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 October 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 (IRS Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, Massachusetts 02167
(Address of principal executive offices) (Zip Code)
Registrant's telephone number and area code: 617-232-8200
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
Common Stock, $1.00 par value
Series A Cumulative Convertible New York Stock Exchange
Stock, $1.00 par value
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 requirements 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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]<PAGE>
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The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $1,878,455,759 on January 20, 1995.
There were 56,604,465 shares of Common Stock, 21,316,581 shares of Class B
Stock and 1,449,875 shares of Series A Cumulative Convertible Stock
outstanding as of January 20, 1995.
______________________
Documents Incorporated by Reference
Portions of the Company's 1994 Annual Report to Stockholders are
incorporated by reference in Parts I, II and IV of this Report. Portions of
the Proxy Statement for the Annual Meeting of Stockholders to be held on
March 10, 1995 are incorporated by reference in Part III of this Report.
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HARCOURT GENERAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1994
TABLE OF CONTENTS
PART I Page No.
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of
Security Holders 7
PART II
Item 5. Market for the Registrant's Common Equity 7
and Related Stockholder Matters
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 8
PART III
Item 10. Directors and Executive Officers of the Registrant 8
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management 10
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 11
Signatures 13
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PART I
ITEM 1. BUSINESS
General
The principal businesses of Harcourt General, Inc., a Delaware
corporation formed in 1950 (the "Company"), are publishing and specialty
retailing. The Company also has significant operations in career transition
and human resources consulting. In December 1993, the Company completed the
spinoff of its motion picture exhibition business to the holders of the
Company's Common Stock and Class B Stock. In October 1994, the Company
completed the sale of its insurance business. See "Discontinued Operations"
below for additional information about the theatre and insurance operations.
A. Publishing
Harcourt Brace & Company ("Harcourt Brace") is among the world's largest
publishing houses, publishing books and scholarly journals for the educational,
scientific, technical, medical, professional and trade markets. Most of the
operations of Harcourt Brace are in the United States, but Harcourt Brace also
has international publishing operations in London, Tokyo, Sydney, Toronto and
Montreal, as well as an export business headquartered in Orlando, Florida.
Educational Publishing. The educational publishing group includes the
operations of Harcourt Brace School; Holt, Rinehart and Winston; Harcourt
Brace College and The Psychological Corporation. Harcourt Brace School
publishes textbooks and related instructional materials for the elementary
grades. Holt, Rinehart and Winston publishes instructional materials for
grades 7 through 12. Harcourt Brace College publishes books for the college
and university market under the Harcourt Brace, Saunders and Dryden Press
imprints. The Psychological Corporation provides aptitude, diagnostic,
achievement and performance tests and related products for educational,
psychological, clinical and professional assessment.
Scientific, Technical, Medical and Professional Publishing. The
scientific, technical, medical and professional publishing group includes the
operations of Academic Press, W.B. Saunders, Harcourt Brace Professional
Publishing and Harcourt Brace Legal and Professional Publishing. Academic
Press publishes scholarly books and journals in the life, physical and social
sciences, which are sold in the United States and abroad. W.B. Saunders
publishes books and periodicals in the health sciences, which are sold in the
United States and abroad. Harcourt Brace Professional Publishing publishes
reference guides and newsletters for certified public accountants and tax
professionals. Harcourt Brace Legal and Professional Publishing conducts
review courses for individuals preparing for bar examinations under the
BAR/BRI name, as well as review courses for CPA accreditation and graduate
school entrance examinations.
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Trade Publishing. The Harcourt Brace trade division publishes children's
books, general adult fiction and nonfiction hardcover books, and trade
paperbacks under the Harvest imprint.
Competition
Numerous companies compete in all of the markets in which the Harcourt
Brace businesses operate. The Company believes that the principal competitive
factors for its publishing operations are the quality of its publications and
customer service. The principal competitive factors in obtaining the
publishing rights which are the foundation for the quality of its
publications are the reputation of the Company and its financial resources,
editorial and marketing skills and distribution capabilities.
B. Specialty Retailing
The Company owns approximately 65% of the outstanding equity, on a fully-
converted basis, of The Neiman Marcus Group, Inc. ("NMG"), which operates
Neiman Marcus, Bergdorf Goodman and Contempo Casuals.
NMG is a separate public company which is listed on the New York Stock
Exchange and is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). On October 27, 1994,
NMG filed an Annual Report on Form 10-K with respect to its fiscal year
ended July 30, 1994. Following is a brief description of the businesses of
NMG. For further information with respect to NMG, reference may be made to
the NMG Annual Report on Form 10-K and to subsequent reports and other
information which may be filed by NMG from time to time with the Securities
and Exchange Commission (the "SEC").
Neiman Marcus
Neiman Marcus is a high fashion, specialty retailer which offers high
quality women's and men's apparel, fashion accessories, precious jewelry,
decorative home accessories, fine china, crystal, silver and epicurean
products. As of October 31, 1994, Neiman Marcus operated 27 stores in 24
cities. The average Neiman Marcus store size is 142,000 gross square feet
and the stores range in size from 90,000 gross square feet to 269,000 gross
square feet. Neiman Marcus plans to open a new store in Short Hills,
New Jersey, in calendar 1995 and new stores in King of Prussia, Pennsylvania,
and Paramus, New Jersey, in calendar 1996.
In addition, through NM Direct, Neiman Marcus operates a state-of-the-art
direct marketing business, including the catalogues of Neiman Marcus and
Horchow.
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Bergdorf Goodman
Bergdorf Goodman is a high fashion exclusive retailer of high quality
women's and men's apparel, fashion accessories, precious jewelry, decorative
home accessories, fine china, crystal and silver. It operates two leased
stores on Fifth Avenue and 58th Street in New York City. The original store,
consisting of 250,000 gross square feet, is dedicated to women's apparel and
accessories, home furnishings and gifts. Bergdorf Goodman Men, which opened
in August 1990, consists of 66,000 gross square feet and is dedicated to men's
apparel and accessories. Bergdorf Goodman also operates a significant direct
marketing business through NM Direct.
Contempo Casuals
Contempo Casuals, based in Los Angeles, operates a chain of retail stores
which sells contemporary fashion apparel and accessories primarily for young
women between the ages of 15 and 21 at moderate prices. Almost all apparel
sold in the Contempo Casuals stores carries the Contempo Casuals label.
In April 1994, NMG implemented a plan to restructure the Contempo Casuals
division (including its chain of retail stores operated under the name
Pastille) as a result of its continued poor operating performance. The
restructuring included the closing of 40 underperforming Contempo Casuals
stores, the closing of the Hong Kong buying office and the closing of the
Pastille chain of 39 stores in 15 states. In June 1994, the Pastille direct
marketing operations were consolidated with NM Direct.
The Contempo Casuals chain includes 246 stores in 33 states and Puerto
Rico with an average store size of approximately 4,000 gross square feet.
All of the stores are located in leased facilities, primarily in regional
shopping malls.
Competition
NMG's specialty store operations compete with numerous specialty retail
stores and department stores for customers and merchandise. The Company
believes that the principal competitive factors for specialty store operations
are customer service, quality of merchandise, merchandise assortment, store
ambience and price. The direct marketing operations of NM Direct compete with
numerous other retail and direct marketing operations for both customers and
merchandise. The Company believes that the principal competitive factors for
NM Direct's operations are customer service, price, merchandise quality and
assortment and catalogue presentation.
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C. Professional Services
The Company believes that Drake Beam Morin ("DBM") is the world's leading
organizational and individual transition consulting firm. DBM assists
organizations and individuals worldwide in outplacement, employee selection,
performance evaluation, career management and transition management. DBM has
expanded its services in recent years to include employee training and
consulting for organizations in the process of change. The Company believes
that the principal competitive factors for DBM are quality of service
(including its ability to promptly respond to clients' needs for services)
and price.
D. Discontinued Operations
Insurance
On October 31, 1994, the Company completed the sale of its insurance
operations to GNA Corporation, an affiliate of General Electric Capital
Corporation, for $410.4 million in cash, as specified in the Stock Purchase
Agreement. For additional information with respect to this transaction,
reference may be made to the Report on Form 8-K filed by the Company with
the SEC on November 14, 1994.
Motion Picture Exhibition
On December 15, 1993, the Company completed the spinoff of GC Companies,
Inc. ("GCC") to the holders of the Company's Common Stock and Class B Stock.
GCC is an independent public company which operates the "General Cinema
Theatres" motion picture exhibition business formerly operated by the Company,
and which is listed on the New York Stock Exchange and is subject to the
reporting requirements of the Exchange Act.
Following the spinoff, Harcourt General retained no ownership interest in
GCC. However, GCC and Harcourt General have entered into various agreements
which govern their ongoing relationship, including a Reimbursement and
Security Agreement and an Intercompany Services Agreement. See Note 2 of the
Notes to the Consolidated Financial Statements for further information
regarding such agreements.
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E. Certain Additional Information
1. Employees
Percentage of Employees
Number of Each Operating Unit
Number of of Part-Time Covered by Collective
Employees Employees Bargaining Agreements
Harcourt Brace 4,500 50 Less than 1%
The Neiman
Marcus Group 10,200 5,300 Less than 1%
Drake Beam Morin 610 10 None
Corporate 120 2 None
The figures in the above table are approximate as of October 31, 1994 and
exclude the employees of the insurance business. At October 31, 1994, DBM
also utilized the services of approximately 1,350 independent contractors and
adjunct employees. The Company believes that its relations with its employees
are generally good.
2. Capital Expenditures; Seasonality; Liquidity; Capital Resources
For a review of the Company's financial results for fiscal 1994,
including information on capital expenditures, seasonality, liquidity, capital
resources and other financial information, reference is made to pages 22
through 25 of the "Financial Review" section of the Company's Annual Report to
Stockholders for the fiscal year ended October 31, 1994 (the "1994 Annual
Report"), which information is incorporated herein.
3. Financial Information About Industry Segments
The information set forth under the heading "Additional Financial
Information" in Note 3 of the Notes to the Company's Consolidated Financial
Statements on page 33 of the 1994 Annual Report is incorporated herein.
ITEM 2. PROPERTIES
The Company's corporate headquarters, as well as the corporate
headquarters for The Neiman Marcus Group, Inc., are located in leased
facilities in Chestnut Hill, Massachusetts. The headquarters for Harcourt
Brace's publishing operations are located in a leased office in Orlando,
Florida. The headquarters for Drake Beam Morin are located in a leased
office in New York City.
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At October 31, 1994, the office, warehouse and other facilities owned or
leased by Harcourt Brace and its publishing affiliates were located in 29
states, the District of Columbia, Puerto Rico and five foreign countries.
NMG's operating divisions are headquartered in leased or owned facilities
in Dallas (Neiman Marcus), New York City (Bergdorf Goodman) and Los Angeles
(Contempo Casuals). At October 31, 1994, the approximate square footage used
in NMG's operations was as follows:
Owned
Subject to
Owned Ground Lease Leased Total
Stores .......... 347,000 1,170,300 3,610,800 5,128,100
Distribution centers
and office facilities... 627,000 --- 1,425,100 2,052,100
Leases for Neiman Marcus stores, including renewal options, range from
30 to 99 years. Leases for Contempo Casuals stores are generally for 10 to 15
years, with no renewal options. The lease on the Bergdorf Goodman main store
expires in 2050 and the lease on the Bergdorf Goodman Men's store expires in
2010, with two 10-year renewal options. Leases are generally at fixed
rentals, except that certain leases provide for additional rentals based on
sales in excess of predetermined levels. NMG also owns approximately 50 acres
of land and a 520,000 square foot facility in Las Colinas, Texas, where the
direct marketing operations of NM Direct are located. At the end of fiscal
1994, Neiman Marcus began construction on a new $20 million 400,000 square-foot
national service and distribution center in Longview, Texas to service Neiman
Marcus stores nationwide.
At October 31, 1994, Drake Beam Morin conducted its business from 80
leased offices in the United States and 86 offices in 26 countries around the
world.
For additional information about the properties of the Company, see Item
1 above and the information contained in Note 12 of the Notes to the Company's
Consolidated Financial Statements under the heading "Leases", which is
incorporated herein.
ITEM 3. LEGAL PROCEEDINGS
In previous reports, the Company has described certain class action cases
which are known as In re Harcourt Brace Jovanovich, Inc. Securities Litigation
and Nivram Corp. v. Harcourt Brace Jovanovich, Inc., et. al. The allegations
in these cases relate to actions involving the securities of Harcourt Brace
Jovanovich, Inc. that occurred prior to its acquisition by the Company in
1991. The parties have negotiated a tentative settlement of both of these
cases.
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Settlement documents have been finalized and class members will be given
the option to participate or not participate in the settlement, after which
the court will conduct a hearing to approve the settlement. The disposition of
these cases will not have a material adverse effect on the financial position
or continuing operations of the Company.
The Company is involved in various other suits and claims in the ordinary
course of business. The Company does not believe that the disposition of any
such suits or claims will have a material adverse effect on the financial
position or continuing operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following information contained in the 1994 Annual Report is
incorporated herein:
(i) the last paragraph of Note 6 of the Notes to the Company's
Consolidated Financial Statements on page 35 of the Annual
Report relating to restrictions on the Company's ability to
pay dividends;
(ii) "Dividends per share" in Note 14 of the Notes to the Company's
Consolidated Financial Statements on page 41 of the 1994 Annual
Report; and
(iii) "Stock Information" on page 45 of the 1994 Annual Report. In
addition to the information set forth therein with respect to
the Company's Common Stock and Series A Cumulative Convertible
Stock, the Company's Class B Stock is subject to significant
restrictions on transfer and is not listed or traded on any
exchange or in any market. As of January 20, 1995, there were
2,197 record holders of Class B Stock. For further information
with respect to the Class B Stock, including the ownership of
99.8% of the Class B Stock by the family of Richard A. Smith
(the Chairman of the Board of Directors of the Company),
reference is made to the information contained in the Company's
Proxy Statement for the 1995 Annual Meeting of Stockholders
under the heading "Stock Ownership of Certain Beneficial
Owners and Management."
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ITEM 6. SELECTED FINANCIAL DATA
The response to this Item is contained in the 1994 Annual Report under
the caption "Five Year Summary" on page 43 and is incorporated herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The response to this Item is contained in the 1994 Annual Report under
the caption "Financial Review" on pages 22 through 25 and is incorporated
herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary data set forth in
Item 14 are incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors
The response to this Item regarding the directors of the Company and
compliance with Section 16(a) of the Securities Exchange Act of 1934 by the
Company's officers and directors is contained in the Proxy Statement for the
1995 Annual Meeting of Stockholders under the captions "Election of Directors"
and "Section 16 Reports" and is incorporated herein.
B. Executive Officers
Below is the name, age and principal occupations for the last five years
of each current executive officer of the Company. All such persons have been
elected to serve until the next annual election of officers and their
successors are elected or until their earlier resignation or removal.
Richard A. Smith - 70
Chairman of the Board of Directors of the Company and of The Neiman
Marcus Group, Inc.; Chief Executive Officer of the Company and of The
Neiman Marcus Group, Inc. until December 1991; Chairman of the Board,
President and Chief Executive Officer of GC Companies, Inc. since December
1993. Mr. Smith is the father of Robert A. Smith, a director and
officer of the Company, and the father-in-law of Brian J. Knez, an officer
of the Company.
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Robert J. Tarr, Jr. - 51
President, Chief Executive Officer (since December 1991), Chief Operating
Officer and Director of the Company and of The Neiman Marcus Group, Inc.;
Director of GC Companies, Inc.
John R. Cook - 53
Senior Vice President and Chief Financial Officer of the Company and of
The Neiman Marcus Group, Inc. since September 1992; Senior Vice President
- Finance and Administration and Chief Financial Officer of NACCO
Industries prior thereto.
Eric P. Geller - 47
Senior Vice President and General Counsel of the Company and of The
Neiman Marcus Group, Inc. since May 1992; Vice President and Associate
General Counsel of the Company and of The Neiman Marcus Group, Inc. prior
thereto; Secretary of the Company since December 1991 and of The Neiman
Marcus Group, Inc. since January 1992.
Paul F. Gibbons - 43
Vice President and Treasurer of the Company and of The Neiman Marcus
Group, Inc. since August 1992; Vice President and Treasurer of GC
Companies, Inc. since March 1994; Vice President - Taxation of the Company
and of The Neiman Marcus Group, Inc. prior to August 1992.
Gerald T. Hughes - 38
Vice President-Human Resources of the Company since June 1994; Associate
General Counsel of the Company and The Neiman Marcus Group, Inc. with
responsibility for labor and employment matters from August 1992 to
June 1994; Labor Counsel of the Company and The Neiman Marcus Group,
Inc. prior thereto.
Brian J. Knez - 37
Vice President of the Company since November 1991 and President of the
Scientific, Technical, Medical and Professional Group of Harcourt Brace
since 1993; Group Vice President of the Scientific, Technical and Medical
Group of Harcourt Brace from 1991 to 1993; Assistant to the President of
the Company from 1989 to November 1991. Mr. Knez is the son-in-law of
Richard A. Smith, Chairman of the Board of Directors of the Company, and
the brother-in-law of Robert A. Smith, a director and officer of the
Company.
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Stephen C. Richards - 39
Vice President and Controller of the Company and of The Neiman Marcus
Group, Inc. since June 1993; Vice President and Controller of GC
Companies, Inc. since January 1994; Partner, Deloitte & Touche, from
June 1990 to May 1993; Senior Manager, Deloitte & Touche, prior thereto.
Craig B. Sawin - 38
Vice President - Planning and Analysis of the Company and of The Neiman
Marcus Group, Inc. since 1990; Director of Planning and Analysis and
Director of Administration of the Company and The Neiman Marcus Group,
Inc. prior thereto.
Robert A. Smith - 35
Group Vice President of the Company since December 1991 and of The Neiman
Marcus Group, Inc. since January 1992; Director of the Company since 1989;
Vice President - Corporate Development of the Company from December 1988 to
December 1991. Mr. Smith is the son of Richard A. Smith, Chairman of the
Board of Directors of the Company, and the brother-in-law of Brian J.
Knez, an officer of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Proxy Statement for the
1995 Annual Meeting of Stockholders under the captions "Directors'
Compensation", "Executive Compensation" and "Transactions Involving Management"
and is incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The response to this Item is contained in the Proxy Statement for the
1995 Annual Meeting of Stockholders under the caption "Stock Ownership of
Certain Beneficial Owners and Management" and is incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is contained in the Proxy Statement for the
1995 Annual Meeting of Stockholders under the captions "Executive Compensation"
and "Transactions Involving Management" and is incorporated herein.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(a)(1) Financial Statements
The documents listed below are incorporated herein by reference to
the Company's 1994 Annual Report to Shareholders and are incorporated
herein by reference to Item 8 hereof:
Consolidated Balance Sheets - October 31, 1994 and 1993.
Consolidated Statements of Earnings for the fiscal years
ended October 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the fiscal years
ended October 31, 1994 , 1993 and 1992.
Consolidated Statements of Shareholders' Equity for the fiscal
years ended October 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
14(a)(2) Consolidated Financial Statement Schedules
The document and schedule listed below are filed as part of this
Form 10-K:
Page In
Form 10-K
Independent Auditors' Report on Consolidated
Financial Statement Schedule F-1
Schedule VIII - Valuation and Qualifying Accounts
and Reserves F-2
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission have been omitted
because the information is disclosed in the Consolidated Financial Statements
or because such schedules are not required or are not applicable.
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14(a)(3) Exhibits
The exhibits filed as part of this Annual Report are listed in the Exhibit
Index immediately preceding the exhibits. The Company has identified with an
asterisk in the Exhibit Index each management contract and compensation plan
filed as an exhibit to this Form 10-K in response to Item 14(c) of Form 10-K.
14(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter ended
October 31, 1994. The Company filed a report on Form 8-K on November 14, 1994
to report the sale of its insurance business.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HARCOURT GENERAL, INC.
By: s/ Robert J. Tarr, Jr.
Robert J. Tarr, Jr., President,
Chief Executive Officer and
Chief Operating Officer
Dated: January 26, 1995
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
Registrant and in the following capacities and on the dates indicated.
Signature Title Date
Principal Executive
Officer:
s/Robert J. Tarr, Jr. President, Chief Executive January 12, 1995
Robert J. Tarr, Jr. Officer, Chief Operating
Officer and Director
Principal Financial
Officer:
s/John R. Cook Senior Vice President and January 13,1995
John R. Cook Chief Financial Officer
Principal Accounting
Officer:
s/Stephen C. Richards Vice President and January 13, 1995
Stephen C. Richards Controller
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Directors:
s/William F. Connell January 17, 1995
William F. Connell
s/Jack M. Greenberg January 17, 1995
Jack M. Greenberg
s/Herbert W. Jarvis January 26, 1995
Herbert W. Jarvis
s/Lynn Morley Martin January 16, 1995
Lynn Morley Martin
s/Maurice Segall January 10, 1995
Maurice Segall
s/Richard A. Smith January 16, 1995
Richard A. Smith
s/Robert A. Smith January 10, 1995
Robert A. Smith
s/Paula Stern January 9, 1995
Paula Stern
s/Sidney Stoneman January 7, 1995
Sidney Stoneman
s/Hugo Uyterhoeven January 13, 199
Hugo Uyterhoeven
s/Clifton R. Wharton, Jr. January 17, 1995
Clifton R. Wharton, Jr.
