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 July 31, 1994
Commission File Number 1-4925
HARCOURT GENERAL, INC.
(Exact of name of registrant as specified in its charter)
Delaware 04-1619609
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) dentification 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 September 9, 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 55,978,375
Class B Stock, $1 Par Value 21,901,589
HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of
July 31, 1994 and October 31, 1993 1
Condensed Consolidated Statements of Operations for
the Nine and Three Months Ended July 31, 1994 and 1993 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended July 31, 1994 and 1993 3
Notes to Condensed Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 11.1 14
Exhibit 27.1 15
<PAGE> 1
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands) July 31, October 31,
1994 1993
Assets
Current assets
Cash and equivalents $ 328,482 $ 466,925
Accounts receivable - trade, net 624,975 493,384
Inventories 502,069 470,525
Deferred income taxes 75,022 20,016
Other current assets 50,925 53,095
Total current assets 1,581,473 1,503,945
Property and equipment, net 524,420 516,541
Other assets
Prepublication costs, net 159,144 137,959
Intangible assets 414,560 400,028
Other 111,414 111,601
Total other assets 685,118 649,588
Net assets of discontinued operations
Theatre - 135,804
Insurance 370,391 328,323
Total assets $3,161,402 $ 3,134,201
Liabilities and Shareholders' Equity
Current liabilities
Notes payable and current maturities of
long-term liabilities $ 133,201 $ 64,904
Accounts payable 243,325 283,693
Accrued liabilities 383,968 358,636
Taxes payable 51,007 35,322
Other current liabilities 85,067 49,331
Total current liabilities 896,568 791,886
Long-term liabilities
Notes and debentures 908,744 923,618
Other long-term liabilities 183,198 167,031
Total long-term liabilities 1,091,942 1,090,649
Deferred income taxes 174,749 200,088
Shareholders' equity
Preferred stock 1,461 1,996
Common stock 77,878 77,307
Paid-in capital 723,699 861,928
Cumulative translation adjustments (6,413) (5,524)
Retained earnings 201,518 115,871
Total shareholders' equity 998,143 1,051,578
Total liabilities and shareholders'
equity $3,161,402 $ 3,134,201
See Notes to condensed consolidated financial statements.
<PAGE> 2
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
(In thousands except for per share amounts) For the Nine Months For the Three Months
Ended July 31, Ended July 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $2,351,543 $2,346,605 $ 815,114 $885,775
Costs applicable to revenues 1,442,664 1,403,123 450,005 462,415
Selling, general and administrative
expenses 695,543 713,397 219,754 241,726
Corporate expenses 26,906 31,219 7,967 13,314
Restructuring of Contempo Casuals 48,401 - 48,401 -
Operating earnings 138,029 198,866 88,987 168,320
Investment income 11,033 10,587 3,393 3,032
Interest expense (64,119) (63,131) (21,254) (21,427)
Other income (expense) - 20,023 - (732)
Earnings from continuing operations
before income taxes 84,943 166,345 71,126 149,193
Income taxes 30,579 62,082 25,605 55,841
Earnings from continuing operations 54,364 104,263 45,521 93,352
Earnings from discontinued
operations, net 66,097 40,102 43,664 13,403
Net earnings $ 120,461 $ 144,365 $ 89,185 $106,755
Weighted average number of common
and common equivalent shares
outstanding 79,819 79,596 79,800 79,625
Earnings per common share
Earnings from continuing operations $ .68 $ 1.31 $ .57 $ 1.17
Earnings from discontinued
operations, net .83 .50 .55 .17
Net earnings $ 1.51 $ 1.81 $ 1.12 $ 1.34
Dividends per share:
Common Stock $ .45 $ .42 $ .15 $ .14
Class B Stock $ .405 $ .378 $ .135 $ .126
Series A Stock $ .5175 $ .4425 $ .1725 $ .1475
</TABLE>
See Notes to condensed financial statements.
<PAGE> 3
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands) For the Nine Months
Ended July 31,
1994 1993
<C> <S> <S>
Cash flows from operating activities
Net earnings from continuing operations $ 54,364 $104,263
Adjustments to reconcile net earnings to
net cash (used) provided by operating activities:
Other income - (20,755)
Deferred income taxes (45,345) -
Depreciation and amortization 123,458 124,630
Other items 11,463 15,337
Changes in assets and liabilities:
Accounts receivable (131,076) (249,694)
Inventories (30,926) (51,614)
Other current assets 2,207 (2,299)
Current liabilities 34,379 63,503
18,524 (16,629)
Discontinued insurance operating activities (45,630) 17,297
Discontinued theatre operating activities - 47,747
Net cash (used) provided by operating activities (27,106) 48,415
Cash flows from investing activities
Capital expenditures, net (137,481) (106,184)
Other items (24,946) (5,113)
(162,427) (111,297)
Discontinued insurance investing activities (262,711) (328,928)
Discontinued theatre investing activities - (11,739)
Net cash used by investing activities (425,138) (451,964)
Cash flows from financing activities
Proceeds from borrowing 73,300 71,500
Repayment of debt (19,769) (5,921)
Cash dividends paid (34,814) (32,417)
Equity transactions, net (2,286) 651
16,431 33,813
Discontinued insurance financing activities 297,370 316,775
Net cash provided by financing activities 313,801 350,588
Cash and equivalents
Decrease during the period (138,443) (52,961)
Beginning balance 466,925 430,728
Ending balance $328,482 $377,767
Supplemental schedule of non cash item:
Tax settlements in discontinued operations $ 35,000 $ -
</TABLE>
See Notes to condensed consolided financial statements.
