, l993, working capital increased $93.6 million. The most
significant items affecting working capital were increases in accounts
receivable of $9.2 million, inventories of $93.7 million and current
deferred income taxes of $55.0, which were partially offset by a $51.3
million increase in other current liabilities and a $23.5 million increase
in taxes payable. These changes in working capital were mainly due to
increased inventory requirements at NMG to accommodate the holiday season
and higher transaction volume. The higher accounts receivable balance was
attributable to a modification of credit terms offered to NMG's customers
and higher revenues at NMG, offset by lower accounts receivable balances
in the publishing business.
Cash flows used by investing activities excluding insurance operations were
$38.1 million. The Company's investing activities in the 1994 period
included capital expenditures totaling $38.5 million.
Publishing capital expenditures in the 1994 quarter totaled $26.1 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 $10.1
million and were primarily related to store renovation and expansion projects.
Capital expenditures for NMG in 1994 are expected to approximate $70.0
million and relate primarily to new store construction, store renovation and
a major expansion of the mail order facility.
<PAGE> 10
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
General (continued)
Financing activities primarily reflect additional borrowings of $116.2
million under NMG's revolving credit agreements, purchasing $18.9 million of
the remaining Harcourt Brace debt and paying $11.6 million of dividends. On
January 31, l994, the Company's consolidated long-term liabilities totaled
$1.2 billion. That amount includes $540.3 million of NMG long-term
liabilities, which is 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 January 31, l994.
NMG has uncommitted borrowing capacity totaling $70.0 million of which $15.0
million was outstanding at October 30, 1993 and committed borrowing capacity
totaling $400.0 million of which $333.4 million was outstanding at October
30, 1993.
Insurance
Cash used by insurance operations totalled $8.2 million in the first quarter
of fiscal 1994. This amount reflects realized capital gains of $7.3 million
and an increase in deferred policy acquisition costs of $3.7 million which
were partially offset by net increases in policyholder reserves and unearned
premiums. The insurance companies used $80.8 million in investing activities,
primarily to purchase fixed maturity securities. Cash generated from insurance
financing activities consisted of proceeds from policyholder deposits of
$75.9 million.
The Company recently announced that it is exploring various options related to
the potential sale of the insurance business, although no decision has been
made.
<PAGE> 11
PART II
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 January 31, 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: March 14, 1994 s/John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: March 14, 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 three months
ended January 31,
1994 1993
<S> <C> <C>
PRIMARY
1. Weighted average number of common
shares outstanding 77,603 76,327
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,861 2,873
3. Assumed exercise of certain stock
options based on average
market value 391 362
4. Weighted average number of shares
used in primary per share
computations 79,855 79,562
FULLY DILUTED (A)
1. Weighted average number of common
shares outstanding 77,603 76,327
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,861 2,873
3. Assumed exercise of all dilutive
options based on higher of
average or closing market value 398 417
4. Weighted average number of shares
used in fully diluted per share
computations 79,862 79,617
</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%.