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Harcourt General, Inc.
Chestnut Hill, Massachusetts
We have audited the consolidated financial statements of Harcourt General,
Inc. and its subsidiaries (the "Company") as of October 31, 1994 and 1993
and for each of the three years in the period ended October 31, 1994, and
have issued our report thereon dated December 5, 1994. Such consolidated
financial statements and report are included in the Company's 1994 Annual
Report to Shareholders and are incorporated herein by reference. Our audits
also included the consolidated financial statement schedule of Harcourt
General, Inc. and its subsidiaries, listed in Item 14(a)(2). The
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 5, 1994
F-1
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HARCOURT GENERAL, INC. AND SUBSIDIARIES.
SCHEDULE
VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED OCTOBER 31, 1994
(In thousands)
<CAPTION> COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
_________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1994
Allowance for doubtful accounts $20,363 32,247 - 26,171(B) $26,439
(deducted from accounts receivable)
Allowance for book returns (A) $49,730 79,097 - 79,736(C) $49,091
(deducted from accounts receivable)
YEAR ENDED OCTOBER 31, 1993
Allowance for doubtful accounts $12,781 23,616 - 16,034(B) $20,363
(deducted from accounts receivable)
Allowance for book returns (A) $45,576 79,345 - 75,191(C) $49,730
(deducted from accounts receivable)
YEAR ENDED OCTOBER 31, 1992
Allowance for doubtful accounts $12,062 16,612 - 15,893(B) $12,781
(deducted from accounts receivable)
Allowance for book returns (A) $42,880 69,912 - 67,216(C) $45,576
(deducted from accounts receivable)
(A) Reflects gross allowance netted against accounts receivable. Reserves for returns to
inventory and recovery of royalties payable are netted directly against those balances
and are not material.
(B) Write-off of uncollectible accounts net of recoveries.
(C) Book actually returned during the year.
</TABLE>
F-2
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EXHIBIT INDEX
Page
No.
3.1 Restated Certificate of Incorporation of the Company,
as amended, incorporated herein by reference to
Exhibit 3.1 to the Company's Annual Report on form
10-K for the fiscal year ended October 31, 1993.
3.2 By-Laws of the Company, as amended, incorporated herein
by reference to Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1991.
4.1 Indenture, dated as of May 1, 1987, between the Company
and Manufacturers Hanover Trust Company, as Trustee and
(a) Terms Agreement, dated June 23, 1987, among the
Company, The First Boston Corporation and Salomon Brothers
Inc. relating to the Company's 9 3/8% Subordinated Notes
due 1997, incorporated herein by reference to Exhibit 4.3
to the Company's Report on Form 8-K, dated June 23, 1987,
and to Exhibit 4.3 to the Company's Registration Statement
on Form S-3, File No. 33-13936, and (b) Terms Agreement,
dated March 16, 1988, among the Company, The First Boston
Corporation and Salomon Brothers Inc relating to the
Company's 9 1/2% Subordinated Notes due 2000, incorporated
herein by reference to Exhibit 1 to the Company's Report
on Form 8-K, dated March 16, 1988.
4.2 Indenture, dated as of April 23, 1992, between the Company
and Bankers Trust Company, as Trustee, relating to the
8 1/4% Senior Notes Due 2002 and the 8 7/8% Senior
Debentures Due 2022, incorporated herein by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-3, File No. 33-46148.
4.3 Smith-Lurie/Marks Stockholders' Agreement, dated December
29, 1986, as supplemented January 8, 1988, December 5,
1988, April 29, 1989 and December 5, 1990, incorporated
herein by reference to Exhibit 4.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31,
1992.
<PAGE>
<PAGE>
*10.1 Executive Incentive Bonus Plan, as amended, incorporated
herein by reference to Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31,
1986.
*10.2 1981 Stock Option Plan, as amended and restated, incorpor-
ated herein by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1987.
*10.3 1988 Stock Incentive Plan, incorporated herein by reference
to Exhibit 28.1 to the Company's Registration Statement on
Form S-8, File No. 33-26079.
*10.4(a) 1975 Key Executive Stock Purchase Loan Plan, as amended,
incorporated herein by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1982.
*10.4(b) 1983 Key Executive Stock Purchase Loan Plan, as amended,
incorporated herein by reference to Exhibit 10.4(b) to
the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1984.
*10.5 Executive Medical Plan, as amended.
*10.6(a) Supplemental Executive Retirement Plan, incorporated herein
by reference to Exhibit 10.9 to the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1988.
*10.6(b) Amendment to Supplemental Executive Retirement Plan, dated
October 26, 1990, incorporated herein by reference to
Exhibit 10.7(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1990.
*10.7 Deferred Compensation and Retirement Income Plan for Non-
Employee Directors, incorporated herein by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1993.
*10.8 Deferred Compensation Agreement between the Company and
Herbert W. Jarvis, a director, incorporated herein by
2
<PAGE>
reference to Exhibit 10.12(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1981.
*10.9 Amended and Restated Deferred Compensation Agreement,
dated August 27, 1990, between the Company and Richard
A. Smith, incorporated herein by reference to Exhibit
10.13 the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1990.
10.10 Intercompany Services Agreement, dated as of July 24,
1987, between the Company and NMG, incorporated herein
by reference to Exhibit 10.17(c) to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31,
1987.
10.11 Intercompany Services Agreement, dated as of December 14,
1993, between the Company and GC Companies, Inc.,
incorporated herein by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1993.
10.12 Reimbursement and Security Agreement, dated as of December
14, 1993, between the Company and GC Companies, Inc.,
incorporated herein by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1993.
*10.13 Split Dollar Life Insurance Agreement, dated as of June
21, 1990, by and between the Company and the Richard and
Susan Smith 1990 Issue Trust, under a Declaration of Trust
dated as of April 3, 1990, incorporated herein by reference
to Exhibit 10.17 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1991.
*10.14 Key Employee Deferred Compensation Plan, as amended.
*10.15(a) Employment Agreement, dated as of November 15, 1991, by
and between the Company and Robert J. Tarr, Jr.,
incorporated herein by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1991.
3
<PAGE>
*10.15(b) Supplemental Agreement, dated as of December 17, 1992,
by and between the Company and Robert J. Tarr, Jr.,
incorporated herein by reference to Exhibit 10.16(b)
to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1992.
10.16 Stock Purchase Agreement, dated as of June 30, 1994,
among the Company, Harcourt Brace & Company, Harcourt
General Insurance, Inc. and General Electric Capital
Corporation, incorporated herein by reference to
Exhibit 10.0 to the Company's Current Report on Form
8-K dated November 14, 1994.
11.1 Computation of Average Number of Shares Outstanding Used
In Determining Primary and Fully Diluted Earnings Per
Share.
13.1 1994 Annual Report to Stockholders (which is not deemed
to be filed except to the extent that portions thereof
are expressly incorporated by reference in this Annual
Report on Form 10-K).
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
__________________________
* Exhibits filed pursuant to Item 14(c) of Form 10-K.
4
HARCOURT GENERAL, INC. EXECUTIVE MEDICAL PLAN
(Amended and Restated Effective as of December 15, 1994)
I. This Plan amends and restates and renames the General
Cinema Corporation Executive Medical Plan as the "Harcourt
General, Inc. Executive Medical Plan" (hereinafter the "Plan"),
effective December 15, 1994. This written Plan document is
intended to comply with all relevant provisions of the Code and
ERISA and is to be interpreted in a manner consistent with the
requirements of such laws including, but not limited to, Sections
601 through 609 of ERISA and Section 4980B of the Code. The Plan
shall consist of this document and the Insurance Contract. The
provisions of the Insurance Contract are incorporated by
reference into this Plan document.
II. Until this Plan is limited or terminated, the insurance
carrier issuing the Insurance Contract shall reimburse all
Medical Expenses not otherwise covered by any other medical
reimbursement, health, accident or other similar plan,
arrangement or program ("Uninsured Medical Expenses") which are
incurred by or for the benefit of Participants, their Dependent
Children, or their spouses (other than spouses of Participants
described in paragraph III(c) below), but such reimbursement of
Uninsured Medical Expenses shall be subject to the following
limitations in addition to the limitations and other terms and
-1-
conditions of the Insurance Contract, which is incorporated by
reference:
(a) The total amount payable to any Participant under this
Plan shall not exceed $100,000 with respect to the
aggregate Uninsured Medical Expenses incurred during
any one calendar year by the family unit consisting of
each such Participant, his or her spouse and Dependent
Children; and of such $100,000 no more than $12,500
shall be allocable, directly or indirectly, to expenses
incurred for psychological care or treatment. However,
in respect to Uninsured Medical Expenses incurred for
psychological care or treatment, the first $2,000 of
such expenses shall be reimbursed in full and,
thereafter, reimbursement shall be limited to one-half
of the remainder of such Expenses up to the maximum of
$12,500.
(b) The amount payable to any Participant under this Plan
shall be reduced to the extent reimbursement is
provided for or to such Participant in respect of
Medical Expenses incurred during the same calendar year
by any other medical reimbursement, health, accident or
other similar plan, arrangement or program. In the
event there is such a plan in effect providing for such
reimbursement in whole or in part, then to the extent
of the coverage under such other plan this Plan shall
be relieved of any liability hereunder.
Liability for providing benefits under the Plan and the
Insurance Contract shall be solely that of the insurer issuing
the Insurance Contract. Harcourt General, Inc. shall have no
liability for any benefits due, or alleged to be due, under the
Insurance Contract or the Plan.
III. As used in this Plan "Participants" shall mean all (a)
full-time employees who are officers of Harcourt General, Inc.
and such full-time key employees of Harcourt General, Inc. or of
any of its subsidiaries as may, during the period of their
employment, be designated as Participants by the Compensation
-2-
Committee of the Board of Directors of Harcourt General, Inc.
(formerly General Cinema Corporation), (b) former employees who
have been Participants in this Plan or the General Cinema Florida
Executive Medical Plan dated May 1, 1977, and who have met the
requirements for normal, late or early retirement under the
Harcourt General, Inc. Retirement Plan (formerly the General
Cinema Corporation Retirement Plan), but excluding any employee
whose employment has been terminated for cause, and (c) the
surviving spouses of the persons specified in clauses (a) and (b)
of this paragraph, provided, that each Participant in the
categories specified in clauses (b) and (c) of this paragraph
shall pay to Harcourt General, Inc. promptly after being billed
an amount which, for the Plan Year ended October 31, 1986, was
$165.20 per month and which, for each succeeding Plan Year, shall
be that amount per month equal to the product obtained by
multiplying $165.20 by a fraction whose numerator shall be the
national consumer price index (for All Urban Consumers, i.e. the
"CPI-U") published in the September preceding such Plan Year and
whose denominator shall be 324.5 (which was the CPI-U published
in September, 1985); and provided, further, that each Participant
and his or her dependents be covered to the maximum extent
available by the Harcourt General, Inc. Benefit Program, Medicare
Part B, or any medical reimbursement, health, accident or other
similar plan offered by an employer (other than Harcourt General,
Inc. or any of its subsidiaries) of such Participant or
dependent.
-3-
During temporary leaves of absence from service for sickness
or disability, or during leaves of absence provided for in the
Family and Medical Leave Act of 1993, no person described in
clause (a) of paragraph III hereof shall be deemed to have lost
participant status unless such person terminates his or her
service as an employee (otherwise than under the conditions set
forth in clause (b) of the immediately preceding paragraph) or is
otherwise severed from service as an employee, so that, in either
case, he or she is no longer in the employ of Harcourt General,
Inc. or any of its subsidiaries.
For purposes of this paragraph III, GC Companies, Inc. and
its subsidiaries shall no longer be considered subsidiaries of
Harcourt General, Inc., effective December 15, 1993. In
addition, each Participant who (1) is employed by GC Companies,
Inc. or any of its subsidiaries on December 15, 1993, (2)
previously retired from GC Companies, Inc. or any of its
subsidiaries or from the motion picture exhibition division of
Harcourt General, Inc., or (3) is the surviving spouse of a
Participant described in clause (1) or (2) shall cease to be a
Participant in this Plan on December 15, 1993 and shall
participate instead in the GC Companies, Inc. Executive Medical
Plan. All liabilities under this Plan to each such Participant
shall be assumed by GC Companies, Inc., except with respect to
Medical Expenses incurred before December 15, 1993 that are
covered by the Insurance Contract.
-4-
IV. As used in this Plan "Insurance Contract" shall mean
Harcourt General, Inc.'s contract with an insurance company under
which reimbursement for certain Uninsured Medical Expenses is
available to Participants, spouses and Dependent Children. The
Insurance Contract shall be of such kind as Harcourt General,
Inc., in its sole discretion, deems appropriate for the funding
of the Plan.
V. As used in this Plan "Medical Expenses" shall mean and
be limited to those paid for medical care as defined in Section
213(d) of the Internal Revenue Code of 1986, as the same may be
amended and in effect for the calendar year in which such Medical
Expenses are incurred.
VI. As used in this Plan "Dependent Children" shall mean
only those persons who would be deemed such under Section
152(a)(1) or (2) of the Internal Revenue Code of 1986, as the
same may be amended and in effect for the calendar year in which
Medical Expenses are incurred.
VII. As used in this Plan, "Plan Year" shall be the 12-
month period beginning on each November 1 and ending on the next
following October 31.
VIII. Any claim for benefits under the Plan shall be filed
in accordance with the provisions of the Insurance Contract and
-5-
such other claim procedures as may be established by the
Administrator from time to time. Notice of the decision on such
claim shall also be provided by the insurance company, Blue
Cross-Blue Shield organization, or health maintenance
organization issuing the Insurance Contract in accordance with
the provisions of such Insurance Contract and ERISA.
IX. Payment of amounts due pursuant to this Plan shall be
made by the insurance carrier upon receipt of evidence
satisfactory to the insurance carrier of the amount of Medical
Expenses incurred and the amount thereof not reimbursable by any
other medical reimbursement, health, accident or other similar
plan, arrangement or program. Upon the written direction of the
Participant, the insurance carrier may pay any or all of the
above-defined reimbursable expenses directly in lieu of making
reimbursement therefor.
X. The administration of the Plan shall be under the
supervision of the Administrator, which shall be the Employee
Benefits Committee of Harcourt General, Inc. It shall be a
principal duty of the Administrator to see that the Plan is
carried out, in accordance with its terms, for the exclusive
benefit of persons entitled to participate in the Plan without
discrimination among them. The Administrator will have full
power and discretion to administer the Plan in all of its
details, subject to applicable requirements of law. For this
-6-
purpose, the Administrator's discretionary powers will include,
but will not be limited to, the following discretionary
authority, in addition to all other powers provided by this Plan:
(a) To make and enforce such rules and regulations as it
deems necessary or proper for the efficient
administration of the Plan;
(b) To interpret the Plan;
(c) To decide all questions concerning the Plan and the
eligibility of any person to participate in the Plan;
(d) To compute the amount of benefits which will be payable
to any Participant or other person in accordance with
the provisions of the Plan, and to determine the person
or persons to whom such benefits will be paid;
(e) To authorize the payment of benefits;
(f) To appoint such agents, counsel, accountants,
consultants and other persons as may be required to
assist in administering the Plan; and
(g) To allocate and delegate its responsibilities under the
Plan and to designate other persons to carry out any of
its responsibilities under the Plan, any such
allocation, delegation or designation to be by written
instrument and in accordance with applicable
requirements of law.
Any determination by the Administrator shall be final and
conclusive on all persons, in the absence of clear and convincing
evidence that the Administrator acted arbitrarily and
capriciously.
XI. In administering the Plan, the Administrator will be
entitled to the extent permitted by law to rely conclusively on
all tables, valuations, certificates, opinions and reports which
-7-
are furnished by accountants, counsel or other experts employed
or engaged by the Administrator.
XII. Harcourt General, Inc. agrees to indemnify and to
defend to the fullest extent permitted by law any employee
serving as the Administrator or as a member of a committee
designated as Administrator (including any employee or former
employee who formerly served as Administrator or as a member of
such committee) against all liabilities, damages, costs and
expenses (including attorneys' fees and amounts paid in
settlement of any claims approved by Harcourt General, Inc.)
occasioned by any act or omission to act in connection with the
Plan, if such act or omission is in good faith.
XIII. Harcourt General, Inc. reserves the power at any time
or times to amend the provisions of the Plan to any extent and in
any manner that it may deem advisable, or to terminate the Plan,
by the vote of the Board of Directors of Harcourt General, Inc.
or by vote of its Compensation Committee, without the approval of
any other person; except that with respect to Participants
described in clauses (b) and (c) of paragraph III hereof, the
benefits available under this Plan shall not be reduced by any
such amendment to levels that are less favorable to such
Participants than those benefit levels in effect on their
respective dates of termination.
-8-
XIV. To the extent not preempted by ERISA or any other
federal statutes or regulations, this Agreement shall be governed
by, and construed in accordance with, the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Harcourt General, Inc. has caused this
amended and restated Plan to be executed in its name and on its
behalf by its duly authorized representative as of December 15,
1994.
HARCOURT GENERAL, INC.
By:________________________
Title:_____________________
-9-<PAGE>
HARCOURT GENERAL, INC.
KEY EMPLOYEE DEFERRED COMPENSATION PLAN
(Amended and Restated Effective March 15, 1993)
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . 1
1.1. Purpose of Plan . . . . . . . . . . . . . . . . . 1
1.2. Status of Plan . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . 1
2.1. "Account" . . . . . . . . . . . . . . . . . . . . 1
2.2. "Base Pay" . . . . . . . . . . . . . . . . . . . . 2
2.3. "Bonus" . . . . . . . . . . . . . . . . . . . . . 2
2.4. "Code" . . . . . . . . . . . . . . . . . . . . . . 2
2.5. "Committee" . . . . . . . . . . . . . . . . . . . 2
2.6. "Company" . . . . . . . . . . . . . . . . . . . . 2
2.7. "Compensation" . . . . . . . . . . . . . . . . . . 2
2.8. "Effective Date" . . . . . . . . . . . . . . . . . 3
2.9. "Elective Deferral" . . . . . . . . . . . . . . . 3
2.10. "Eligible Employee" . . . . . . . . . . . . . . . 3
2.11. "ERISA" . . . . . . . . . . . . . . . . . . . . . 3
2.12. "Financial Hardship" . . . . . . . . . . . . . . 4
2.13. "Matching Deferral" . . . . . . . . . . . . . . . 4
2.14. "Participant" . . . . . . . . . . . . . . . . . . 5
2.15. "Plan" . . . . . . . . . . . . . . . . . . . . . 5
2.16. "Plan Year" . . . . . . . . . . . . . . . . . . . 5
2.17. "Retirement" . . . . . . . . . . . . . . . . . . 5
2.18. "Savings Plan" . . . . . . . . . . . . . . . . . 5
2.19. "Year of Service" . . . . . . . . . . . . . . . . 5
ARTICLE 3. PARTICIPATION . . . . . . . . . . . . . . . . . . 5
3.1. Commencement of Participation . . . . . . . . . . 5
3.2. Continued Participation . . . . . . . . . . . . . 6
ARTICLE 4. ELECTIVE AND MATCHING DEFERRALS . . . . . . . . . 6
4.1. Elective Deferrals . . . . . . . . . . . . . . . . 6
4.2. Matching Deferrals . . . . . . . . . . . . . . . . 7
ARTICLE 5. ACCOUNTS; INTEREST . . . . . . . . . . . . . . . 8
5.1. Accounts . . . . . . . . . . . . . . . . . . . . . 8
5.2. Interest . . . . . . . . . . . . . . . . . . . . . 8
5.3. Payments . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 6. PAYMENTS . . . . . . . . . . . . . . . . . . . . 9
6.1. Time and Form of Payment . . . . . . . . . . . . . 9
6.2. Termination of Employment . . . . . . . . . . . . 10
6.3. Death . . . . . . . . . . . . . . . . . . . . . . 10
6.4. Reduction in Shareholders' Equity . . . . . . . . 11
6.5. Hardship . . . . . . . . . . . . . . . . . . . . . 11
6.6. Changes in Time and Form of Payment . . . . . . . 12
6.7. Payment Dates . . . . . . . . . . . . . . . . . . 12
6.8. Withholding . . . . . . . . . . . . . . . . . . . 12
6.9. Spinoff of GC Companies, Inc . . . . . . . . . . . 12
-i-
ARTICLE 7. COMMITTEE . . . . . . . . . . . . . . . . . . . . 13
7.1. Plan Administration and Interpretation . . . . . . 13
7.2. Powers, Duties, Procedures, Etc . . . . . . . . . 14
7.3. Information . . . . . . . . . . . . . . . . . . . 14
7.4. Indemnification of Committee . . . . . . . . . . . 15
ARTICLE 8. AMENDMENT AND TERMINATION . . . . . . . . . . . . 15
8.1. Amendments . . . . . . . . . . . . . . . . . . . . 15
8.2. Termination of Plan . . . . . . . . . . . . . . . 15
8.3. Existing Rights . . . . . . . . . . . . . . . . . 16
ARTICLE 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 16
9.1. No Funding . . . . . . . . . . . . . . . . . . . . 16
9.2. Nonassignability . . . . . . . . . . . . . . . . . 16
9.3. Limitation of Participants' Rights . . . . . . . . 17
9.4. Participants Bound . . . . . . . . . . . . . . . . 17
9.5. Receipt and Release . . . . . . . . . . . . . . . 17
9.6. Governing Law . . . . . . . . . . . . . . . . . . 18
9.7. Headings and Subheadings . . . . . . . . . . . . . 18
-ii-
HARCOURT GENERAL, INC.