<PAGE> 4
HARCOURT GENERAL, INC. AND SUBSIDIARIES
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 and restructuring charges, necessary for a
fair presentation of the results for the interim periods presented. The
July 31, 1994 condensed consolidated financial statements include the
April 30, 1994 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 operations
<TABLE>
<CAPTION>
Nine Months Ended July 31, Three Months Ended July 31,
(In thousands) 1994 1993 1994 1993
<C> <S> <S> <S> <S>
Insurance Operations $ 31,097 $ 30,361 $ 8,664 $ 8,790
Tax settlements 35,000 - 35,000 -
Theatre Operations - 9,741 - 4,613
Net earnings from
discontinued operations $ 66,097 $ 40,102 $ 43,664 $ 13,403
</TABLE>
Discontinued Insurance Operations -
Pursuant to a Stock Purchase Agreement dated as of June 30, 1994, the
Company has agreed to sell its insurance business to General Electric
Capital Corporation (GECC). At the closing, which is subject to the
approval of several state insurance regulatory authorities and other
conditions, the purchase price to be paid by GECC will be $400 million
in cash, plus interest at the annual rate of 7% for the period from
June 17, 1994 through the closing date. This transaction is expected
to close by the end of calendar 1994. The condensed consolidated
financial statements have been restated to reflect the insurance
business as a discontinued operation. Revenues applicable to the
discontinued insurance business were $111.1 million and $372.9 million
for the three and nine months ended July 31, 1994 and $122.7 million and
$402.0 million for the three and nine months ended July 31, 1993.
<PAGE> 5
<TABLE>
HARCOURT GENERAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Discontinued operations (continued)
<CAPTION>
Net assets of the discontinued insurance business consist of the following:
<C> <S> <S>
July 31, October 31,
1994 1993
Discontinued insurance assets
Fixed maturity securities, at amortized cost
(market value $2,994,963 and $2,915,850) $3,023,291 $2,665,378
Commercial paper 18,995 105,764
Other investments and cash 40,015 45,987
Premiums, accounts, and investment income
receivable 68,174 70,965
Deferred policy acquisition costs 171,549 155,534
Other insurance assets 126,185 127,320
Total discontinued insurance assets 3,448,209 3,170,948
Discontinued insurance liabilities
Policyholder reserves and deposits 2,731,843 2,450,023
Unearned premiums 165,637 175,937
Policy and contract claims 117,951 123,621
Other insurance liabilities 62,387 93,044
Total discontinued insurance liabilities 3,077,818 2,842,625
Net discontinued insurance assets $ 370,391 $ 328,323
</TABLE>
Tax Settlements -
During the quarter ended July 31, 1994, the Company recognized $35 million
of tax benefits for various federal and state tax settlements relating to
the Company's soft drink bottling business, which was sold in 1989.
Discontinued Theatre Operations -
On December 15, 1993, 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.
Revenues applicable to the discontinued theatre operations were $148.7
million and $380.1 million for the three and nine months ended July 31,
1993.
<PAGE> 6
HARCOURT GENERAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Restructuring of Contempo Casuals
In April 1994, NMG recorded a pre-tax charge of $48.4 million related to
NMG's decision to close forty under-performing Contempo Casuals retail
stores and all of the Pastille retail stores. Because NMG's financial
statements are consolidated with a lag of one quarter, this charge is
reflected in the Company's financial statements for the nine months ended
July 31, l994. This restructuring charge, which is reflected in accrued
liabilities, includes an estimate for lease termination costs, the
write-down of fixed assets, inventory liquidation costs, and other related
expenses.
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 determined that it will not be material to the
Company's continuing operations or financial position.
<PAGE> 7
<TABLE>
HARCOURT GENERAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
<CAPTION>
The following table illustrates revenues and operating earnings by business
segment.