KEY EMPLOYEE DEFERRED COMPENSATION PLAN
ARTICLE 1. INTRODUCTION
1.1. Purpose of Plan. The Company originally adopted the
General Cinema Corporation Key Employee Deferred Compensation
Plan, effective December 14, 1990, to provide a means by which
certain employees who are not eligible to participate in the
Savings Plan may elect to defer receipt of designated percentages
of their Compensation. The Company hereby amends and restates
the Plan to make certain clarifications and to rename the Plan,
coincident with the name change of the Company, the "Harcourt
General, Inc. Key Employee Deferred Compensation Plan."
1.2. Status of Plan. The Plan is intended to be "a plan
which is unfunded and is maintained by an employer primarily for
the purpose of providing deferred compensation for a select group
of management or highly compensated employees" within the meaning
of Sections 201(2) and 301(a)(3) of ERISA, and shall be
interpreted and administered to the extent possible in a manner
consistent with that intent.
ARTICLE 2. DEFINITIONS
Wherever used herein, the following terms have the meanings
set forth below, unless a different meaning is clearly required
by the context:
2.1. "Account" means, for each Participant, the account
established for his or her benefit under Section 5.1.
-1-
2.2. "Base Pay" means the base salary payable to an
employee by the Company and its subsidiaries, including amounts
that would have been payable to the employee as base salary but
for an election under Section 125 of the Code or a deferral
election under this Plan.
2.3. "Bonus" means any cash bonus payable to an employee by
the Company and its subsidiaries, including any portion of such a
bonus that would have been payable to the employee but for an
election under Section 125 of the Code or a deferral election
under this Plan. However, the term "Bonus" shall not include any
amount paid under or in connection with a stock appreciation
right or stock option plan or arrangement.
2.4. "Code" means the Internal Revenue Code of 1986, as
amended from time to time. Reference to any section or
subsection of the Code includes reference to any comparable or
succeeding provisions of any legislation which amends,
supplements or replaces such section or subsection.
2.5. "Committee" means the Harcourt General, Inc. Employee
Benefits Committee or any successor committee appointed by the
Board of Directors of Harcourt General, Inc. or its delegate.
2.6. "Company" means Harcourt General, Inc. (formerly
General Cinema Corporation), a Delaware corporation, and any
successor to all or substantially all of the Company's assets or
business which assumes the obligations of the Company.
2.7. "Compensation" means Base Pay and any Bonus payable to
an employee.
-2-
2.8. "Effective Date" means December 14, 1990.
2.9. "Elective Deferral" means the portion of Compensation
which is deferred by a Participant under Section 4.1.
2.10. "Eligible Employee" means each officer or employee of
the Company (or, until December 15, 1993, any subsidiary of the
Company that was directly or indirectly wholly owned by the
Company on the Effective Date) who, on the first day of any
month,
(a) has completed at least one Year of Service, or
such shorter period of service as may be specified by the
Chief Executive Officer of Harcourt General, Inc. in such
Officer's sole discretion; and
(b) had in effect on November 1 of the preceding
calendar year (or, if later, on the employee's date of hire)
an annual rate of Base Pay of at least $150,000 (over
$90,000 in the case of an employee who is an Eligible
Employee before January 1, 1994 under the terms of the Plan
in effect on March 14, 1993).
Notwithstanding the foregoing, no individual who was not already
an Eligible Employee on January 1, 1993 shall become an Eligible
Employee prior to July 1, 1993. An Eligible Employee shall
remain an Eligible Employee notwithstanding any reduction in his
or her annual rate of Base Pay below the applicable minimum under
(b) above.
2.11. "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time. Reference to any
-3-
section or subsection of ERISA includes reference to any
comparable or succeeding provisions of any legislation which
amends, supplements or replaces such section or subsection.
2.12. "Financial Hardship" means an immediate and heavy
financial need resulting from
(a) major medical expenses incurred to obtain, or
necessary to obtain, medical care (described in Section
213(d) of the Code) with respect to the Participant or his
or her spouse or dependent which are not covered by
insurance;
(b) costs directly related to the purchase of a
principal residence of the Participant (excluding mortgage
payments);
(c) the payment of tuition and related educational
fees for the next 12 months of post-secondary education for
the Participant or his or her spouse, children, or
dependents;
(d) payments necessary to prevent the eviction of the
Participant from his or her principal residence or
foreclosure on the mortgage of the Participant's principal
residence; or
(e) any other circumstance that is determined by the
Committee in its sole discretion to constitute a severe
hardship need.
2.13. "Matching Deferral" means a deferral made for the
benefit of a Participant under Section 4.2.
-4-
2.14. "Participant" means any individual who participates
in the Plan in accordance with Article 3.
2.15. "Plan" means the Harcourt General, Inc. Key Employee
Deferred Compensation Plan set forth herein and all subsequent
amendments hereto.
2.16. "Plan Year" means the calendar year.
2.17. "Retirement" means retirement in accordance with the
normal, late, or early retirement provisions of the Harcourt
General, Inc. Retirement Plan.
2.18. "Savings Plan" means the Harcourt General, Inc.
Employee Savings Plan, effective June 1, 1984, as amended from
time to time.
2.19. "Year of Service" means a twelve month period,
beginning on the date the employee first performs an hour of
service or on any January 1 thereafter, in which the employee is
credited with 1,000 or more hours of service. For this purpose,
an "hour of service" shall have the same meaning as under the
Savings Plan.
ARTICLE 3. PARTICIPATION
3.1. Commencement of Participation. Any individual who was
a Participant in the Plan on March 14, 1993 shall continue to be
a Participant under this restatement of the Plan, provided that
an amount remains credited to his or her Account on March 15,
1993. Any other Eligible Employee shall become a Participant on
-5-
the effective date of an election to defer Compensation in
accordance with Section 4.1.
3.2. Continued Participation. An individual who has become
a Participant in the Plan shall continue to be a Participant so
long as any amount remains credited to his or her Account.
ARTICLE 4. ELECTIVE AND MATCHING DEFERRALS
4.1. Elective Deferrals.
(a) An individual who is an Eligible Employee on any
January 1 may elect to defer a designated whole percentage,
not to exceed 15 percent, of all Base Pay that is payable to
the individual for services to be performed on or after that
date, and all Bonuses payable to the individual for Company
fiscal years ending after that date, by filing an election
with the Committee prior to that January 1. In addition, an
individual may elect before the date he or she becomes an
Eligible Employee, or within 30 days thereafter, to defer a
designated whole percentage, not to exceed 15 percent, of
all Base Pay that is payable to the individual for services
to be performed after such election (or, if later, after the
date he or she becomes an Eligible Employee), and all
Bonuses payable to the individual for Company fiscal years
ending thereafter.
(b) Each election under paragraph (a) shall be made in
writing on a form approved or prescribed by the Committee,
and shall specify the time and form of distribution of the
-6-
amounts deferred and of related Matching Deferrals as
provided in Section 6.1. The same deferral percentage shall
apply to each payment of Compensation covered by the
election, and the amount of each such payment that is
deferred hereunder shall be credited to the Participant's
Account as of the date such amount would otherwise have been
paid to the Participant.
(c) A Participant may revoke his or her deferral
election with respect to Base Pay earned on or after the
first day of any pay period, and with respect to Bonuses
payable for fiscal years ending on or after that day, by
giving written notice to the Committee before that day (or
by such earlier date as the Committee may prescribe).
However, except as otherwise provided in Section 6.5, a
Participant may otherwise modify an existing election, or
may make another deferral election, only as of a January 1,
and only with respect to Base Pay earned thereafter, and
Bonuses payable for fiscal years ending thereafter, in
accordance with paragraphs (a) and (b) above.
4.2. Matching Deferrals. As of the last day of each
calendar month, the Company shall credit to each Participant's
Account a Matching Deferral equal to the sum of (a) 100% of the
Participant's Elective Deferrals for the month which do not
exceed the first two percent of his or her Compensation payable
during the month and (b) 25% of the Participant's Elective
-7-
Deferrals for the month that do not exceed the next four percent
of his or her Compensation payable during the month.
ARTICLE 5. ACCOUNTS; INTEREST
5.1. Accounts. The Committee shall establish an Account
for each Participant reflecting Elective Deferrals and Matching
Deferrals for the Participant's benefit and any adjustments
hereunder. Within 45 days after the end of each calendar
quarter, the Committee shall provide the Participant with a
statement of his or her Account.
5.2. Interest. As of the last day of each calendar
quarter, the Committee shall credit each Participant's Account
with interest on the balance of such Account from time to time
during the calendar quarter at an annual rate equal to the
average prime interest rate published in the Eastern Edition of
The Wall Street Journal on the last business day of the calendar
quarter (or, if two or more such rates are published, the mean of
such rates), increased by two percentage points. In addition,
any payment under Article 6 which is not made on the first day of
a calendar quarter shall be increased by interest on the amount
of such payment, from the end of the preceding calendar quarter,
at the interest rate applicable for the preceding calendar
quarter.
5.3. Payments. Each Participant's Account shall be reduced
by the amount of any payment made to or on behalf of the
-8-
Participant under Article 6 (including any interest paid with
respect to such payment) as of the date such payment is made.
ARTICLE 6. PAYMENTS
6.1. Time and Form of Payment. When a Participant elects
to defer Compensation in accordance with Section 4.1, the
Participant shall also elect the time at which the Elective
Deferrals and related Matching Deferrals (including interest
attributable thereto) will be paid or begin to be paid to the
Participant, from among the following options:
(a) 5, 10, 15 or 20 years after the end of the Plan
Year in which the Compensation deferred would otherwise have
been paid;
(b) attainment of age 65; or
(c) retirement.
The Participant shall also elect the form of payment of such
amounts, from among the following options:
(i) a single lump sum payment; or
(ii) annual installments over a period elected by
the Participant up to 10 years, the amount of each
installment to equal the balance of his or her Account
immediately prior to the installment divided by the
number of installments remaining to be paid.
The foregoing elections shall be made on a form approved or
prescribed by the Committee. Each such election shall be
irrevocable with respect to amounts deferred while the election
-9-
remains in effect (and with respect to related Matching Deferrals
and interest), except as otherwise provided in Section 6.2, 6.3,
6.4, 6.5 or 6.6.
6.2. Termination of Employment. Upon termination of a
Participant's employment with the Company and its affiliates for
any reason other than death or Retirement, the Participant's
Account shall be paid to the Participant in a single lump sum
payment as soon as practicable following the date of such
termination.
6.3. Death. If a Participant dies prior to the complete
distribution of his or her Account, the balance of the Account
shall be paid as soon as practicable to the Participant's
designated beneficiary or beneficiaries, in the form elected by
the Participant from among the following options:
(a) a single lump sum payment; or
(b) subject to Section 6.4, annual installments over a
period elected by the Participant up to 10 years, the amount
of each installment to equal the balance of the Account
immediately prior to the installment divided by the number
of installments remaining to be paid.
Any designation of beneficiary and form of payment shall be made
by the Participant in writing on a form approved or prescribed by
the Committee, and may be changed by the Participant at any time.
If there is no such designation or no designated beneficiary
survives the Participant, payment shall be made to the
Participant's surviving spouse or, if none, to his or her issue
-10-
per stirpes, in a single lump sum payment. If no spouse or issue
survives the Participant, payment shall be made in a single lump
sum to the Participant's estate.
6.4. Reduction in Shareholders' Equity. If at any time the
shareholders' equity of the Company, as shown on the Company's
consolidated balance sheet reported in its then most recent
annual or quarterly report filed with the U.S. Securities and
Exchange Commission, falls below $500 million, each Participant's
Account shall be paid as soon as practicable to the Participant
(or, if the Participant has died, to his or her beneficiary) in a
single lump sum.
6.5. Hardship. If a Participant suffers a Financial
Hardship, the Committee, in its sole discretion, may pay to the
Participant that portion, if any, of his or her Account which the
Committee determines is necessary to satisfy the hardship need,
including any amounts necessary to pay any federal, state or
local income taxes reasonably anticipated to result from the
hardship payment, but only to the extent such need cannot
reasonably be relieved by the liquidation of the Participant's
assets (to the extent that such liquidation would not in itself
cause hardship) or by cessation of Elective Deferrals. A
Participant who has a Financial Hardship may also cease or reduce
future Elective Deferrals with the consent of the Committee. A
Participant requesting a distribution, or a cessation or
reduction of future Elective Deferrals, on account of a Financial
Hardship shall apply in writing in a letter submitted to the
-11-
Committee and shall provide such information as the Committee may
require.
6.6. Changes in Time and Form of Payment. The Committee
may, in its sole discretion, at the request of or with the
consent of the Participant, change the time at which any Elective
Deferral or Matching Deferral will be paid or begin to be paid to
the Participant under Section 6.1, or the form of such payment,
or both, provided that (a) no such change may be made less than
24 months prior to the date such Elective Deferral or Matching
Deferral would otherwise have been paid or commenced to be paid,
and (b) the form of payment shall be a form described in clause
(i) or (ii) of Section 6.1.
6.7. Payment Dates. Each payment under Section 6.1, 6.2,
6.3 or 6.6 shall be made on or about the first day of a calendar
quarter.
6.8. Withholding. Each payment otherwise due under the
Plan shall be reduced by withholding taxes and other legally
required deductions.
6.9. Spinoff of GC Companies, Inc. As of December 15,
1993, the date the common stock of GC Companies, Inc. is
distributed to the stockholders of the Company:
(a) any Eligible Employee who, immediately after such
distribution, is employed by GC Companies, Inc. or any of
its subsidiaries shall cease to be an Eligible Employee at
the time of such distribution;
-12-
(b) the Account of each Participant who is,
immediately after such distribution, employed by GC
Companies, Inc. or any of its subsidiaries, or who
previously ceased to be employed by GC Companies, Inc., any
of its subsidiaries, or the Company's motion picture
exhibition division and has not thereafter been employed by
the Company or any of its directly or indirectly wholly
owned subsidiaries, shall cease to be maintained under this
Plan, and an account with the same balance shall be
established under the GC Companies, Inc. Key Employee
Deferred Compensation Plan; and
(c) the Company shall have no further obligation under
this Plan with respect to such Accounts or Participants.
Notwithstanding any other provision of this Plan to the contrary,
neither the distribution of GC Companies, Inc. common stock to
stockholders of the Company nor the transfer of employment of any
Participant from the Company or any of its subsidiaries to GC
Companies, Inc. or any of its subsidiaries in connection with
such distribution shall be treated as a retirement or other
termination of employment that would entitle the Participant to
any benefit payments under this Plan.
ARTICLE 7. COMMITTEE
7.1. Plan Administration and Interpretation. The Committee
shall oversee the administration of the Plan. The Committee
shall have complete control and authority to determine the rights
-13-
and benefits and all claims, demands and actions arising out of
the provisions of the Plan of any Participant, beneficiary,
deceased Participant, or other person having or claiming to have
any interest under the Plan. The Committee shall have the
exclusive power to interpret the Plan and to decide all matters
under the Plan. Such interpretation and decision shall be final,
conclusive and binding on all Participants and any person
claiming under or through any Participant, in the absence of
clear and convincing evidence that the Committee acted
arbitrarily and capriciously. Any individual serving on the
Committee who is a Participant will not vote or act on any matter
relating solely to himself or herself. When making a
determination or calculation, the Committee shall be entitled to
rely on information furnished by a Participant, a beneficiary, or
the Company. The Committee shall be deemed to be the Plan
administrator with responsibility for complying with any
reporting and disclosure requirements of ERISA.
7.2. Powers, Duties, Procedures, Etc. The Committee shall
have such powers and duties, may adopt such rules and tables, may
act in accordance with such procedures, may appoint such officers
or agents, may delegate such powers and duties, may receive such
reimbursements and compensation, and shall follow such claims and
appeal procedures with respect to the Plan as are permitted or
required under the terms of the Savings Plan.
7.3. Information. To enable the Committee to perform its
functions, the Company shall supply full and timely information
-14-
to the Committee on all matters relating to the compensation of
Participants, their employment, retirement, death, termination of
employment, and such other pertinent facts as the Committee may
require.
7.4. Indemnification of Committee. The Company agrees to
indemnify and to defend to the fullest extent permitted by law
any officer or employee who serves as a member of the Committee
(including any such individual who formerly served as a member of
the Committee) against all liabilities, damages, costs and
expenses (including attorneys' fees and amounts paid in
settlement of any claims approved by the Company) occasioned by
any act or omission to act in connection with the Plan, if such
act or omission is in good faith.
ARTICLE 8. AMENDMENT AND TERMINATION
8.1. Amendments. The Company shall have the right to amend
this Plan from time to time, subject to Section 8.3, by an
instrument in writing which has been executed by its duly
authorized officer.
8.2. Termination of Plan. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be
deemed to constitute a contract between the Company and any
employee or a consideration for, or an inducement or condition of
employment for, the performance of services by any employee. The
Company reserves the right to terminate this Plan at any time,
-15-
subject to Section 8.3, by an instrument in writing which has
been executed by its duly authorized officer.
8.3. Existing Rights. No amendment or termination of the
Plan shall adversely affect the rights of any Participant with
respect to amounts credited to his or her Account that are
attributable to Elective Deferrals or Matching Deferrals credited
prior to the date of such amendment or termination.
ARTICLE 9. MISCELLANEOUS
9.1. No Funding. Nothing in this Plan will be construed to
create a trust or to obligate the Company or any other person to
segregate a fund, purchase an insurance contract, or in any other
way currently to fund the future payment of any benefits
hereunder, nor will anything herein be construed to give any
employee or any other person rights to any specific assets of the
Company or of any other person. Any benefits which become
payable hereunder shall be paid from the general assets of the
Company.
9.2. Nonassignability. None of the benefits, payments,
proceeds or claims of any Participant or beneficiary shall be
subject to any claim of any creditor and, in particular, the same
shall not be subject to attachment or garnishment or other legal
process by any creditor, nor shall any Participant or beneficiary
have any right to alienate, anticipate, commute, pledge, encumber
or assign any of the benefits or payments or proceeds which he
-16-
may expect to receive, contingently or otherwise, under this
Plan.
9.3. Limitation of Participants' Rights. Participation in
this Plan shall not give any Eligible Employee the right to be
retained in the employ of the Company or any right or interest in
the Plan other than as herein provided. The Company reserves the
right to dismiss any Eligible Employee without any liability for
any claim against the Company, except to the extent provided
herein.
9.4. Participants Bound. Any action with respect to this
Plan taken by the Committee or the Company or any action
authorized by or taken at the direction of the Committee or the
Company shall be conclusive upon all Participants and any other
persons who claim entitlement to benefits under the Plan.
9.5. Receipt and Release. Any payment to any Participant
or beneficiary in accordance with the provisions of this Plan
shall, to the extent thereof, be in full satisfaction of all
claims against the Company and the Committee under this Plan, and
the Committee may require such Participant or beneficiary, as a
condition precedent to such payment, to execute a receipt and
release to such effect. If any Participant or beneficiary is
determined by the Committee to be incompetent by reason of
physical or mental disability (including minority) to give a
valid receipt and release, the Committee may cause the payment or
-17-
payments becoming due to such person to be made to another person
for his or her benefit without responsibility on the part of the
Committee or the Company to follow the application of such funds.
9.6. Governing Law. This Plan shall be construed,
administered, and governed in all respects under and by the laws
of the Commonwealth of Massachusetts. If any provision shall be
held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to
be fully effective.
9.7. Headings and Subheadings. Headings and subheadings in
this Plan are inserted for convenience only and are not to be
considered in the construction of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed by its duly authorized officer this ______ day of
_______________, 1994.
HARCOURT GENERAL, INC.
By: ____________________________
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<TABLE>
EXHIBIT 11.1
HARCOURT GENERAL, INC. AND SUBSIDIARIES
OCTOBER 31, 1994
EXHIBIT TO FORM 10-K
<CAPTION>
COMPUTATION OF AVERAGE NUMBER OF SHARES OUTSTANDING USED IN
DETERMINING PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
PRIMARY
1. Weighted average number of
Common shares outstanding 77,802 76,493 75,554
2. Assumed conversion of Series A
Cumulative Convertible Preferred Stock 1,677 2,736 3,449
3. Assumed exercise of certain stock
options based on average market value
during the year 330 396 136
4. Weighted average number of shares used
in primary per share computations 79,809 79,625 79,139
FULLY DILUTED (A)
1. Weighted average number of
Common shares outstanding 77,802 76,493 75,554
2. Assumed exercise of Series A
Cumulative Convertible Preferred Stock 1,677 2,736 3,449
3. Assumed exercise of certain stock
options based on market value
at October 31 340 420 178
4. Weighted average number of shares used
in primary per share computations 79,819 79,649 79,181
(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%.
</TABLE>
<PAGE>
HARCOURT
GENERAL
[logo]
1994 ANNUAL REPORT
[stack
of
books]
<PAGE>
1 Company Profile
2 Shareholder Letter
6 Corporate Overview
8 Publishing
14 Specialty Retailing
18 Professional Services
19 Mission Statement
20 Financial Section
44 Directors and Officers
45 Shareholder Information
<PAGE>
COMPANY PROFILE
Harcourt General's operating businesses in publishing, specialty
retailing and professional services represent valuable corporate assets. Our
principal objective as managers of those assets is to enhance their value
to shareholders.
Harcourt Brace's worldwide PUBLISHING operations include a
well-balanced mix of educational, scientific, technical, medical, professional
and trade publishing businesses. Each holds a leadership position in its market
segment and, importantly, has the potential to strengthen that position even
further.
Our SPECIALTY RETAILING operations consist of Neiman Marcus stores, NM
Direct, Bergdorf Goodman and Contempo Casuals - some of the most valuable
consumer franchises in the retail industry today. These businesses are
well-positioned to provide a meaningful return to shareholders in coming
years.
Drake Beam Morin's PROFESSIONAL SERVICES operation is the leading
provider of human resources consulting services to corporations worldwide and
continues to explore opportunities to build its business both domestically and
internationally.
Each of these corporate assets has the potential to significantly
increase the value of Harcourt General over the long-run. We, as managers and
shareholders, are charged with making that potential a reality. This report
expands on our continuing efforts and progress in achieving this
objective.
<PAGE>
TO OUR SHAREHOLDERS
In last year's annual report we talked about developing a strategy and
laying the groundwork for growth in years to come. We talked about our focus
on creating value through a variety of means -
* STREAMLINING OUR OPERATIONS TO MAKE THEM MORE
COMPETITIVE;
* SEEKING OPPORTUNITIES FOR GROWTH FROM EXISTING
BUSINESSES; AND
* ACCELERATING GROWTH THROUGH ACQUISITIONS.
We are pleased to report that 1994 was a year of achievement in each of
these strategic challenges.
We were able to meet our earnings objectives for 1994 despite reduced
selling opportunities in the educational publishing area and a continued
difficult operating environment for our Contempo Casuals retail stores. Prior
to a restructuring charge at Contempo, earnings from continuing operations
rose to $1.57 per share from $1.50 per share in 1993. The 1993 figure includes
15 cents per share of income from non-recurring items.
Fiscal 1994 operating earnings from continuing operations prior to the
Contempo restructuring charge grew 12.0% to $272.8 million from $243.5
million in 1993. Total revenues from continuing operations increased slightly
for the year to $3.2 billion compared to revenues of $3.1 billion in 1993.
Overall, we are satisfied with our financial results in what we expected to be a
year of measured improvement for our operations. More importantly, we are
proud of the progress made on several of our strategic imperatives that are
laying the groundwork for future growth.
- -------------------------------------------------------------------------------
STREAMLINING FOR GROWTH
We continued our efforts last year to further streamline the Company. In
December of 1993, we spun off General Cinema Theatres along with $64 million
in cash in a tax-free distribution to our shareholders. We believed that
business would receive a higher market valuation over time as a stand-alone
company than it did as part of Harcourt General. The new public corporation,
GC Companies, Inc., is listed on the New York Stock Exchange.
In June of 1994, we reached an agreement to sell the Harcourt General
Insurance Companies to GNA Corp., an affiliate of GE Capital, for $400 million
in cash. That transaction closed in October 1994, and the insurance business is
treated as a discontinued operation in this report.
In addition to the desire to further simplify Harcourt General, an
important consideration for us in evaluating the insurance business was that
it was not a cash generator for the parent company. In fact, the business
required additional funds to maintain regulatory capital requirements as it
grew. We believe our shareholders will be better served by using the sale
proceeds - approximately $375 million after-tax - to reinvest in our existing
businesses or in new areas which we find attractive.
We took decisive action during the year to address the ongoing weakness
at Contempo Casuals, our fashion-forward junior retailing chain. That business
has been negatively affected by continuing softness in the junior apparel
market and by a lack of new fashion trends. Reduced mall traffic and
unsuccessful merchandising strategies have also contributed to operating
losses at Contempo over the past several years.
In response to these conditions, we recognized a $48.4 million pre-tax
restructuring charge during the third quarter of 1994 to cover the closing of
40 under-performing Contempo stores and the discontinuation of the 39-store
Pastille chain that Contempo had been testing. Other cost cutting actions taken
at Contempo over the past year include the closing of Contempo's Hong Kong
buying office and the elimination of its in-house production department. These
efforts have significantly improved the outlook for this segment of our retail
operations.
- ------------------------------------------------------------------------------
PROGRESS IN CORE BUSINESSES
Publishing and Specialty Retailing
One of the most important ways we can create value for shareholders is by
managing growth at our existing
RICHARD A. SMITH (LEFT), ROBERT J. TARR, JR.
2
<PAGE>
operations. Our core businesses - publishing and specialty retailing -
continued their progress in 1994. We believe these businesses offer substantial
opportunities for revenue increases and profit margin improvement going
forward.
- -------------------------------------------------------------------------------
PUBLISHING
Performance in a Year of Modest Opportunity
We continue to be pleased with the overall performance and outlook for our
publishing operations. The Harcourt Brace publishing business is an
exceptionally attractive one given its strong cash generating characteristics
as well as the solid reputation of its many well-established imprints. The
intellectual property that we as publishers create and hold is a vital asset
that will benefit from the advent of new technologies and distribution
methods. Quality content and editorial reputation will remain the primary
determinants of success in this new environment, and our position is secure.
We are working on a number of fronts to incorporate technology as
appropriate in all of our publishing operations. We have technology groups in
each of our major publishing units and have introduced multimedia products to
meet market demand. Importantly, we announced a product development
collaboration in December of 1994 with Edmark Corporation to develop new lines
of multimedia educational software products for the elementary school market.
As expected, publishing revenues in 1994 decreased slightly to $919.5
million from $944.5 million in 1993, primarily the result of anticipated
revenue declines in elementary and secondary publishing due to reduced state
textbook purchase schedules. Despite this revenue decline, the Harcourt Brace
publishing businesses achieved operating earnings of $165.4 million in 1994, a
16.4% increase over operating earnings of $142.2 million in 1993. These
results are due to effective expense controls and a strong performance by our
STMP group, which includes our scientific, technical, medical and professional
publishing businesses.
The adoption schedule - the number of states planning to purchase
textbooks - will work in our favor over the next several years, presenting
strong revenue opportunities in both the elementary and secondary school
areas. Increasing enrollments and improved funding prospects further brighten
the outlook for our educational businesses.
Most importantly, our enhanced product development efforts and major
capital commitment will create significant growth opportunities for both our
educational and STMP publishing businesses. Over the three years that we've
managed these publishing businesses, we've invested approximately $320 million
in capital expenditures, with roughly 90% of those funds devoted to developing
new products and revising existing programs across all of our publishing
operations. Over the next three years, we expect to invest more than $400
million in publishing, again with the vast majority of those funds going
toward product development. The cash from these capital expenditures is
rapidly recovered through accelerated depreciation over a period of three to
five years.
Our outlook for our publishing businesses is very positive. We expect
strong revenue growth in 1995, led by our elementary school business, which
will benefit from an increased number of state adoptions. We should also see
another year of steady growth in our STMP businesses and continued progress in
our foreign operations. International sales including our London operation,
which is part of the STMP group, totaled just over $140 million in 1994.
Although we anticipate substantial publishing revenue growth in 1995, we will
be incurring significant initial-year expenses to support our selling and
marketing efforts, particularly in the elementary area. As a result, the growth
in publishing operating earnings in 1995 will likely be somewhat less than the
revenue growth rate. Beyond 1995, the prospects for further expansion in
publishing are excellent as we gain market share from our substantial
investment in product development.
- -------------------------------------------------------------------------------
SPECIALTY RETAILING
Momentum at the High-End
The upscale retailing operations of the Neiman Marcus Division - Neiman
Marcus stores and NM Direct - made significant progress in 1994 in attracting
new customers, improving margins and growing operating earnings. At Bergdorf
Goodman, several unusual factors - including difficult weather conditions and
the opening of a new competitor nearby - hampered results,
3
<PAGE>
and that business showed a modest decline in operating earnings for the
year. These circumstances, coupled with a significantly larger operating loss at
Contempo, mask the very strong earnings performance achieved by the Neiman
Marcus Division.
Prior to the $48.4 million pre-tax restructuring charge at Contempo,
our specialty retailing operations had essentially an operating earnings in
1994 of $120.7 million, compared to operating earnings of $120.2 million in
1993. Prior to the restructuring charge, which amounted to $0.35 per share,
the specialty retailing segment contributed $0.52 per share to Harcourt
General's results. In 1993, the specialty retailing contribution was $0.71
per share and included non-recurring other income of $0.15 per share.
We are working diligently to improve Contempo's operating performance
in 1995 and are encouraged by our progress. Strong momentum at the Neiman
Marcus Division continues, and we are confident that Bergdorf Goodman will
rebound from 1994's results. Our specialty retailing operations as a whole
are poised to begin realizing an attractive return for shareholders on the
substantial investments which have been made in these businesses.
PROFESSIONAL SERVICES
The corporate career transition (outplacement) operations of Drake Beam Morin
(DBM) faced very difficult comparisons in the 1994 fiscal year given their
exceptionally strong performance in 1993, when two major corporate projects
accounted for an unusually large percentage of DBM's total revenues. With
work on those two projects diminishing in 1994, revenues declined 3.0% to
$141.8 million. Operating earnings for the year were $22.1 million, a 22.3%
decline. Programs to bring the expense structure in line with the lower
revenue base were initiated during the second half of the year and should
help stabilize DBM's operating results in 1995 and position it for growth in
the years ahead.
GROWTH THROUGH ACQUISITIONS
In addition to managing our existing operations, we are also actively seeking
appropriate avenues for growth through acquisitions, and we have purchased a
number of smaller publishing properties over the past year. These
acquisitions will enhance value by rounding out an existing product line,
providing access to new or complementary fields of publishing or facilitating
access to new distribution channels.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - Results from Continuing Operations
<TABLE>
<CAPTION>
(In millions, except for per share data) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
- --
<S> <C> <C> <C>
Revenues $ 3,154.2 $ 3,107.7 $ 2,795.1
Operating earnings 224.4 (1) 243.5 188.1
Operating margin 7.1% (1) 7.8% 6.7%
Earnings from continuing operations 97.5 (1) 119.5 80.2
Per share $ 1.22 (1) $ 1.50(2) $ 1.01
Net cash provided by
continuing operations 189.8 210.1 201.3
Capital expenditures 196.2 159.9 186.0
Shareholders' equity 1,047.4 1,051.6 924.4
Common dividends paid $ 0.61 $ 0.57 $ 0.53
- --------------------------------------------------------------------------------------------------------------------
<FN>
(1) After a specialty retailing restructuring charge of $48.4 million, or $0.35
per share.
(2) Includes other income of $0.15 per share resulting from the settlement of
legal and tax issues with Broadway Stores, Inc.
</TABLE>
4
<PAGE>
For example, The Psychological Corporation, our testing business,
acquired Communication Skill Builders (CSB), a developer of therapy products
for use by speech, language and hearing clinicians in schools and health care
institutions. CSB's products fit well with The Psychological Corporation's
existing portfolio of speech and language assessment products.
Harcourt Brace School, our elementary school publishing business,
acquired Brown-ROA, a leading educational publisher of religious textbooks and
technology products for the pre-school through adult education markets. While
adding a valuable product line, this business will also enable our elementary
operation to more effectively sell Harcourt Brace products to parochial
schools.
In the STMP area, we acquired a number of newsletter publications for
tax professionals for Harcourt Brace Professional Publishing as well as
several veterinary publications for our WB Saunders medical publishing
business.
Following our sale of the insurance operations, Harcourt General has a
cash balance of approximately $820 million. Our operating units will not
require that cash to expand their businesses going forward. Therefore, our
current cash balance and our substantial unused borrowing power are available
to pursue acquisition opportunities to enhance the Company's growth prospects
and build total shareholder value. We continue to search for an acquisition
of size to expand our presence in publishing or to enter a new business area.
- -------------------------------------------------------------------------------
ORGANIZATIONAL CHANGES
We would like to welcome Dr. Clifton R. Wharton, Jr. to the Harcourt General
Board of Directors. Dr. Wharton is a former United States Deputy Secretary of
State and served as chairman and chief executive officer of the Teachers
Insurance and Annuity Association - College Retirement Equities Fund
(TIAA-CREF).
Gerald T. Hughes, who has been with Harcourt General for six years, was
promoted to the new position of vice president, human resources in 1994. Mr.
Hughes had been associate general counsel with responsibility for all legal
matters pertaining to labor and employment for the Company.
It is with regret that we inform you of the resignation for health
reasons of Richard T. Morgan as president and chief executive officer of
Harcourt Brace & Company, effective January 15, 1995. We thank Dick for his
excellent service to the Company since he joined Harcourt General in June of
1992. He is an outstanding publisher and an individual of the highest
caliber, and we wish him all the best.
The Board of Directors voted in September to increase the quarterly
cash dividend on the Company's Common Stock from 15 cents to 16 cents per
share, an increase of 6.7%. This is the 26th consecutive year in which the
Board has increased the cash payment to shareholders and the 36th consecutive
year in which the Company has paid cash dividends.
- -------------------------------------------------------------------------------
WHAT'S AHEAD
What follows in this report is an in-depth discussion of our operations - the
valuable assets that we are managing on behalf of Harcourt General's
shareholders. In the publishing area, you'll read how we're working to build
upon the strong foundation represented by our wide array of publishing
businesses. In specialty retailing, you'll learn how our upscale businesses are
strategically positioned for growth, which - coupled with an anticipated
improvement at Contempo - bodes well for attractive returns in the years
ahead.
Our Company's prospects are excellent. We expect both of our core
businesses to continue their growth, not only in the coming year, but
throughout the remainder of the decade.
We would like to take this opportunity to extend our sincere
appreciation to all of the employees who are responsible for these results.
Thanks to them, our Company remains strong and well-positioned for long-term
growth.
Sincerely,
[signatures] [signatures]
Richard A. Smith Robert J. Tarr, Jr.
Chairman of the Board President and Chief
Executive Officer
January 6, 1995
5
<PAGE>
HARCOURT
BRACE
HOLT, RINEHART AND WINSTON
THE PSYCHOLOGICAL
CORPORATION
ACADEMIC PRESS
W.B. SAUNDERS
CORPORATE OVERVIEW
PUBLISHING
Harcourt Brace & Company owns some of the world's most prestigious publishing
imprints - imprints which distinguish quality products for the educational,
scientific, technical, medical, professional and trade markets worldwide.
Harcourt Brace and Holt, Rinehart and Winston are the Company's
educational imprints used on textbooks, technology products and other
instructional materials for elementary and secondary schools. The college
division publishes its products under the Harcourt Brace, Saunders and Dryden
Press imprints. The Psychological Corporation is the country's largest for-
profit publisher of tests for educational, psychological, clinical and
professional assessment.
Academic Press, WB Saunders and Harcourt Brace Professional Publishing
constitute the Company's STMP operations. Academic Press is well known as a
leading international publisher of books and scholarly journals in the life,
physical and social sciences. WB Saunders is the world's leading publisher of
medical books and periodicals for the health sciences. Harcourt Brace
Professional Publishing produces accounting and tax practice reference
materials for professionals in those fields. The Company also conducts the
country's largest bar examination review program under the BAR/BRI name as
well as review courses for accounting professionals.
Harcourt Brace serves the international markets through offices in
London, Tokyo, Sydney, Toronto and Montreal as well as a foreign export
division based in Orlando, Florida. These operations publish in their local
markets and distribute domestic educational and STMP product internationally.
The Company's trade division publishes distinguished literature for adults and
children.
1994 REVENUE CONTRIBUTION
[pie 29%
chart] 66%
5%
[scale] Publishing
Specialty Retailing
Professional Services
<TABLE>
<CAPTION>
HISTORICAL REVENUE CONTRIBUTION
(Dollars in millions)
<C> <C> <C>
$3,154.2
$3,107.7
$2,795.1
$ 919.5
$ 944.5
$ 865.3
$2,092.9
$2,016.9
$1,808.4
$ 121.4 $ 146.3 $ 141.8
-------------------------------------------------------------
1992 1993 1994
</TABLE>
6
<PAGE>
1994 OPERATING EARNINGS CONTRIBUTION (1)
[pie 28%
chart] 64%
8%
[scale] Publishing
Specialty Retailing
Professional Services
<TABLE>
<CAPTION>
HISTORICAL OPERATING EARNINGS CONTRIBUTION(1)
(Dollars in millions)
<C> <C> <C>
$ 290.8
$ 259.8
$ 229.9
$ 142.2
$ 165.4
$ 124.5
$ 120.2
$ 81.5
$ 72.3
$ 23.9 $ 28.4
$ 22.1
----------------------------------------
1992 1993 1994
</TABLE>
(1) Operating earnings are prior to corporate expenses but include a $48.4
million specialty retailing restructuring charge in 1994.
SPECIALTY RETAILING
The Company's specialty retailing operations include valuable and
well-recognized consumer franchises with a primary focus on the
fashion-conscious high-end customer seeking exceptional service and unique
designer merchandise.
Neiman Marcus, a leading upscale specialty retailer, serves customers
through 27 stores in 24 cities nationwide. The Company's state-of-the-art
direct marketing operation, NM Direct, includes the well-known Horchow
catalogues in addition to those of Neiman Marcus.
Bergdorf Goodman and Bergdorf Goodman Men, located across from each
other on Fifth Avenue at 58th Street - Manhattan's premier shopping location
- - offer customers exclusive apparel and accessories from leading American and
foreign designers.
Contempo Casuals provides contemporary fashion apparel and accessories
for young women through a group of 246 stores primarily in regional shopping
malls in 33 states and Puerto Rico.
- -----------------------------------------------------------------------------
PROFESSIONAL SERVICES
Drake Beam Morin is the world's leading provider of organizational and
individual transition consulting services. In addition, DBM offers leading
edge consulting and training in the career management and change management
lines of business. Founded in 1967, DBM operates a total of 162 offices - 76
domestic and 86 international - in 27 countries.
NEIMAN MARCUS
NM DIRECT
BERGDORF GOODMAN
CONTEMPO CASUALS
DBM
DRAKE BEAM MORIN
7
<PAGE>
[CD DISK]
[stack
of
books]
<PAGE>
PUBLISHING
BUILDING ON STRENGTH
GROWTH THROUGH PRODUCT DEVELOPMENT AND ACQUISITIONS
- ---------------------------------------------------
Since Harcourt Brace & Company became part of Harcourt General
three years ago, the Company has focused on revitalizing and building its
prestigious publishing businesses. We've been able to build from a position of
strength while working to capture opportunities for growth through enhanced
product development and strategic acquisitions.
Our position of strength stems from the well-balanced mix of
educational, scientific, technical, medical, professional and trade publishing
properties that make up Harcourt Brace. Each business holds claim to some of
the most well-respected and valuable imprints in the publishing industry -
imprints which have secured leading market shares in their respective
disciplines.
Over the next few years, external factors like rising school enrollments,
stronger adoption schedules (plans by school districts to purchase
instructional materials) and increasing public concern over the quality of
education are expected to facilitate our efforts to expand our educational
publishing operation.
The outlook is also encouraging for our STMP group. The total number of
scientific, technical and medical professionals - our customers - has grown
steadily in recent years, and this growth is expected to continue
beyond the turn of the century. Furthermore, scientific output is expected to
increase at a rate of 4-6% for the foreseeable future, ensuring both the demand
and need for scientific and medical publications.
These external factors - coupled with the product development and
acquisition initiatives we're executing internally - support our positive
outlook for our publishing businesses.
Approximately $150 million in capital investment is planned for the
publishing area in 1995, with comparable expenditures in 1996 and 1997. Nearly
90% of that expenditure will be devoted to new and revised product development
in both the educational and STMP areas. We are monitoring the impact of
technology on our businesses and are incorporating it as an enhancement to our
products, expanding our multimedia offerings as market demand grows. In
addition, the application of technology to the product development process has
already improved efficiencies, shortened lead times and reduced production costs
for our businesses.
Along with internal product development, we are building our publishing
operation through acquisitions. We've purchased several small companies as well
as publications and book lists over the past few years to round out product
lines or gain access to important distribution networks. These include
acquisitions in the areas of multimedia, CD-ROM and software development;
religious educational publishing; speech, language and hearing therapy; and
veterinary medicine as well as several publications for tax and accounting
professionals. Each represents a business that - along with the impact of
external factors and product development efforts - will over the long-run add
to the strength that is Harcourt Brace & Company.
9
<PAGE>
OVER THE PAST YEAR, HARCOURT BRACE & COMPANY HAS CONTINUED TO EXPAND AND
REVITALIZE PRODUCT LINES ACROSS BUSINESS AREAS. THIS INITIATIVE IS ENHANCING
THE MARKET POSITIONS OF EACH OF THE COMPANY'S IMPRINTS AND SHOULD CONTINUE TO
GENERATE INCREASES IN MARKET SHARE.