Nine Months Ended July 31, Three Months Ended July 31,
(In thousands) 1994 1993 1994 1993
<C> <S> <S> <S> <S>
Revenues:
Publishing $ 614,783 $ 681,838 $308,965 $387,376
Specialty retailing 1,630,994 1,552,724 472,670 456,485
Professional services 105,766 112,043 33,479 41,914
Total revenues $2,351,543 $2,346,605 $815,114 $885,775
Operating earnings:
Publishing $ 84,412 $ 102,845 $114,409 $143,573
Specialty retailing 112,129 104,129 26,939 28,724
Restructuring of Contempo
Casuals (48,401) - (48,401) -
Professional services 16,795 23,112 4,007 9,338
Corporate expenses (26,906) (31,220) (7,967) (13,315)
Total operating earnings $ 138,029 $ 198,866 $ 88,987 $168,320
</TABLE>
Nine Months Ended July 31, 1994 Compared To Nine Months Ended July 31, 1993
Publishing
Publishing revenues in the nine months ended July 31, 1994 decreased 9.8%
compared with revenues in the nine months ended July 31, 1993. Significantly
lower revenues in the educational division were partially offset by increased
revenues in the scientific, technical and medical publishing business during
the 1994 period. In the 1993 period the educational division benefited from
strong sales of its newly released Treasury of Literature reading program.
The increase in 1994 revenues in the scientific, technical and medical
publishing businesses was primarily due to higher sales of scientific books
and journals both in the United States and internationally.
Publishing operating earnings declined 17.9% compared with the same period
last year. Lower operating earnings for the educational division were
partially offset by an increase in operating earnings for the scientific,
technical and medical publishing businesses. The 1994 decline in operating
earnings from the 1993 period for the educational division is primarily
attributable to the decrease in revenues. The increase in operating earnings
for the scientific, technical and medical publishing businesses from the same
1993 period represents higher sales of scientific books and journals.
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 nine months
ended April 30, 1994 are consolidated with the Company's operating results
for the nine months ended July 31, 1994. Revenues in the thirty-nine weeks
ended April 30, l994 increased 5.0% over revenues in the thirty-nine weeks
ended May 1, l993. Higher revenues at the Neiman Marcus and Bergdorf Goodman
divisions were partially offset by lower revenues at the Contempo Casuals
division. The number of stores was substantially unchanged in the current
period.
<PAGE> 8
HARCOURT GENERAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Speciality Retailing operating earnings decreased 38.8% when compared with
the same 1993 period due largely to a $48.4 million charge for restructuring
of the Contempo Casuals division. Operating earnings increases at the
Neiman Marcus and Bergdorf Goodman divisions, which were due to higher
revenues and finance charge income, were partially offset by an increase
in costs of goods sold and volume-related selling costs and a decline in
Contempo Casuals' operating results.
The $48.4 million pre-tax restructuring charge is the result of an evaluation
of the operating performance of the Contempo Casuals division. Based upon
this evaluation, NMG decided to close forty under-performing Contempo Casuals
retail stores and all of the Pastille retail stores. The restructuring
charge for Contempo Casuals and Pastille includes the following costs:
(In millions) Contempo Pastille Total
Lease termination costs $ 10.7 $ 10.0 $ 20.7
Write-down of fixed assets 6.2 6.6 12.8
Inventory liquidation costs 4.8 6.0 10.8
Other expenses 1.4 2.7 4.1
Total restructuring charge $ 23.1 $ 25.3 $ 48.4
NMG does not presently anticipate that there will be additional charges
related to this restructuring and does not contemplate any future
restructuring charges. Substantially all of the savings which are expected
to result from the restructuring are attributable to the elimination of the
losses generated by the closed stores. As of August 12, 1994, all of the
Contempo Casuals and Pastille stores provided for in the restructuring were
closed. The amount of fiscal 1994 losses attributable to the closed stores
was approximately $4.5 million for Contempo Casuals and approximately $7.5
million for Pastille. As of July 30, 1994, $7.0 million of cash payments
had been made for lease terminations; all final cash payments for lease
terminations are expected to occur by October 29, 1994. In addition, NMG
anticipates that there will be other cost savings due to streamlining of
foreign buying, product development and other business processes.
Professional Services
Professional services revenues decreased 5.6% compared with the same period
last year, with the majority of the decrease occurring in the third quarter
of 1994 compared to the third quarter of 1993. The decrease reflects lower
volume in the executive outplacement programs.
Professional services operating earnings decreased 27.3% compared with the
same 1993 period. This decrease is attributable to the lower sales volume;
operating costs in 1994 were at the same level as the 1993 period.
Corporate expenses
Corporate expenses decreased $4.3 million in the first nine months of 1994.
Corporate expenses in the 1993 period included higher employee benefit and
director related costs, as well as expenses associated with other
corporate activities.
<PAGE> 9
HARCOURT GENERAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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
"Accounting for Income Taxes" which 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.