TOTAL PUBLISHING OPERATING EARNINGS INCREASED 16.4% IN 1994 TO $165.4 MILLION
FROM $142.2 MILLION IN 1993. THIS INCREASE WAS ACHIEVED DESPITE A 2.7%
DECLINE IN REVENUES TO $919.5 MILLION THAT REFLECTS REDUCED
MARKET OPPORTUNITIES, PRIMARILY FOR ELEMENTARY PRODUCT. THE COMPANY'S
PUBLISHING OPERATING MARGIN IMPROVED TO 18.0% FROM 15.1% IN 1993.
BUSINESS REVIEW - Publishing
EDUCATIONAL PUBLISHING
The educational publishing group includes the Company's elementary,
secondary and college publishing businesses along with The Psychological
Corporation's testing operations. This group had lower revenues and slightly
reduced operating earnings primarily due to anticipated declines in the
elementary publishing business in fiscal 1994 after an exceptionally strong
1993. The performance of the educational group should improve in 1995 as we
benefit from the introduction of new and revised products and an increase in
textbook purchases, particularly at the elementary level.
- ------------------------------------------------------------------------------
HARCOURT BRACE SCHOOL
Elementary publishing
As anticipated, both revenues and operating earnings at Harcourt Brace School
declined in 1994 from a very strong 1993. The declines reflect reduced market
demand due to the small number of state adoptions in 1994. However, the
Company's products continued to perform well in those areas where textbook
purchases did occur.
Harcourt Brace's successful reading program, Treasury of Literature -
which was revised for 1995 - won approximately 38% of the reading markets in
Arkansas and Louisiana and continued to sell well in non-adoption states. In
addition, the division's Mathematics Plus program maintained a leading market
share.
New elementary product introductions in 1994 include the Passports
supplementary reading program for grades one through six; the AnyTime Math
program for the K-2 market; and Science AnyTime for grades K-6. The Passports
supplementary reading program has already secured approximately 33% of an
important Texas adoption with the bulk of those sales scheduled for 1995.
AnyTime Math was approved for sale in California in 1995 and has been well
received nationally. Science AnyTime provides the elementary division with a
strong product to participate in the significant elementary science business
available in 1995.
<TABLE>
<CAPTION>
PUBLISHING REVENUE HISTORY
<S> <C> <C> <C>
(In millions) 1994 1993 1992
- -----------------------------------------------------------------
Elementary $145.3 $187.4 $124.4
Secondary 120.5 125.0 99.0
College 145.4 149.0 147.3
Testing 99.1 93.2 96.5
STMP 342.0 323.0 348.9
International 83.2 84.0 86.7
Trade 34.3 30.7 29.1
Elimination of
intercompany sales (50.3) (47.8) (66.6)
- -----------------------------------------------------------------
TOTAL $919.5 $944.5 $865.3
- -----------------------------------------------------------------
</TABLE>
Harcourt Brace School is currently integrating the Brown-ROA religious
publishing operation, which was acquired in 1994 and has annual revenues of
about $9 million.
- -----------------------------------------------------------------------------
HOLT, RINEHART AND WINSTON
Secondary publishing
Revenues at Holt, Rinehart and Winston (HRW) declined slightly in 1994, but
careful expense controls led to a moderate increase in operating earnings for
the year. In a year with limited adoption opportunities, strong sales of the
division's language arts programs, Elements of Literature and Elements of
Writing, made a substantial contribution to revenues. HRW's successful
science program, SciencePlus, introduced in 1993, continued to perform well
in 1994, achieving healthy sales in the second year of the important
California science adoption. In addition, strong sales of Biology:
Visualizing Life contributed to 1994's results.
During the year, HRW formed a new multi-media group to concentrate on
the development of technology-based products. These products will include
stand-alone multimedia programs like Concepts of Biology - the division's
electronic textbook introduced in 1994 - as well as technology components
designed to complement HRW's traditional textbook programs.
Operating results in the secondary publishing area are expected to be
relatively unchanged
10
<PAGE>
in 1995 given the specific disciplines scheduled for adoption in that year.
In 1995, HRW will focus on the completion of new integrated language
arts, mathematics, foreign language and science programs to be introduced in
1996 and 1997, which should be strong growth years for the Company's
secondary publishing business.
- ------------------------------------------------------------------------------
- -
HARCOURT BRACE COLLEGE PUBLISHERS
In 1994, the college division had slightly lower revenues. The college
marketplace continued to experience difficulties, with total industry sales
essentially unchanged from 1993. The impact of used books, along with the
increasing numbers of students selecting alternatives to purchasing
textbooks, has contributed to declining sales in the Company's college
publishing division.
To address these industry realities and bring costs in line with
existing revenues, Harcourt Brace College implemented a restructuring in 1994.
The division reduced its editorial and production staff as well as the size of
its sales force. These efforts improve the profit outlook in 1995 for the
college business.
Harcourt Brace College published approximately 256 new and revised
titles in 1994, a significant increase from the 227 introduced in 1993.
Revenues in 1994 benefited from strong sales of revised titles including
the Harbrace College Handbook, Brigham's Financial Management and Kornblum's
Sociology in a Changing World. Top-selling new titles were Kotz's The
Chemical World, Serway's Principles of Physics and Hungerford's Contemporary
Precalculus.
Harcourt Brace is continuing its emphasis on author signings to
revitalize the college division's product offering. More than 400 author
acquisitions have been completed over the past three years. These signings will
ultimately lead to important new product introductions over the next several
years.
THE PSYCHOLOGICAL CORPORATION
Educational and clinical testing
The Psychological Corporation had higher revenues in 1994. A number of
smaller new product introductions - including 50 clinical assessment products
and 90 educational assessment products - contributed to the revenue growth.
The Psychological Corporation this year also introduced the first volume of
PictureGallery, a CD-ROM product designed for use by speech practitioners.
Additional volumes of this technology product are planned for publication over
the next few years.
Top-selling products in 1994 included the eighth edition of the
Stanford Achievement Test series (SAT-8) and the seventh edition of the
Metropolitan Achievement Test (MAT-7) as well as the third edition of the
Wechsler Intelligence Scale for Children (WISC-III) and the Bayley Scales of
Infant Development, Second Edition (BSID-II).
The Psychological Corporation will benefit in 1995 from its recent
acquisition of Communication Skill Builders, a developer and marketer of
therapy products for use by speech, language and hearing clinicians. These
products, which generate approximately $8 million of annual revenue, complement
The Psychological Corporation's existing line of speech and language assessment
materials.
New products scheduled for introduction in 1995 include the ninth
edition of The Psychological Corporation's best-selling Stanford Achievement
Test series (SAT-9) as well as the third edition of Clinical Evaluation of
Language Fundamentals (CELF-3), an important speech and language assessment
product.
The Psychological Corporation's business continues to be affected by a
shift in market demand from standardized testing to more customized,
performance-based assessment methods. Performance-based methods require
individualized scoring and are, therefore, less profitable. In addition,
budgetary constraints are causing school districts to reduce the frequency of
student testing, which may limit educational revenue opportunities going
forward.
The new Science AnyTime program complements successful elementary reading and
math programs.
HRW is strengthening its traditional and technology-based product lines.
New titles complement the college division's traditional best sellers.
PictureGallery and M-KIDS are important new products for The Psychological
Corporation.
11
<PAGE>
Academic Press is working to expand its scientific and technical book business.
New titles in allied health
fields complement
WB Saunders' traditional
medical books.
Academic Press and
WB Saunders publish leading journals in established
and emerging disciplines.
BUSINESS REVIEW - Publishing
SCIENTIFIC, TECHNICAL, MEDICAL
AND PROFESSIONAL PUBLISHING (STMP)
The STMP group includes the scientific and technical publishing operations of
Academic Press; WB Saunders' medical publishing business; the Harcourt Brace
London operations; and Harcourt Brace Professional, which distributes publica-
tions for tax and accounting professionals. The STMP group achieved steady
increases in revenues and operating earnings in 1994, reflecting strong domestic
and international sales of scientific product.
- -------------------------------------------------------------------------------
ACADEMIC PRESS
Scientific and technical publishing
Academic Press had higher revenues in 1994 due to especially strong worldwide
sales of scientific journals from both its U.S. and London-based operations.
Academic Press published approximately 400 scientific and technical books
during the year. More than 200 scholarly journals were released, including
three new journal introductions in 1994. Major titles contributing to 1994
sales included Ramachandran's Encyclopedia of Human Behavior, Yost's
Fundamentals of Hearing and White and Fenner's Medical Virology as well as
several volumes in Abelson and Simon's Methods in Enzymology.
The AP Professional imprint - introduced in 1993 to publish both print
and electronic technical and reference books for advanced computer
professionals - has been very well received. In 1994, 50 works were published
under this new imprint, with the same number of new titles planned for release
in the coming year. Significant 1995 releases under the AP Professional imprint
will be Paeth's Graphics Gems V (IBMand Macintosh versions), Tittel and
Robbins' Wide-Area Networks and LeVitus' WebMaster (for Windows and
Macintosh).
Academic Press will benefit in 1995 from an increase in the number of
books scheduled for publication, when it will release approximately 415
scientific and technical books as well as several CD-ROM titles. Included in
that schedule are important introductions of Townshend's Encyclopedia of
Analytical Science, Celis' Cell Biology: A Laboratory Handbook, Nierenberg's
Encyclopedia of Environmental Biology and Arntzen and Ritter's Encyclopedia of
Agricultural Science. An increase in the number of journal issues and pages is
planned for 1995 with no change in the total number of journal titles
released.
Academic Press is working to expand its book publishing operations in
the scientific field, and product development efforts will focus on high growth
areas like computer science, materials science and engineering, automation
technology and biomedicine. In addition, Academic Press will introduce
several titles on CD-ROM in coming years, including the AP Dictionary of
Science & Technology and the Encyclopedia of Physical Science and Technology.
Academic Press is also aggressively exploring on-line electronic publishing
opportunities while applying technology to the product development process.
- --------------------------------------------------------------------------------
WB SAUNDERS
Medical publishing
WB Saunders had higher revenues in 1994, reflecting strong sales of nursing
and health-related titles partially offset by weaker sales of medical and
veterinary textbooks. In 1994, WB Saunders published approximately 190 books
and 140 periodicals for the health sciences market. Key book titles contribu-
ting to 1994 revenues include Chabner's The Language of Medicine, Dorland's
Illustrated Medical Dictionary, Cotran's Robbins Pathologic Basis of Disease,
and Guyton's Textbook of Medical Physiology.
WB Saunders introduced five new periodicals during the past year and won
the publishing rights to two major medical society journals, Arthroscopy and
Hepatology. Saunders will publish its first issues of these journals in 1995.
WB Saunders acquired a veterinary book list from Churchill Livingstone in
1994, which will add to future revenues and complement Saunders' existing line
of veterinary titles.
Approximately 180 books are planned for publication in 1995. Key titles
include the second edition of Ignatavicius' Medical-Surgical
12
<PAGE>
Nursing, Rakel's Conn's Current Therapy 1995 and Bonagura's Kirk's Current
Veterinary Therapy XII. Eight new print periodicals will be introduced in
1995. In addition, WB Saunders will publish its best-selling title, Albert &
Jakobiec's Principles & Practice of Ophthalmology, in a CD-ROM version and
expects to introduce its first medical journal in an electronic format.
WB Saunders will be devoting significant capital expenditures to product
development efforts in 1995 in preparation for the publication of a large
number of new and revised major book titles in 1996 and 1997 in the
medical/clinical, nursing and allied health areas.
- -------------------------------------------------------------------------------
HARCOURT BRACE PROFESSIONAL
Revenues at Harcourt Brace Professional were up substantially in 1994,
benefiting from the acquisition and integration of six tax professional
newsletters acquired during the year from Prentice Hall. The division also
benefited from strong sales of its market-leading publications - the GAAP, GAAS
and Governmental GAAP Guides, reflecting the successful introduction of these
products in electronic versions.
Harcourt Brace Professional will focus in 1995 on the continued
acquisition and development of new products for tax and accounting
professionals while also translating a number of its print products into
alternative electronic formats.
Harcourt Brace conducts the largest bar examination review program in
the country under the well-respected BAR/BRI name as well as review courses
for CPA accreditation and graduate school entrance examinations. More than
35,000 students completed its review courses in 1994.
- --------------------------------------------------------------------------------
HARCOURT BRACE INTERNATIONAL
The international group experienced a small decline in revenues for the year,
reflecting a refocusing of businesses in several countries. Over the past few
years, Harcourt Brace has exited the school business in Australia and sharply
narrowed the focus of its publishing activities in Japan to concentrate on
medical, nursing and computer publications. These efforts are intended to
direct resources toward specific market niches in these countries where
Harcourt Brace can be an important and profitable publisher.
In 1995, the international group will focus on further development of
English-as-a-Second-Language (ESL) product, which has demonstrated strong
potential in markets worldwide. Harcourt Brace International will also
increase its presence in the Caribbean, Central and South American markets
and will work to enhance its position in Canada, where the Montreal operation
continues to perform very well.
Importantly, a number of the overseas markets which the Company services are
currently emerging from sustained periods of economic difficulty. This should
present further growth opportunities for Harcourt Brace's international
publishing operations in the years ahead.
- -------------------------------------------------------------------------------
HARCOURT BRACE TRADE
The trade division had an increase in revenues in 1994, benefiting from strong
sales of children's book titles. During the year the Company completed a
realignment of its adult trade operations. The division plans to reduce the
number of adult hardcover titles published, increasing its focus on adult
paperback books of literary quality as well as children's titles.
New adult titles that will be introduced in 1995 include works by
well-known authors such as Umberto Eco and Mark Helprin to be published under
the Harcourt Brace imprint along with paperback titles by Tina Ansa, Gary
Paulsen and Paul Monette for the Harvest Books line.
The trade division's children's book business is exceptionally strong.
The popular title, Stellaluna, has remained on the Publishers Weekly
best-seller list for 18 months and is currently ranked first, with over 250,000
copies sold. Important children's books to be published in the coming year
include new works by prominent authors such as Alice Provensen, Audrey Wood
and Cynthia Rylant.
Harcourt Brace Professional's best-selling GAAP Guide is now available in
electronic format.
English-as-a-Second-Language (ESL) products represent a growth opportunity
for Harcourt Brace International.
The trade division publishes high quality literature for
children and adults.
13
<PAGE>
[hand
holding
boxes]
<PAGE>
SPECIALTY RETAILING
FOCUSING ON UPSCALE
POSITIONED FOR IMPROVED PERFORMANCE
---------------------------------------
Neiman Marcus ... NM Direct ... Bergdorf Goodman ... Bergdorf Goodman Men ...
Contempo Casuals - specialty retailing operations together poised to realize
a return on the significant investments made over the past seven years. During
that time nearly $500 million has been devoted to store expansion and
renovation efforts and the building of a strong infrastructure.
Since 1989, five new Neiman Marcus stores have been built, with three
additional openings planned over the next two years. Bergdorf Goodman Men
opened its doors in 1990. In addition, a significant portion of the square
footage at existing Neiman Marcus stores and the original Bergdorf Goodman
store has been remodeled and revitalized to better showcase merchandise and
service customers. We've refined merchandising strategies at our upscale
operations and strengthened our relationships with leading designers through
our strong commitment to the high-end sector of the specialty retailing
market.
These efforts have led to steady business improvement during the past
several years at Neiman Marcus and NM Direct. Neiman Marcus stores are
expanding their customer base and improving their profitability. NM Direct,
which has a strong growth record, continues to build its core mail order
business while testing new avenues of distribution including electronic
retailing and international markets.
However, a number of factors have slowed progress at Bergdorf Goodman
and Contempo Casuals. At Bergdorf Goodman, the men's store - opened at the
start of an economic downturn - has taken longer than anticipated to mature
and reach profitability. The opening of a new competitor near Bergdorf Goodman
in the fall of 1993 also had a temporary impact on the level of business at
both stores.
At Contempo Casuals, weakness in the junior retailing market
exacerbated by unsuccessful merchandising strategies as we attempted to
stimulate demand has resulted in three years of performance declines and
operating losses.
Early results from programs that are now in place indicate that both
Bergdorf and Contempo will have an improved performance in the fall season.
Potential for revenue and earnings growth through margin enhancement at the
original Bergdorf Goodman store is strong. With continued volume growth,
Bergdorf Goodman Men is expected to reach profitability in 1995. Moreover,
restructuring efforts at Contempo should - at the very least - significantly
reduce that business' operating losses in 1995 and - at best - restore it to
profitability. With continued progress at Neiman Marcus stores and NM Direct,
the outlook is positive for realizing a meaningful return on our substantial
investment in specialty retailing.
15
<PAGE>
BUSINESS REVIEW - Specialty Retailing
Total revenues for the Company's specialty retailing operations grew 3.8% in
1994 to $2.1 billion, with comparable revenues increasing 4.4% despite a
substantial comparable store sales decline at Contempo Casuals. Operating
earnings prior to a $48.4 million restructuring charge at Contempo were
$120.7 million, approximately equal to last year's $120.2 million operating
earnings level.
Continuing strong results at Neiman Marcus stores and NM Direct drove the
performance, as several unusual factors resulted in lower earnings for
Bergdorf Goodman, and Contempo Casuals had a substantially larger operating
loss for the year.
SPECIALITY RETAILING REVENUE HISTORY
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ------------------------------------------------------
<S> <C> <C> <C>
Neiman Marcus
Division $1,560.0 $1,448.7 $1,285.8
Bergdorf Goodman 229.5 219.1 199.1
Contempo Casuals 303.4 349.1 323.4
TOTAL $2,092.9 $2,016.9 $1,808.3
</TABLE>
SPECIALTY RETAILING
NEIMAN MARCUS DIVISION
The Neiman Marcus Division, which includes Neiman Marcus stores and NM Direct,
achieved exceptional results in 1994, with operating earnings rising 21.3% to
$147.4 million from $121.5 million in 1993. This represents the third
consecutive year of operating earnings improvement in excess of 20% for this
division. Operating margins improved to 9.4% from 8.5% in the prior year. Total
revenues grew 7.7% to $1.56 billion, with revenues at Neiman Marcus stores
increasing 7.6% and revenues at NM Direct rising 8.2%
Factors contributing to strong improvement at Neiman Marcus stores
include extensive remodelings, an increased level of in-store events and
advertising activity, an expansion of assortments in the career and casual
areas, a greater emphasis on opening price point merchandise and an increase
in finance charge income resulting from changes in the credit terms offered to
Neiman Marcus cardholders.
NM Direct, which distributed approximately 90 catalogues during the
year, contributed to the operating earnings improvement with an increase in
the number of transactions, an improved operating expense rate and a higher
gross margin.
Selective remodeling and expansion activity is continuing at Neiman
Marcus. Major renovations were completed during 1994 at stores in San
Francisco and Boston. Ongoing remodeling work in 1995 includes renovations at
the NorthPark store in Dallas as well as projects in Westchester, New York and
Northbrook, just outside Chicago. The bulk of major renovation work has been
completed although ongoing activity is always required to ensure that the
Company's stores remain modern and competitive.
Construction began this year on a new Neiman Marcus store in Short Hills,
New Jersey, scheduled to open in August 1995. Other planned openings include
stores in King of Prussia, Pennsylvania and Paramus, New Jersey, both planned
for calendar 1996 openings.
NM Direct completed construction on a major expansion of its
telemarketing and fulfillment facility in Las Colinas, Texas. The expansion
increased capacity by more than 50% and will accommodate significant future
growth in the direct marketing business. At the end of 1994, Neiman Marcus
began construction on a new $20 million 400,000 square-foot national service
and distribution center in Longview, Texas to service Neiman Marcus stores
nationwide.
BERGDORF GOODMAN
Revenues at Bergdorf Goodman rose 4.7% to $229.5 million in 1994, with both
the original store and Bergdorf Goodman Men making progress. However,
Bergdorf's operating performance was affected by difficult winter
16
<PAGE>
weather conditions as well as the opening of a major new competitor nearby.
Both factors temporarily reduced store traffic, leading to higher markdowns and
a lower gross margin. As a result, operating earnings for the year declined
to $10.3 million from $12.8 million in 1993.
Ongoing remodeling activity at Bergdorf Goodman will include the
renovation of the original store's sixth floor, which will house designer
sportswear, coats, dresses and eveningwear along with merchandise specifically
targeted toward the career customer.
Bergdorf Goodman Men continued to expand its volume and reduce its
operating loss in 1994. As a result, the store was only modestly unprofitable
for the year. With the continuation of current revenue growth trends,
Bergdorf Goodman Men should reach profitability in 1995.
Both Bergdorf Goodman and Bergdorf Goodman Men will continue their
successful merchandising programs and enhanced calendar of special events to
attract new customers and increase sales volume in 1995.
CONTEMPO CASUALS
Revenues at the Contempo Division declined 13.1% in 1994 to $303.4 million,
with comparable store revenues decreasing 12.5%. Prior to a restructuring
charge, the division incurred an operating loss of $37.0 million for the year,
$9.5 million of which was attributable to Pastille, a new retail concept that
Contempo had been testing. In 1993, the Contempo Division had an operating loss
of $14.1 million, $10.5 million of which was attributable to the Pastille test.
This weakness necessitated the $48.4 million restructuring charge taken
in the third quarter of 1994 to cover the closing of 40 under-performing
Contempo stores and the shutdown of the 39-store Pastille operation. Other
actions taken during the year to reduce operating expenses at Contempo include
the closing of its Hong Kong buying office and the elimination of its in-house
production department.
Continued efforts are under way to reverse the operating decline at
Contempo. The division has a new chief merchant in place and has implemented a
new everyday fair pricing strategy in an attempt to reduce the markdown problem
that plagued Contempo over the past year. Management is focusing on tight
inventory control and better assortment planning to stimulate sales and
improve gross margins.
Early results from restructuring activities and new merchandising
strategies are indicating that Contempo Casuals should achieve a significantly
improved performance in 1995.
Neiman Marcus will open three new stores by the end of 1996.
NM Direct's catalogues offer a unique array of apparel, home furnishings and
gift items.
Bergdorf Goodman remains the ultimate upscale shopping experience in New York
City.
Contempo Casuals is working to enhance its image and improve its merchandising
efforts.
17
<PAGE>
DBM is a leading provider of transition management services for individuals
and corporations.
DBM supports its change management and career counseling activity with
informative publications.
BUSINESS REVIEW - Professional Services
PROFESSIONAL SERVICES
The professional services segment consists of the operations of Drake Beam
Morin (DBM), the world's leading provider of organizational and individual
transition consulting services. DBM is especially focused on supporting
organizations in the process of change, assisting organizations and
individuals worldwide in career transition, career management and change
management. As a human resources management consulting firm, the company
services a wide array of clients including large and small corporations as
well as private and government organizations. DBM's services include
assessment, counseling, coaching and training for individuals and groups at
all organizational levels.
In 1994, DBM had lower revenues and operating earnings compared to an
exceptionally strong performance in 1993. Revenues in 1994 declined 3.0% to
$141.8 million from $146.3 million in 1993 due to lower sales of group
programs. Operating earnings were $22.1 million, a 22.3% decrease from earnings
of $28.4 million last year. Operating margins declined to 15.6% from 19.4% in
1993.
The decline reflects a reduced workload on major projects conducted for
two corporate clients in 1993. DBM was unsuccessful in fully replacing those
revenues with new business in 1994. As a result, expense containment programs
were implemented during the second half of the year to adjust to the
decreased revenue volume.
During the year Drake Beam Morin acquired a 100% ownership interest in
its prior affiliate in the United Kingdom. Results from that business, which
previously had provided affiliate licensing revenue to the Company, will be
consolidated going forward.
In 1995, DBM will seek to expand its career and change management lines
of business while protecting and building on its leadership position in both
individual and group career transition services.
PROFESSIONAL SERVICES OPERATING RESULTS
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ---------------------------------------------------
<S> <C> <C> <C>
Revenues $141.8 $146.3 $121.4
Operating Earnings $ 22.1 $ 28.4 $ 23.9
- ---------------------------------------------------
</TABLE>
18
<PAGE>
OUR MISSION
Harcourt General is an international operating company founded upon and
committed to a fundamental economic principle: Management is responsible for
generating above-average returns to the Company's shareholders on a
consistent, long-term basis.
Our mission, therefore, is to aggressively, yet responsibly, manage our
operating businesses to create steadily appreciating value for those who
invest in our Company.
As we pursue this mission we are guided by the following important values:
1. We will maintain an uncompromising commitment to quality and the highest
levels of customer service in all our businesses and endeavors.
2. We will adhere to the highest levels of integrity and ethical standards in
dealing with all constituencies, including customers, suppliers and employees.
3. We will aspire to achieve a leadership position in every one of our
operating businesses.
4. Our management decisions will emphasize long-term benefits to the value of
our businesses, not short-term gains. We will employ capable, motivated
people;
follow sound management practices; utilize new technology efficiently; and
reinvest earnings and new capital as required to grow our businesses and
maintain the Corporation's financial health.
5. We will strive to maximize the potential of all employees and maintain a
professionally challenging work environment.
6. We will be socially responsible and provide financial and human resources
support for worthwhile causes, especially in those communities in which we
operate.
19
<PAGE>
21 Financial Review
26 Consolidated Balance Sheets
28 Consolidated Statements of Earnings
29 Consolidated Statements of Cash Flows
30 Consolidated Statements of Shareholders' Equity
31 Notes to Consolidated Financial Statements
42 Independent Auditors' Report
42 Statement of Management's Responsibility for Financial Statements
43 Five Year Summary
44 Directors and Officers
45 Shareholder Information
20
<PAGE>
FINANCIAL REVIEW
Harcourt General's primary objective is to create value for its shareholders.
Management believes it can achieve this objective over the long-term by
actively managing operating businesses and financial assets to enhance the
Company's earnings and to generate a consistent and expanding cash flow.
Harcourt General has core businesses in publishing and specialty
retailing as well as a professional services segment consisting of the Drake
Beam Morin (DBM) outplacement operations. Management believes the Company's
outlook for growth in its existing businesses is positive.
Harcourt General remains in very sound financial condition with the
financial resources to support expansion of its existing businesses as well
as an active acquisition effort. The Company's balance sheet is strong, with
$819.7 million in cash and shareholders' equity in excess of $1.0 billion.
Harcourt General has total long-term liabilities of approximately $1.2
billion, of which $560.2 million represents obligations of The Neiman Marcus
Group (NMG), which the Company does not guarantee. The Neiman Marcus Group is
a separate, publicly-held company with its own cash flow, financing and
capital expenditures to support its growth. Harcourt General receives a cash
dividend on its common and preferred shares in NMG.
The Company has consistently generated a positive cash flow in excess
of that required for capital expenditures. As a result, a significant portion
of Harcourt General's earnings are available for reinvestment in existing
businesses, new business activities, working capital, debt repayment and
dividends. During 1994, 1993 and 1992, the Company invested approximately
$129.7 million, $97.7 million and $109.4 million, respectively, in its
publishing and professional services businesses. As highlighted in the chart
below, the cash generated by the Company's businesses (operating earnings plus
depreciation and amortization) was $317.8 million, $294.0 million and $242.0
million in the years ended October 31, 1994, 1993 and 1992, respectively.
At October 31, 1994, shareholders' equity was $1.05 billion. During 1994,
shareholders' equity was reduced by $135.8 million, or approximately $1.70
per share, due to the spinoff of the Company's theatre operations in December
of 1993. The 1994 book value per share of $13.12 at the end of the year
represents an increase of 14.1% from $11.50 in 1993.
<TABLE>
<CAPTION>
BOOK VALUE PER SHARE
<S> <C>
1992 $ 9.97
1993 $11.50
1994 $13.12
<FN>
The 1992 and 1993 book values per share have been adjusted to reflect the
spinoff of GC Companies in December 1993, which reduced shareholders' equity, by
$1.70 per share.
</TABLE>
<TABLE>
<CAPTION>
CASH GENERATED BY BUSINESS SEGMENTS
(Dollars in millions)
<S> <C> <C>
1992 Professional Services $ 26.1
Publishing $215.9
TOTAL $242.0
1993 Professional Services $ 31.4
Specialty Retailing $ 15.8
Publishing $246.8
TOTAL $294.0
1994 Professional Services $ 26.1
Speciality Retailing $ 31.4
Publishing $260.3
TOTAL $317.8
<FN>
Cash from publishing and professional services is comprised of operating
earnings plus depreciation and amortization. The cash generated from
specialty retailing represents the cash dividends paid by The Neiman Marcus
Group to Harcourt General. Through a dividend reinvestment plan, Harcourt
General reinvested $15.6 million and $30.9 million of its common and
preferred NMG cash dividends in additional shares of NMG Common Stock in 1993
and 1992, respectively. Harcourt General ceased its participation in the
dividend reinvestment plan in January 1993.
</TABLE>
21
<PAGE>
SEGMENT OPERATING RESULTS
The following table reflects revenues and operating earnings by business
segment.
<TABLE>
<CAPTION>
Years ended October 31 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
REVENUES
Publishing $ 919,498 $ 944,545 $ 865,336
Specialty retailing 2,092,906 2,016,914 1,808,354
Professional services 141,818 146,252 121,391
---------- ---------- ----------
TOTAL REVENUES $3,154,222 $3,107,711 $2,795,081
========== =========== ==========
OPERATING EARNINGS
Publishing $ 165,436 $ 142,177 $ 124,503
Specialty retailing 120,704 120,191 81,510
Professional services 22,072 28,395 23,938
Corporate expenses (35,456) (47,307) (41,876)
Restructuring of Contempo Casuals (48,401) - -
---------- ---------- ----------
TOTAL OPERATING EARNINGS $ 224,355 $ 243,456 $ 188,075
========== ========== ==========
</TABLE>
OPERATING RESULTS 1994 VS. 1993
Net earnings applicable to common shareholders in 1994 were $177.5 million,
or $2.22 per share, compared to $171.3 million, or $2.15 per share, in 1993.
Results have been restated to reflect the insurance and theatre businesses as
discontinued operations.
PUBLISHING
Publishing revenues decreased 2.7% in 1994 to $919.5 million, compared to
$944.5 million in 1993. The anticipated decline in revenues following a strong
1993 performance was primarily the result of decreased elementary and
secondary publishing orders due to state textbook purchase schedules.
Offsetting the decreases in educational publishing sales were increases in
scientific, technical, medical and professional (STMP) group revenues resulting
from strong domestic and international sales of books and periodicals.
Despite the decline in revenues, the publishing business achieved a 16.4%
improvement in operating earnings. Publishing operating earnings were $165.4
million in 1994, compared to $142.2 million in 1993. Lower plate amortization
costs and decreased marketing expenses in the educational publishing group,
along with improved operating earnings from higher revenues in the STMP
group, contributed to the increase.
SPECIALITY RETAILING
Total revenues from specialty retailing increased 3.8% to $2.09 billion in
1994 from $2.02 billion in 1993. The increase was driven by comparable store
sales growth at Neiman Marcus and Bergdorf Goodman, offset by a revenue
decline at Contempo Casuals. Comparable store sales increased 7.6% at Neiman
Marcus and 4.7% at Bergdorf Goodman but declined 12.5% at Contempo Casuals.
Operating earnings from specialty retailing were $72.3 million in 1994
after a $48.4 million restructuring charge related to Contempo Casuals,
compared to operating earnings of $120.2 million in 1993. Operating earnings
before the restructuring charge were $120.7 million in 1994.
The $48.4 million pre-tax restructuring charge was the result of an
evaluation of the operating performance of Contempo Casuals. Based upon this
evaluation, NMG decided to close 40 under-performing Contempo Casuals retail
stores and all of the Pastille retail stores. The restructuring charge for
Contempo Casuals and Pastille included the following components:
<TABLE>
<CAPTION>
(In millions) Contempo Pastille Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lease termination costs $10.7 $10.0 $20.7
Write-down of fixed assets 6.2 6.6 12.8
Inventory liquidation costs 2.2 4.7 6.9
Fabric inventory liquidation 2.6 1.3 3.9
Other expenses 1.4 2.7 4.1
----- ----- -----
Total restructuring charge $23.1 $25.3 $48.4
===== ===== =====
</TABLE>
22
<PAGE>
NMG does not anticipate additional charges related to this restructuring and
does not currently contemplate any future restructuring charges.
Substantially all of the savings which are expected to result from the
restructuring are attributable to the elimination of losses generated by the
closed stores. Fiscal 1994 losses attributable to the closed stores were
approximately $4.5 million for Contempo Casuals and $8.3 million for
Pastille. In addition, NMG anticipates other cost savings due to the
streamlining of foreign buying, product development and other business
processes. As of October 31, 1994, all of the Contempo Casuals and Pastille
stores provided for in the restructuring charge were closed, and
substantially all cash payments for lease terminations were completed.
PROFESSIONAL SERVICES
Revenues from the professional services segment decreased 3% to $141.8
million in 1994 from $146.3 million in 1993. The decrease was a result of
lower group sales, principally attributable to two major corporate projects
that contributed significantly fewer revenues in 1994 compared to 1993.
Operating earnings for the professional services segment were $22.1
million in 1994 compared with $28.4 million in 1993. The 22.3% decrease was
the result of reduced group sales and operating expenses at levels comparable
to the previous year.
CORPORATE EXPENSES
Corporate expenses decreased 25.1%, or $11.9 million, to $35.5 million in 1994.
The decrease in corporate expenses was the result of effective cost controls
across substantially all administrative groups as well as lower employee
benefit costs, professional fees and one-time charges related to corporate
activities as compared to 1993.
INVESTMENT INCOME
Investment income remained essentially unchanged at $14.2 million, compared
to $14.1 million in 1993. Slightly lower invested balances were offset by
slightly higher rates of return.
INTEREST INCOME
Interest expense increased $1.6 million to $86.2 million in 1994. The
increase resulted from higher interest rates and increased borrowings under
the NMG credit agreements.
OTHER INCOME
Other income in 1993 includes a $20.8 million pre-tax gain from the reduction
in the level of NMG's estimated liabilities due to the settlement of various
legal and tax issues with Carter Hawley Hale Stores, Inc., now Broadway Stores,
Inc.
INCOME TAXES
The effective income tax rate was 36.0% in 1994, compared to 37.5% in 1993.
The decrease in the rate is primarily due to lower state tax expenses.
DISCONTINUED OPERATIONS
Included in 1994 earnings from discontinued operations are after-tax earnings
related to the insurance business of $37.1 million, an after-tax gain of $8.0
million on the sale of the insurance business, and $35.0 million related to
the settlement of certain tax matters associated with the sale of the
Company's soft drink bottling business in 1989. The 1993 earnings from
discontinued operations include after-tax earnings from insurance and theatre
operations of $46.0 million and $5.8 million, respectively.
OPERATING RESULTS 1993 VS. 1992
Net earnings applicable to common shareholders were $171.3 million in 1993, or
$2.15 per share, compared to net earnings of $494.5 million, or $6.25 per
share, in 1992. The 1993 and 1992 results have been restated to reflect the
insurance and theatre businesses as discontinued operations. The 1993 net
earnings include earnings of $46.0 million from the insurance business;
earnings of $5.8 million from the theatre business; and other income of
$12.2 million from NMG's settlement of legal and tax issues with Carter Hawley
Hale Stores, Inc., now Broadway Stores, Inc. The 1992 net earnings include
$27.7 million of earnings from the insurance business; earnings of $6.2 million
from the theatre business; an after-tax gain on the retirement of Harcourt
Brace debt of $419.6 million; and an after-tax charge of $33.0 million relating
to the adoption of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS 106).
PUBLISHING
Publishing revenues increased 9.2% to $944.5 million in 1993, primarily the
result of strong sales of new elementary and secondary textbooks. These
increases were partially offset by the absence of $18.6 million in revenues
generated in 1992 by the Company's Weber Costello subsidiary, which was sold
in August 1992.
23
<PAGE>
Operating earnings in 1993 were $142.2 million, compared to $124.5
million in 1992, an increase of 14.2%. The increase is attributable to
incremental textbook revenues partially offset by the impact of increased
operating expenses associated with the higher sales activity.
SPECIALITY RETAILING
Total revenues from specialty retailing increased 11.5% to $2.02 billion from
$1.81 billion in fiscal 1992, benefiting from a new Neiman Marcus store in
Troy, Michigan; 52 weeks of revenues from the Neiman Marcus store in
Scottsdale, Arizona in 1993 compared to 42 weeks in 1992; 10 incremental
Contempo Casuals stores; and 31 incremental Pastille stores. Comparable
revenues for NMG increased 6.6%.
Operating earnings from specialty retailing were $120.2 million in 1993,
a 47.5% increase from $81.5 million in 1992. The earnings increase reflects
higher transaction volume and improved gross margins at both the Neiman
Marcus Division and Bergdorf Goodman partially offset by an operating loss at
Contempo Casuals.
PROFESSIONAL SERVICES
Revenues from the professional services segment increased 20.5% in 1993 to
$146.3 million from $121.4 million in 1992, benefiting from increased corporate
downsizing and restructuring activities.
Operating earnings for the professional services segment were $28.4
million in 1993, compared with $23.9 million in 1992. The improvement was
primarily due to increased revenues partially offset by higher labor costs.
CORPORATE EXPENSES
Corporate expenses increased $5.4 million to $47.3 million in 1993, primarily
due to higher employee and director benefit costs, professional fees and
other corporate activities.
INVESTMENT INCOME
Investment income declined $9.2 million to $14.1 million in 1993, primarily
due to lower interest rates and a lower average portfolio balance. The 1992
portfolio included $1.3 billion of cash for a 25-day period prior to the
Company's merger with Harcourt Brace.
INTEREST EXPENSE
Interest expense decreased $0.9 million to $84.6 million in 1993. A higher
level of NMG debt was more than offset by lower interest rates on NMG
borrowings.
OTHER INCOME AND EXPENSE
Other income in 1993 includes a $20.8 million pre-tax gain from the reduction
in the level of NMG's estimated liabilities due to the settlement of various
legal and tax issues with Carter Hawley Hale Stores, Inc., now Broadway
Stores, Inc. Other income in 1992 reflects an $11.6 million gain on the
exchange of Cadbury Schweppes stock for subordinated debentures of the
Company.
INCOME TAXES
The effective income tax rate was 37.5% in 1993 compared to 40.2% in 1992.
The lower 1993 rate reflects lower state and foreign tax expenses.
DISCONTINUED OPERATIONS
Discontinued operations include after-tax earnings of the insurance and
theatre businesses amounting to $46.0 million and $5.8 million in 1993,
respectively, and $27.7 million and $6.2 million in 1992, respectively. The
after-tax charge of $6.2 million in 1992 represents the insurance and theatre
businesses' portion of the cumulative effect of a change in accounting for
postretirement health care benefits.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents totaled $819.7 million at October 31, 1994, an increase
of $352.7 million from the previous year. Working capital increased $414.4
million to $1.1 billion in 1994. The increase in cash was principally due to
the sale of the Company's insurance business, positive cash flows from
operations and increases in short-term borrowings, reduced by capital
expenditures, dividend payments and publishing acquisitions.
Cash provided by continuing operating activities in 1994 was $189.8
million, compared to $210.1 million in 1993. All major business segments
generated positive cash flows from operations.
Investing activities in 1994 included $410.4 million of proceeds from the
sale of the insurance business. Capital expenditures were $196.2 million in
1994, compared to $159.9 million in 1993; publishing acquisitions were
$36.2 million in 1994.
Publishing capital expenditures in 1994 totaled $122.8 million and were
principally related to prepublication costs. Capital investment in the
publishing business is expected to approximate $150.0 million in fiscal 1995,
which also will be primarily for prepublication costs.
24
<PAGE>
Specialty retailing capital expenditures in 1994 totaled $65.1 million and
were primarily related to store renovation and expansion projects. Future store
renovation and expansion plans include the opening of three new Neiman Marcus
stores by the end of calendar 1996; the renovation of three Neiman Marcus
stores in fiscal 1995; and the construction of a national service and
distribution center. Capital expenditures for NMG are currently estimated at
$100.0 million in fiscal 1995.
Financing activities primarily reflect additional NMG borrowings of $73.8
million under its revolving credit agreements. On October 31, 1994, the
Company's consolidated long-term liabilities totaled $1.2 billion, an increase
of $70.6 million from the previous year. Long-term liabilities in 1994 include
$560.2 million of NMG obligations, which are not guaranteed by Harcourt
General. At year-end, the Company's consolidated ratio of long-term debt to
equity was 1.19 to 1, compared to 1.11 to 1 in 1993. Excluding NMG's debt, the
Company's debt to equity ratio was .65 to 1, compared to .64 to 1 in the
previous year. Dividend payments totaled $47.2 million in 1994 compared to
$44.0 million in 1993.
The Company has a revolving credit agreement with thirteen banks, pursuant
to which the Company may borrow up to $400.0 million. The revolving credit
agreement expires on December 16, 1999. With the exception of amounts
outstanding under NMG's credit facilities, there were no borrowings outstanding
during 1994 or at October 31, 1994.
NMG has a revolving credit agreement with nine banks, pursuant to which NMG
may borrow up to $300.0 million, of which $100.0 million expires during fiscal
1995; $175.0 million expires in fiscal 1996; and $25.0 million may be
terminated on not less than three years' notice. NMG may terminate the
agreement at any time. Borrowings under this agreement were $295.0 million at
July 30, 1994. NMG has additional revolving credit agreements with six banks
under which NMG may borrow up to $25.0 million from each financial
institution. These agreements expire on March 31, 1995. Borrowings under
these agreements were $11.0 million at July 30, 1994. NMG anticipates that it
will be able to secure additional or new financing to supplement and replace
existing credit arrangements.
In addition to its funded debt, the Company has significant lease
commitments which require cash outflows. Lease payments attributable to
continuing operations totaled $113.1 million in 1994, and minimum lease
payments are expected to approximate $81.1 million in 1995.
The Company believes its financial resources are more than sufficient to
meet its foreseeable cash requirements.
SEASONALITY
The Company's businesses are seasonal in nature. More than one-half of annual
operating earnings are generated in the third quarter of the Company's fiscal
year since that quarter includes the important educational publishing selling
season. Conversely, first and second quarter operating earnings are expected
to be minimal during a period when publishing sales are at their lowest level
and that business segment typically reports operating losses. Those losses
partially offset retail earnings, which are at their highest point in the
Company's second quarter, which includes NMG's holiday selling season.