Quarter Ended July 31, 1994 Compared to Quarter Ended July 31, 1993
Publishing
Publishing revenues declined 20.2% for the three months ended July 31, 1994
compared to the same period a year ago. Educational revenues decreased
significantly, while scientific, technical and medical publishing revenues
were up modestly. Lower sales of elementary and secondary textbooks in 1994
as compared to 1993, as well as delays in ordering from schools, contributed
to the decline in educational revenues, while increased subscription and
journal sales favorably affected 1994 scientific, technical and medical
publishing revenues.
Operating earnings decreased by 20.3% compared to the same quarter a year
ago. The decline was driven primarily by lower sales volume in the
educational business, offset slightly by higher scientific, technical and
medical operating earnings.
Specialty Retailing
Results of NMG are reported with a lag of one quarter, so that NMG's
operating results for its quarter ended April 30, 1994 are consolidated with
the Company's operating results for the quarter ended July 31, 1994. NMG's
revenues in the thirteen weeks ended April 30, 1994 increased 3.6% over
revenues in the thirteen weeks ended May 1, l993. Higher revenues at the
Neiman Marcus division and Bergdorf Goodman were partially offset by lower
revenues at the Contempo Casuals division.
<PAGE> 10
HARCOURT GENERAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating earnings decreased substantially when compared with the same 1993
period, attributable primarily to a $48.4 million restructuring charge at the
Contempo Casuals division. Operating earnings increases at the Neiman Marcus
and Bergdorf Goodman divisions, which were due to higher revenues and finance
charge income, were partially offset by an increase in costs of goods sold
and volume-related selling costs as well as a decline in the operating
performance at the Contempo Casuals division.
Professional Services
Professional services revenues decreased $8.4 million to $33.5 million in the
1994 third quarter from $41.9 million in the 1993 third quarter. The decrease
from an exceptionally strong 1993 quarter reflects lower volume in group
outplacement programs.
Professional services operating earnings decreased $5.3 million compared to
the same period in the prior year. This decrease is attributable to the
lower sales volume.
Corporate Expenses
The higher corporate expenses in the 1993 quarter were primarily attributable
to higher employee benefit and director related costs as well as expenses
associated with other corporate activities.
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
condensed consolidated statements of cash flows. 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 nine months ended
July 31, 1994 was $18.5 million excluding adjustments for the Company's
discontinued insurance operations. The cash provided by the Company's
operations was used to fund capital expenditures and dividend requirements.
Since October 31, l993, working capital decreased $27.2 million. The most
significant items affecting working capital were increases in accounts
receivable of $131.1 million and inventories of $30.9 million and decreases
in accounts payable of $40.4 million, which were partially offset by a $25.3
million increase in accrued liabilities, a $15.7 million increase in taxes
payable and a $35.7 million increase in other current liabilities.
<PAGE> 11
HARCOURT GENERAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cash flows used by investing activities excluding discontinued insurance
operations were $162.4 million for the nine months ended July 31, 1994.
The Company's investing activities in the 1994 period included capital
expenditures totaling $137.5 million. Publishing capital expenditures in the
1994 nine month period totaled $87.7 million and were related principally to
expenditures for prepublication costs. Specialty retailing capital
expenditures in the 1994 period totaled $45.6 million and were primarily
related to store renovation and expansion of the mail order facility.
Capital expenditures in the publishing business are expected to approximate
$130.0 million in fiscal 1994. Capital expenditures for NMG in fiscal 1994
are expected to approximate $65.0 million. Other investing activities in
1994 include goodwill purchased in publishing acquisitions.
The Company has agreed to sell its insurance businesses to General Electric
Capital Corporation for the sum of $400 million in cash, plus accrued
interest at the annual rate of 7% for the period from June 17, 1994 through
the closing date. This transaction is expected to close prior to the end
of calendar 1994.
Financing activities primarily reflect additional borrowings of $73.3 million
under NMG's revolving credit agreements, the purchase of $18.9 million of the
remaining Harcourt Brace debt and the payment of $34.8 million in dividends.
At July 31, 1994, the Company's consolidated long-term liabilities totaled
$1.1 billion. That amount includes $436.9 million of NMG long-term
liabilities which are not guaranteed by the Company.
The Company has committed borrowing capacity of $400.0 million, none of which
was outstanding at July 31, 1994. At April 30, 1994, NMG had committed
borrowing capacity totaling $400.0 million of which $305.5 million was
outstanding at April 30, l994, and uncommitted borrowing capacity totaling
$65.0 million, none of which was outstanding at April 30, 1994.
The Company believes that cash generated from operations, cash on hand and
available debt capacity are sufficient to fund operating requirements,
capital expenditures and other investing activities for the foreseeable
future.
<PAGE> 12
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.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter
ended July 31, 1994.
<PAGE> 13
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: September 12, 1994 s/John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: September 12, 1994 s/Stephen C. Richards
Stephen C. Richards
Vice President and Controller
Principal Accounting Officer