IMPACT OF INFLATION
The Company's financial statements are prepared on an historical cost basis
under generally accepted accounting principles. The Company uses the last-in,
first-out (LIFO) method of accounting for all domestic publishing inventories
and for approximately 83% of its retail inventories, or approximately 82% of
the consolidated inventory reported in its financial statements. Thus, the
cost of goods sold approximates current cost.
The Company adjusts selling prices to maintain profit levels and will
continue to do so as competitive conditions permit. In general, management
believes that the impact of inflation or of changing prices is not material
to the results of operations in its business segments.
DIVIDENDS
The Company has a long-standing policy of returning a portion of its earnings
and cash flow to shareholders through the payment of cash dividends. In
September 1994, the Board of Directors voted to increase the quarterly cash
dividend on the Common Stock to 16 cents per share. The Board also increased
the quarterly cash dividend on the Series A Stock to 18.35 cents per share and
on the Class B Stock to 14.40 cents per share. This is the 26th consecutive
year in which cash dividends have been increased.
NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," which is effective for fiscal years beginning after December 15,
1993. The Company does not expect that its planned adoption of this standard in
fiscal 1995 will have a material impact on its financial position or results
of operations.
25
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31 1994 1993
- ----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 819,659 $ 466,925
Accounts receivable - trade, net 578,575 493,384
Inventories 466,177 470,525
Deferred income taxes 90,501 20,016
Other current assets 66,096 53,095
---------- ----------
TOTAL CURRENT ASSETS 2,021,008 1,503,945
========== ==========
PROPERTY AND EQUIPMENT
Land, buildings and improvements 445,968 494,438
Fixtures and equipment 378,691 301,941
---------- ----------
824,659 796,379
Less accumulated depreciation and amortization 302,989 279,838
---------- ----------
TOTAL PROPERTY AND EQUIPMENT, NET 521,670 516,541
========== ==========
OTHER ASSETS
Prepublication costs, net 164,160 137,959
Intangible assets 422,566 400,028
Other 112,960 108,807
---------- ----------
TOTAL OTHER ASSETS 699,686 646,794
========== ==========
NET ASSETS OF DISCONTINUED OPERATIONS - 464,127
---------- ----------
TOTAL ASSETS $3,242,364 $3,131,407
========== ==========
- ----------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
Harcourt General, Inc. and Subsidiaries
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
October 31 1994 1993
- ---------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Notes payable and current maturities of long-term liabilities $ 119,529 $ 64,904
Accounts payable 273,098 283,693
Accrued liabilities 363,333 339,120
Taxes payable 71,209 35,322
Other current liabilities 47,835 49,331
---------- ----------
TOTAL CURRENT LIABILITIES 875,004 772,370
========== ==========
LONG-TERM LIABILITIES
Notes and debentures 915,464 923,618
Other long-term liabilities 207,877 183,753
---------- ----------
TOTAL LONG-TERM LIABILITIES 1,123,341 1,107,371
========== ==========
DEFERRED INCOME TAXES 196,664 200,088
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
PREFERRED STOCK
Series A Cumulative Convertible - $1 par value
Issued and outstanding - 1,453 and 1,996 shares 1,453 1,996
COMMON STOCKS
Class B Stock - $1 par value
Issued and outstanding - 21,444 and 21,934 shares 21,444 21,934
Common Stock - $1 par value
Issued and outstanding - 56,443 and 55,373 shares 56,443 55,373
PAID-IN CAPITAL 726,505 861,928
CUMULATIVE TRANSLATION ADJUSTMENTS (4,710) (5,524)
RETAINED EARNINGS 246,220 115,871
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,047,355 1,051,578
========== ==========
TOTAL LIABILITY AND SHAREHOLDERS' EQUITY $3,242,364 $3,131,407
========== ==========
</TABLE>
See notes to consolidated financial statements.
Harcourt General, Inc. and Subsidiaries
27
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years ended October 31 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands except for per share amounts)
<S> <C> <C> <C>
Revenues $3,154,222 $3,107,711 $2,795,081
Costs applicable to revenues 1,911,919 1,847,692 1,630,081
Selling, general and administrative expenses 934,091 969,256 935,049
Corporate expenses 35,456 47,307 41,876
Restructuring of Contempo Casuals 48,401 - -
---------- ---------- ----------
OPERATING EXPENSES 224,355 243,456 188,075
Investment income 14,239 14,072 23,239
Interest expense (86,219) (84,585) (85,442)
Other income, net - 18,303 8,341
---------- ---------- ----------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, EXTRAORDINARY GAIN AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 152,375 191,246 134,213
Income tax expense (54,855) (71,792) (54,017)
---------- ---------- ----------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY GAIN AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 97,520 119,454 80,196
EARNINGS FROM DISCONTINUED OPERATIONS, NET 80,012 51,879 27,674
---------- ---------- ----------
EARNINGS BEFORE EXTRAORDINARY GAIN
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 177,532 171,333 107,870
Extraordinary gain on elimination of debt, net - - 419,557
Charge for cumulative effect of change in accounting
for postretirement health care benefits, net - - (32,967)
---------- ---------- ----------
NET EARNINGS $ 177,532 $ 171,333 $ 494,460
========== ========== ==========
AMOUNTS PER SHARE OF COMMON STOCK
Earnings from continuing operations before extraordinary
gain and cumulative effect of accounting change $ 1.22 $ 1.50 $ 1.01
Earnings from discontinued operations, net 1.00 .65 .35
Extraordinary gain, net - - 5.30
Cumulative effect of accounting change, net - - (.41)
---------- ---------- ----------
NET EARNINGS $ 2.22 $ 2.15 $ 6.25
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
Harcourt General, Inc. and Subsidiaries
28
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended October 31 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from continuing operations $ 97,520 $119,454 $ 80,196
Adjustments to reconcile earnings to net
cash provided by continuing operations:
Depreciation and amortization 163,094 169,254 53,417
Other income - (20,755) -
Deferred income taxes (38,909) 13,145 (1,943)
Gain on sales of long-term assets - - (11,633)
Other 10,932 19,566 17,564
Changes in assets and liabilities:
Accounts receivable (86,499) (105,218) (66,894)
Inventories 2,622 (61,870) 3,486
Other current assets 6,870 (11,746) (11,541)
Accounts payable and accrued liabilities 34,187 88,246 38,686
-------- -------- --------
189,817 210,076 201,338
Discontinued theatre operating activities - 43,687 32,295
-------- -------- --------
Net cash provided by operating activities 189,817 253,763 233,633
======== ======== ========
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (196,160) (59,860) (185,997)
Proceeds from sale of insurance business 410,432 - -
Acquisitions (36,215) - -
Other investing activities (9,570) (2,057) (10,650)
-------- -------- --------
168,487 (161,917) (196,647)
Discontinued operations investing activities - (82,984) (38,803)
-------- -------- --------
Net cash provided (used) by investing activities 168,487 (244,901) (235,450)
======== ======== ========
CASH FLOW FROM FINANCING ACTIVITIES
Cash used to purchase Harcourt Brace debt - - (1,369,473)
Issuance of debt 73,800 77,200 369,330
Repayment of debt (30,325) (6,500) (150,000)
Dividends paid (47,183) (43,997) (40,826)
Equity transactions, net (1,862) 632 4,546
-------- -------- --------
Net cash provided (used) by financing activities (5,570) 27,335 (1,186,423)
======== ======== ========
CASH AND EQUIVALENTS
Increase (decrease) during the year 352,734 36,197 (1,188,240)
Beginning balance 466,925 430,728 1,618,968
-------- -------- --------
ENDING BALANCE $819,659 $466,925 $ 430,728
======== ======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 82,409 $ 82,280 $ 109,944
Income taxes $ 56,821 $ 84,087 $ 59,192
Non-cash items:
Tax settlement in discontinued operations $ 35,000 - -
Extraordinary gain, net - - $ 419,557
Charge for accounting change - - $ (32,967)
</TABLE>
See notes to consolidated financial statements.
Harcourt General, Inc. and Subsidiaries
29
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative Retained
Common Series A Paid-in Translation Earnings
(In thousands) Stocks Stock Capital Adjustments (Deficit)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 31, 1991 $ 75,160 $ 3,855 $854,240 $ 4,598 ($465,099)
Net earnings - - - - 494,460
Cash dividends paid - - - - (40,826)
Conversion of Series A Stock 965 (965) - - -
Translation adjustments - - - (8,007) -
Other equity transactions, net 167 - 5,893 - -
------- ------ -------- ------ ---------
BALANCE AT OCTOBER 31, 1992 76,292 2,890 860,133 (3,409) (11,465)
Net earnings - - - - 171,333
Cash dividends paid - - - - (43,997)
Conversion of Series A Stock 894 (894) - - -
Translation adjustments - - - (2,115) -
Other equity transactions, net 121 - 1,795 - -
------- ------ -------- ------ --------
BALANCE AT OCTOBER 31, 1993 77,307 1,996 861,928 (5,524) 115,871
Net earnings - - - - 177,532
Cash dividends paid - - - - (47,183)
Conversion of Series A Stock 543 (543) - - -
Translation adjustments - - - 814 -
Spinoff of theatre operations - - (135,804) - -
Other equity transactions, net 37 - 381 - -
------- ------ -------- ------ ---------
BALANCE AT OCTOBER 31, 1994 $ 77,887 $1,453 $726,505 ($4,710) $246,220
======== ====== ======== ======= =========
- ---------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
Harcourt General, Inc. and Subsidiaries
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Harcourt
General, Inc. (the Company or Harcourt General) and its majority-owned
subsidiaries. The consolidated financial statements of The Neiman Marcus
Group, Inc. (NMG) are consolidated with a lag of one fiscal quarter. All
significant intercompany accounts and transactions have been eliminated.
CASH AND EQUIVALENTS
Cash and equivalents consist of cash and liquid debt instruments such as
commercial paper and certificates of deposit with maturities of three months
or less from the date of purchase. Cash and equivalents are stated at cost
plus accrued interest, which approximates market value. The Company's
practice is to invest cash with financial institutions that have acceptable
credit ratings and to limit the amount of credit exposure to any one
financial institution.
ACCOUNTS RECEIVABLE
Certain publications are sold to customers with a right of return. Revenues
from such sales represent gross sales less a provision for future returns.
Returned goods included in inventory are valued at estimated realizable value
not exceeding cost.
Accounts receivable are reported net of both an allowance for book returns
of $49.1 million in 1994 and $49.7 million in 1993 and an allowance for
doubtful accounts of $26.4 million in 1994 and $20.4 million in 1993.
INVENTORIES
Inventories are stated at the lower of cost or market. All domestic
publishing inventories are valued using the last-in, first-out (LIFO) method.
Approximately 83% of retail inventories are valued using the retail method on
a LIFO basis. The remaining retail inventories are valued using the retail or
cost method on a first-in, first-out (FIFO) basis.
If the FIFO method of inventory valuation had been used to value all
inventories, the inventories would have been $24.6 million and $22.2 million
higher than reported at October 31, 1994 and October 31, 1993, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided using straight-line or accelerated methods over the estimated useful
lives of the related assets or over the terms of the related leases, if
shorter.
When property and equipment are retired or have been fully depreciated,
the cost and the related accumulated depreciation are eliminated from the
respective accounts. Gains or losses arising from the dispositions are
reported as income or expense.
PREPUBLICATION COSTS
Prepublication costs are amortized using the sum-of-the-years-digits method
over the estimated useful lives not exceeding five years.
INTANGIBLE ASSETS
Intangible assets represent trademarks and goodwill. Amortization is provided
on a straight-line method over the estimated useful lives of these assets not
exceeding forty years.
INCOME TAXES
Effective November 1, 1993, income taxes are calculated in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting
for Income Taxes." SFAS 109 requires the asset and liability method of
accounting for income taxes. Prior to November 1993, the Company accounted
for income taxes in accordance with Accounting Principles Board Opinion No.
11. The effects of adopting SFAS 109 were not material to the Company's
financial position or results of operations.
RECEIVABLES AND FINANCE CHARGE INCOME
NMG extends credit to its specialty retailing customers. NMG's retail credit
operations generate finance charge income which is treated as a reduction of
selling, general and administrative expenses. Finance charge income amounted
to $54.3 million in 1994, $36.3 million in 1993 and $28.3 million in 1992.
Credit risk with respect to trade receivables is limited due to the large
number of customers to whom the Company extends credit. Collateral is not
required as a condition of extending credit, but credit evaluation of
customers' financial position is performed. The Company maintains reserves
for potential credit losses.
Harcourt General, Inc. and Subsidiaries
31
<PAGE>
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common share is based upon the weighted average number of common
and, when dilutive, common equivalent shares outstanding during the year.
Weighted average shares outstanding amounted to 79.8 million shares in 1994,
79.6 million shares in 1993 and 79.1 million shares in 1992.
Earnings per common and common equivalent share, assuming full dilution,
have not been presented because the dilutive effect is not material.
CHANGES IN PRESENTATION
Certain prior year amounts have been reclassified to conform to the current
year presentation and to reflect the sale of the insurance operations in 1994
and the spinoff of the theatre operations in 1993.
2. DISCONTINUED OPERATIONS
Discontinued operations consist of the following:
<TABLE>
<CAPTION>
Years ended October 31 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Earnings from insurance operations, net of income taxes
of $20,844, $24,835 and $15,067 $37,056 $46,036 $27,731
Gain on sale of insurance operations, net of income taxes
of $4,475 7,956 - -
Tax settlements 35,000 - -
Earnings from theatre operations, net of income taxes
of $6,958 and $3,863 - 10,503 6,172
Theatre spinoff transaction expenses - (4,660) -
Cumulative effect of change in accounting for
postretirement health care benefits - - (6,229)
-------- -------- --------
EARNINGS FROM DISCONTINUED OPERATIONS, NET $80,012 $51,879 $27,674
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
INSURANCE OPERATIONS
Pursuant to a Stock Purchase Agreement dated June 30, 1994, the Company sold
its insurance businesses to an affiliate of General Electric Capital
Corporation ("GECC"). The transaction closed on October 31, 1994. GECC paid
the Company $410.4 million in cash, as specified in the Stock Purchase
Agreement. The consolidated financial statements have been restated to report
separately the net assets and operating results of these discontinued
operations. Revenues applicable to discontinued insurance operations were
$485.8 million in 1994, $548.0 million in 1993 and $464.6 million in 1992.
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 $135.8 million of net theatre assets including
$64.0 million in cash. Each common shareholder of the Company received one
share of Common Stock in GCC for every ten shares of Harcourt General Common
and Class B shares held on December 10, 1993, the record date for the
distribution. In connection with the distribution, GCC and Harcourt General
entered into various agreements which govern their ongoing relationship,
including a Reimbursement and Security Agreement, an Intercompany Services
Agreement, a Tax Agreement and certain subleases.
Under the Reimbursement and Security Agreement, GCC granted to Harcourt
General a security interest in the stock of its theatre subsidiaries in order
to secure GCC's obligation to indemnify Harcourt General from losses Harcourt
General may incur due to its secondary liability on theatre leases which were
transferred to GCC as part of the spinoff. In addition, GCC has agreed to
certain financial covenants designed to protect Harcourt General from
incurring such liabilities.
Under the Intercompany Services Agreement, Harcourt General provides
certain management, accounting, financial, legal, tax and other corporate
services to GCC. The fees for these services are based on Harcourt General's
costs and are subject to the approval of a committee of directors of GCC who
are not affiliated with Harcourt General. This agreement may be terminated on
90 days' notice. The fees for these services totaled $1.7 million in fiscal
1994. The Company's Chairman of the Board serves as the Chairman, President and
Chief Executive Officer of GCC, and the Company's Chief Executive Officer and
President serves as a director of GCC.
Revenues applicable to discontinued theatre operations were $495.0
million in 1993 and $457.2 million in 1992.
Harcourt General, Inc. and Subsidiaries
32
<PAGE>
TAX SETTLEMENTS
The Company recognized $35.0 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.
3. DESCRIPTION OF CONTINUING OPERATIONS
PUBLISHING
Harcourt Brace & Company (Harcourt Brace) publishes textbooks and other
materials for elementary and secondary schools and colleges, as well as
scientific, technical, medical and professional books and journals, fiction,
non-fiction and children's books. It publishes and scores tests that measure
individual aptitude and competency and also conducts bar examination and
accounting accreditation review courses.
SPECIALTY RETAILING
NMG operates three specialty retailing businesses: Neiman Marcus, Bergdorf
Goodman and Contempo Casuals. Neiman Marcus operates 27 stores in 14 states
and the District of Columbia. Bergdorf Goodman operates two stores in New
York City, and Contempo Casuals operates 246 stores in 33 states and Puerto
Rico. In addition, Neiman Marcus and Bergdorf Goodman operate mail order
businesses through NM Direct.
PROFESSIONAL SERVICES
Drake Beam Morin provides human resources management consulting services such
as career transition, outplacement and other consulting services to
organizations and individuals worldwide.
<TABLE>
ADDITIONAL FINANCIAL INFORMATION
<CAPTION>
Years ended October 31 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
REVENUES
Publishing $ 919,498 $ 944,545 $ 865,336
Specialty retailing 2,092,906 2,016,914 1,808,354
Professional services 141,818 146,252 121,391
........... ........... ...........
Total revenues $ 3,154,222 $3,107,711 $ 2,795,081
----------- ----------- -----------
OPERATING EARNINGS
Publishing $ 165,436 $ 142,177 $ 124,503
Specialty retailing 120,704 120,191 81,510
Professional services 22,072 28,395 23,938
Corporate expenses (35,456) (47,307) (41,876)
Restructuring of Contempo Casuals (48,401) - -
........... ........... ...........
TOTAL OPERATING EARNINGS $ 224,355 $ 243,456 $ 188,075
----------- ----------- -----------
IDENTIFIABLE ASSETS
Publishing $ 842,850 $ 739,746 $ 811,614
Specialty retailing 1,408,238 1,362,657 1,221,693
Professional services 69,562 55,973 46,587
Corporate 921,714 973,031 382,714
........... ........... ...........
TOTAL IDENTIFIABLE ASSETS $ 3,242,364 $3,131,407 $ 2,462,608
----------- ----------- -----------
CAPITAL EXPENDITURES
Publishing $ 122,761 $ 92,864 $ 106,491
Specialty retailing 65,074 56,325 73,933
Professional services 6,910 4,813 2,892
Corporate 1,415 5,858 2,681
........... ........... ...........
TOTAL CAPITAL EXPENDITURES $ 196,160 $ 159,860 $ 185,997
----------- ----------- -----------
DEPRECIATION AND AMORTIZATION
Publishing $ 94,879 $ 104,603 $ 91,403
Specialty retailing 60,833 59,025 57,376
Professional services 4,006 3,036 2,205
Corporate 3,376 2,590 2,433
........... ........... ...........
Total depreciation and amortization $ 163,094 $ 169,254 $ 153,417
----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Harcourt General, Inc. and Subsidiaries
33
<PAGE>
4. INTANGIBLE ASSETS
<TABLE>
Intangible assets consisted of the following at October 31:
<CAPTION>
(In thousands) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $431,645 $394,452
Trademarks 73,000 73,000
Other 17,492 17,205
........ ........
TOTAL 522,137 484,657
Accumulated amortization (99,571) (84,629)
........ ........
TOTAL $422,566 $400,028
======== ========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
During 1994, the Company acquired several publishing related companies for
$36.2 million in cash. Those operations are reflected in the Company's
statement of earnings from the date of acquisition.
Amortization expense was $14.9 million in 1994, $14.4 million in 1993 and
$14.3 million in 1992.
5. THE NEIMAN MARCUS GROUP, INC.
The Company owns 21.4 million shares of NMG Common Stock, all 0.5 million
outstanding shares of the NMG 9 1/4% Cumulative Redeemable Preferred Stock
(9 1/4% Preferred Stock) and all 1.0 million outstanding shares of the NMG 6%
Cumulative Convertible Preferred Stock (6% Preferred Stock). On a
fully-converted basis the shares presently owned by the Company represent
approximately 65% of the voting power and equity of NMG.
The 6% Preferred Stock is entitled to vote on all matters and is
convertible on a per share basis into approximately 8.99 shares of NMG Common
Stock, subject to certain antidilution adjustments. The conversion price for
the 6% Preferred Stock at October 31, 1994 was approximately $41.70 per share
of Common Stock, which was substantially above the $14.38 market price of NMG
Common Stock on October 31, 1994.
The earnings and cash flows of NMG are not available to the Company
except through NMG dividend payments.
In August 1990, NMG adopted a dividend reinvestment plan enabling all
shareholders to invest their dividends in shares of NMG Common Stock. The
Company reinvested $15.6 million in fiscal 1993 and $30.9 million in fiscal
1992 of common and preferred dividends in additional shares of NMG's Common
Stock. The Company ceased participation in NMG's dividend reinvestment plan
after the January 1993 dividend payment.
The Company and NMG are parties to an agreement pursuant to which the
Company provides certain management, accounting, financial, legal, tax and
other corporate services to NMG. The fees for these services are based
on the Company's costs and are subject to the approval of a committee of
directors of NMG who are not affiliated with the Company. This agreement may
be terminated by either party on 180 days' notice. Charges to NMG were $6.9
million in 1994, $7.2 million in 1993 and $6.4 million in 1992.
The Company's Chairman of the Board; President and Chief Executive
Officer; Senior Vice President and Chief Financial Officer; and Senior Vice
President and General Counsel as well as certain other officers of the
Company serve in similar capacities with NMG. The first two named officers
also serve as directors of both companies.
6. LONG-TERM LIABILITIES
<TABLE>
Long-term liabilities of Harcourt General and NMG at October 31, 1994 and 1993
were as follows:
<CAPTION>
(In thousands) Interest Rate Maturity 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HARCOURT GENERAL
Revolving credit agreement Variable December 1999 - -
Senior debt 8.25% June 2002 $ 149,291 $ 149,225
Senior debt 8.88% June 2022 147,945 147,928
Subordinated notes 9.38% June 1997 124,750 124,657
Subordinated notes 9.50% March 2000 124,841 124,808
Other long-term liabilities Various Various 135,775 130,332
.......... ..........
TOTAL HARCOURT GENERAL $ 682,602 $ 676,950
========== ==========
NMG
Revolving credit agreements Variable Various $ 306,000 $ 232,200
Senior notes 9.83% May 1994 - 10,000
Senior notes 9.89% May 1996 40,000 40,000
Senior notes 9.59% August 1996 52,000 52,000
Senior notes 9.24% December 1996 40,000 40,000
Senior notes Variable December 1996 40,000 40,000
Other long-term liabilities Various Various 82,268 81,125
.......... ..........
TOTAL NMG 560,268 495,325
Less current maturities (119,529) (64,904)
.......... ..........
TOTAL LONG-TERM LIABILITIES $1,123,341 $1,107,371
========== ==========
</TABLE>
Harcourt General, Inc. and Subsidiaries
<PAGE> 34
The Company has a revolving credit agreement with thirteen banks, pursuant to
which the Company may borrow up to $400.0 million. The agreement, which
expires on December 16, 1999, may be terminated by the Company at any time on
three business days' notice. The rate of interest payable is determined
according to the senior debt rating of the Company and one of four pricing
options selected by the Company. The Company is required to pay a facility
fee on the total amount of the revolving credit facility at an annual rate
dependent upon the senior debt rating of the Company. Based on the Company's
present senior debt rating, the annual facility fee is equal to 0.125%.
Other long-term liabilities of Harcourt General consist primarily of a
liability for postretirement health care benefits and provisions for other
employee benefits (see Note 12).
NMG has a revolving credit agreement with nine banks pursuant to which
NMG may borrow up to $300.0 million. NMG may terminate the agreement at any
time. The rate of interest payable (4.8% at July 30, 1994) varies according
to one of four pricing options selected by NMG. At July 30, 1994, under the
terms of the agreement, the amount available for dividend payments by NMG was
$121.5 million. Borrowings under this agreement were $295.0 million and
$205.0 million at July 30, 1994 and July 31, 1993, respectively.
NMG also has revolving credit agreements with six banks, pursuant to
which NMG may borrow up to $25.0 million from each bank. All six of these
credit agreements expire on March 31, 1995. Borrowings under these agreements
were $11.0 million and $17.2 million at July 30, 1994 and July 31, 1993,
respectively.
In addition to its revolving credit agreements, NMG borrows from other
banks on an uncommitted basis. Such bank borrowings are included in notes
payable and current maturities of long-term liabilities and amounted to $10.0
million at July 31, 1993.
The NMG senior notes have no sinking fund requirements. All fixed rate
senior notes may be redeemed at a premium plus accrued interest. The variable
rate note bears interest at LIBOR plus 0.7% (4.83% at July 30, 1994) and is
adjusted semi-annually.
Other long-term liabilities of NMG consist primarily of the present value
of certain employee benefit obligations assumed by NMG, postretirement health
care benefits and a provision for certain scheduled rent increases. The
present value of the employee benefit obligations assumed by NMG increases on
average by 10% annually.
<TABLE>
The aggregate maturities of all long-term liabilities are as follows:
<CAPTION>
Harcourt
(In thousands) General NMG Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995 $ 2,900 $116,600 $119,500
1996 3,600 217,900 221,500
1997 128,300 138,400 266,700
1998 4,200 6,400 10,600
1999 3,200 6,500 9,700
Thereafter 540,400 74,500 614,900
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Certain of Harcourt General's and NMG's loan agreements contain, among other
restrictions, provisions limiting the issuance of additional debt and
guarantees, the purchase of the Company's capital stock and the payment of
dividends. Certain of these loan agreements also require the maintenance of
minimum net worth. Under the most restrictive of these covenants, $250.0
million was available for the payment of dividends by Harcourt General.
7. SHAREHOLDERS' EQUITY
SERIES A CUMULATIVE CONVERTIBLE STOCK
Each share of Series A Stock is convertible into 1.1 shares of Common Stock,
and is entitled to a quarterly dividend equal to the quarterly dividend on
each share of Common Stock multiplied by 1.1, plus $.0075. Each share of
Series A Stock is entitled to a liquidation preference of $5.00 plus any
accrued but unpaid dividends. Liquidation proceeds remaining after the
satisfaction of such preference and the payment of $4.55 per share of Common
Stock would be distributed ratably to the holders of Common Stock and Series
A Stock. There were 10,000,000 shares of Series A Stock authorized for
issuance at October 31, 1994.
CLASS B STOCK AND COMMON STOCK
The Class B Stock is not transferable except to family members and related
entities but is convertible at any time on a share-for-share basis into
Common Stock. The holders of Class B Stock are entitled to cash dividends
which are 10% lower per share than the cash dividends paid on each share of
Common Stock. The Class B Stock and the Common Stock are each entitled to
vote separately as a class on charter amendments, mergers, consolidations and
certain extraordinary transactions which are required to be approved by
shareholders under Delaware law. Under certain circumstances, the holders of
Class B Stock have the right to cast 10 votes per share for the election of
directors. There were 40,000,000 and 100,000,000 shares of Class B Stock and
Common Stock authorized for issuance at October 31, 1994, respectively.
Harcourt General, Inc. and Subsidiaries
35
<PAGE>
COMMON STOCK INCENTIVE PLANS
The Company has established stock incentive plans which provide for the
granting of stock options, stock appreciation rights (SARs), restricted stock
and other stock-based awards.
Eligible employees have been granted 10-year options under the 1981 Stock
Option Plan and the 1988 Stock Incentive Plan. No further grants may be made
under the 1981 plan. The number of authorized shares available for future
awards under the 1988 Stock Incentive Plan was 1.3 million shares of Common
Stock at October 31, 1994.
Options outstanding at October 31, 1994 were granted at prices (not less
than 100% of the fair market value on the date of grant) varying from $13.34
to $32.75 per share and expire between 1995 and 2004. There were 73 employees
with options outstanding, and the weighted average exercise price for all
options outstanding was $17.87 at October 31, 1994.
There were 2.1 million shares of Common Stock reserved at October 31, 1994
for issuance upon the exercise of stock options.
The Company has allowed SAR treatment in connection with the exercise of
certain options. Optionees allowed SAR treatment surrender an exercisable
option for an amount of cash equal to the excess of the market price of the
Common Stock at the time of surrender over the option exercise price.
<TABLE>
Option activity on the Company's Common Stock was as follows:
<CAPTION>
Years ended October 31 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding - beginning of year 919,911 918,432 852,030
Granted 107,550 105,250 461,338
Exercised (33,805) (131,676) (217,408)
SAR surrenders (68,860) (32,346) (40,900)
Cancelled (169,084) (19,680) (136,628)
........ ........ ........
OPTIONS OUTSTANDING - END OF YEAR 755,712 839,980 918,432
======== ======== ========
EXERCISABLE OPTIONS - END OF YEAR 422,477 452,800 486,402
======== ======== ========
RESTRICTED COMMON STOCK ISSUED - - 100,000
======== ======== ========
</TABLE>
The number of options outstanding and their exercise prices were adjusted
pursuant to a formula as a result of the spinoff of GCC in December 1993. The
adjustment increased the number of options outstanding at the beginning of
fiscal 1994 by approximately 80,000.
8. INCOME TAXES
<TABLE>
A reconciliation of the statutory federal income tax rates to the Company's
effective tax rate is as follows:
<CAPTION>
Years ended October 31 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
(In thousands) Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Statutory tax (expense) $(53,331) (35) $(66,936) (35) $(45,632) (34)
State income taxes, net of federal tax effect (3,418) (2) (5,214) (2) (4,961) (3)
Tax credits 193 - 704 - 842 -
Dividends received exclusion 2,042 1 1,646 1 1,435 1
Foreign tax rate differentials 265 - 310 - 264 -
Permanent items (5,268) (3) (3,920) (2) (6,475) (4)
Capital gains and other 4,662 3 1,618 1 510 -
INCOME TAX (EXPENSE) ........ ... ........ ... ........ ...
FROM CONTINUING OPERATIONS $(54,855) (36) $(71,792) (37) $(54,017) (40)
======== === ======== === ======== ===
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Income tax expense was as follows:
<CAPTION>
Years ended October 31 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
CURRENT
Federal $42,439 $56,446 $54,408
State 6,118 4,425 7,990
DEFERRED
Federal 7,157 8,647 (6,815)
State (859) 2,274 (1,566)
....... ....... .......
INCOME TAX EXPENSE $54,855 $71,792 $54,017
======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Harcourt General, Inc. and Subsidiaries
36
<PAGE>
<TABLE>
Significant components of the net deferred tax liabilities stated on a gross
basis were as follows:
<CAPTION>
October 31 1994
- ------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C>
GROSS DEFERRED TAX ASSETS
Accrued liabilities and reserves $ 97,026
Employee benefits 32,278
Postretirement health care benefits 37,001
Inventories 28,225
Difference in basis of assets acquired 42,772
........
Total gross deferred tax assets 237,302
Valuation allowance (25,538)
........
Net deferred tax assets 211,764
GROSS DEFERRED TAX LIABILITIES
Property, equipment, prepublication costs and intangibles 147,170
Pension and employee benefits accrual 21,340
Difference in basis of assets acquired 124,072
Accrued liabilities and reserves 25,345
........
Total gross deferred tax liabilities 317,927
........
NET DEFERRED TAX LIABILITIES $106,163
========
</TABLE>
<TABLE>
The tax benefit (expense) of deferred items was as follows:
<CAPTION>
October 31 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Depreciation and amortization ($8,525) ($ 1,451)
Settlements (8,600) 704
Inventory valuation 255 3,183
Other 5,911 1,449
....... ........
Deferred tax benefit (expense) (10,959) 3,885
Amounts included in current deferred taxes (1,355) 4,911
....... ........
(12,314) 8,796
Discontinued operations:
Theatre 18,657 -
Insurance (831) (6,853)
Extraordinary item and accounting change - (70,582)
....... ........
Net change in deferred taxes $5,512 ($68,639)
======= ========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
9. RESTRUCTURING OF CONTEMPO CASUALS
In April 1994, NMG recorded a pre-tax charge of $48.4 million related to the
decision to close 40 under-performing Contempo Casuals retail stores and all
of the Pastille retail stores which had been operated by Contempo Casuals.
This charge included an estimate for lease termination costs, the write-down
of fixed assets, inventory liquidation costs and other related expenses.
Accrued liabilities includes $14.4 million related to this charge.
10. INVESTMENT AND OTHER INCOME (EXPENSE)
<TABLE>
Investment and other income (expense) consisted of the following:
Years ended October 31 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income $ 5,510 $ 7,139 $ 11,342
Dividend income 8,729 6,933 11,897
........ ........ .........
TOTAL INVESTMENT INCOME $ 14,239 $14,072 $ 23,239
======== ======== =========
OTHER INCOME (EXPENSE)
Broadway Stores, Inc. settlement - $20,755 -
Gain on sale of securities - - $ 11,633
Other - (2,452) (3,292)
........ ........ .........
TOTAL OTHER INCOME (EXPENSE) - $18,303 $ 8,341
======== ======== =========
</TABLE>
Harcourt General, Inc. and Subsidiaries
37
<PAGE>
When NMG was formed in 1987 as part of the restructuring of Carter Hawley Hale
Stores, Inc., now Broadway Stores, Inc. (CHH), NMG and CHH entered into a
variety of agreements, including agreements regarding the allocation of taxes
and the guarantee by NMG of certain CHH employee benefits.
In October 1992, CHH successfully emerged from Chapter 11 with the result
that all legal and tax issues between the parties were settled. NMG paid CHH
$7.7 million and was discharged as guarantor of certain CHH employee
benefits. NMG reevaluated its liabilities to CHH and recognized a gain on
settlement of these liabilities of $20.8 million in fiscal 1993.
11. MERGER WITH HARCOURT BRACE & COMPANY
Harcourt Brace & Company was acquired on November 25, 1991 through an exchange
of stock and the purchase of approximately $1.7 billion of certain Harcourt
Brace indebtedness for approximately $1.1 billion in cash. This acquisition was
accounted for as a pooling-of-interests. Subsequent to the acquisition, all
remaining Harcourt Brace indebtedness was purchased from bondholders for
approximately $188.0 million in cash. In the aggregate, these purchases
resulted in a net extraordinary gain on a consolidated basis of $419.6
million, net of $175.0 million of costs associated with the acquisition of the
debt including transaction fees, redemption premiums, other direct costs and
taxes.
12. COMMITMENTS AND CONTINGENCIES
LEASES
The Company and NMG have long-term operating leases primarily for retail
stores, distribution centers, offices, other facilities and equipment. Leases
are generally for periods of up to thirty years with renewal options at fixed
rentals. Certain leases also provide for additional rentals based on revenues
in excess of predetermined levels.
<TABLE>
Rent expense for continuing operations under operating leases for the years
ended October 31 was as follows:
<CAPTION>
(In thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rent $ 103,731 $102,823 $ 95,297
Rent based on revenues 9,400 8,200 7,300
......... ......... .........
$ 113,131 $111,023 $ 102,597
========= ========= =========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Assuming renewal options are not exercised, the future minimum rental payments
will be as follows:
<CAPTION>
Harcourt
(In thousands) General NMG Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995 $25,900 $ 55,200 $ 81,100
1996 25,300 53,200 78,500
1997 22,000 50,900 72,900
1998 17,300 47,300 64,600
1999 13,900 43,800 57,700
Thereafter 74,000 1,100,000 1,174,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Harcourt General is secondarily liable for certain lease obligations that
were transferred to and assumed by GCC in connection with the spinoff of GCC.
Under the terms of the Reimbursement and Security Agreement between GCC and
Harcourt General, GCC is obligated to indemnify Harcourt General against
liabilities with respect to such transferred obligations. As of October 31,
1994, future rental payments due under such theatre leases amounted to
approximately $802.1 million.
PENSION PLANS
Harcourt General and NMG each have non-contributory defined benefit pension
plans covering substantially all full-time employees other than union
employees. Harcourt General and NMG also sponsor unfunded supplemental
executive retirement plans which provide certain employees with additional
pension benefits. Benefits under the plans are based on employees' years of
service and compensation prior to retirement. When funding is required, the
policy is to contribute amounts that are deductible for federal income tax
purposes.
Harcourt General, Inc. and Subsidiaries
38
<PAGE>
<TABLE>
Net pension expense for continuing operations was as follows:
<CAPTION>
Years ended October 31 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In millions)
Harcourt General $(3.1) $(1.8) $(1.4)
NMG (6.3) (6.5) (5.7)
...... ..... .....
NET PENSION EXPENSE $(9.4) $(8.3) $(7.1)
====== ===== =====
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Net pension expense for both Harcourt General and NMG included the following components:
<CAPTION>
Years ended October 31 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Service cost - benefits earned $(11.2) $(9.5) $(8.2)
Interest cost on projected benefit obligation (9.8) (8.7) (7.7)
Actual return on assets 2.8 17.6 15.8
Net amortization and deferral 8.8 (7.7) (7.0)
...... ..... .....
NET PENSION EXPENSE $ (9.4) $(8.3) $(7.1)
====== ===== =====
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The following table sets forth the plans' funded status and amounts recognized
in the consolidated balance sheets
<CAPTION>
at October 31:
(In millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
FUNDED UNFUNDED Funded Unfunded
PLANS PLANS Plans Plans
<S> <C> <C> <C> <C>
VESTED BENEFIT OBLIGATION $(92.4) $(14.0) $(91.6) $(12.4)
====== ====== ======= ======
ACCUMULATED BENEFIT OBLIGATION $(96.8) $(16.3) $(95.2) $(14.3)
====== ====== ======= ======
Projected benefit obligation $(122.9) $(23.9) $(118.6) $(20.6)
Plan assets at fair value 144.9 - 162.5 -
..... ...... ....... ......
Assets in excess of (less than) projected obligation 22.0 (23.9) 43.9 (20.6)
Unrecognized net (asset) obligation at transition 0.5 2.8 (2.9) 1.4
Unrecognized net (gain) loss 15.7 2.0 (3.3) 1.4
Unrecognized prior service cost 1.5 (0.2) 2.9 1.7
PREPAID (ACCRUED) PENSION COST RECOGNIZED IN THE ..... ...... ....... ......
CONSOLIDATED BALANCE SHEETS $39.7 $(19.3) $ 40.6 $(16.1)
===== ====== ======= ======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Plan assets include $8.9 million and $9.9 million of Harcourt General Common
and Series A Stock at October 31, 1994 and 1993, respectively, and consist
primarily of equity and fixed income securities.
<TABLE>
The plans' funded status by company as of October 31 was as follows:
<CAPTION>
(In millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
FUNDED UNFUNDED Funded Unfunded
PLANS PLANS Plans Plans
<S> <C> <C> <C> <C>
Harcourt General $24.4 $(4.7) $27.0 $(3.9)
NMG 15.3 (14.6) 13.6 (12.2)
..... ...... ..... ......
$39.7 $(19.3) $40.6 $(16.1)
===== ====== ===== ======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Assumptions used in the computation of pension costs for Harcourt General and
NMG were as follows:
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
HG NMG HG NMG HG NMG
<S> <C> <C> <C> <C> <C>
Discount rate 7.5% 7.5% 7.5% 8.5% 8.5% 8.5%
Long-term rate of return on plan assets 9.0% 9.0% 9.0% 9.0% 9.0% 10.0%
Rate of increases in future compensation levels 6.0% 5.0% 6.0% 6.0% 6.0% 6.0%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to the pension plans, Harcourt General and NMG each have two
defined contribution plans for certain employees. The Savings Plans permit
employee contributions and provide for certain matching contributions. The
Employee Stock Ownership Plans are non-contributory.
Harcourt General, Inc. and Subsidiaries
39
<PAGE>
POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides health care benefits for retired employees which are
funded as claims are incurred. Retirees and active employees hired prior to
March 1, 1989 are eligible for these benefits if they meet certain service
and minimum age requirements. Beginning in fiscal 1992, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." This
statement requires accrual of these postretirement health care benefits
during the years in which an employee provides services. The Company paid $3.7
million during fiscal 1994 and $3.0 million during fiscal 1993 for
postretirement health care benefit claims.
<TABLE>
The actuarial present value of accumulated postretirement benefit obligations
and the amounts recognized in the Company's consolidated balance sheets as of
October 31 were as follows:
<CAPTION>
(In thousands) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retirees $49,449 $61,053
Fully eligible active plan participants 6,901 8,308
Other active plan participants 14,876 18,545
....... .......
Accumulated postretirement benefit obligation 71,226 87,906
Unrecognized net gain (loss) 7,880 (8,880)
....... .......
ACCRUED POSTRETIREMENT BENEFIT LIABILITY $79,106 $79,026
======= =======
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The postretirement benefit cost for continuing operations was as follows:
Years ended October 31 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Service cost $1,257 $1,519
Interest cost on accumulated benefit obligation 4,891 6,239
...... ......
POSTRETIREMENT BENEFIT COST $6,148 $7,758
====== ======
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 18% in 1993 and 16% in 1994, gradually
declining to 5% in the year 2005. Measurement of the accumulated
postretirement benefit obligation was based on an assumed 7.5% discount rate
in both 1994 and 1993.
An increase of 1% in the health care cost trend rate would increase the
accumulated postretirement obligation as of October 31, 1994 by $4.8 million.
This change would increase the annual expense by $0.4 million.
LITIGATION
Both Harcourt General and NMG are involved in various suits and claims in the
ordinary course of business. Management does not believe that the disposition
of such suits and claims will have a material adverse effect on the financial
position or continuing operations of Harcourt General or NMG.
LETTERS OF CREDIT
NMG had approximately $38.7 million of irrevocable letters of credit relating
to purchase commitments outstanding at July 30, 1994.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
During the normal course of business, the Company uses various financial
instruments. Discussed below is the fair value of financial instruments not
presented elsewhere in these financial statements.
INTEREST RATE SWAP
During September 1991, NMG entered into an interest rate swap agreement
having a notional principal amount of $50.0 million that effectively fixes
NMG's interest rate on variable rate debt at 8.94%. The amount to be paid or
received is accrued as interest rates change and is recognized over the life
of the agreement. The interest rate swap matures in September 1996. The fair
value of the interest rate swap is the amount at which it could be settled,
based on estimates obtained from dealers. The estimated unrealized pre-tax
loss on the interest rate swap was approximately $2.8 million at July 30, 1994,
$6.6 million at July 31, 1993 and $5.2 million at August 1, 1992. This amount
changes during the life of the swap as a function of maturity, interest rates
and the credit standing of the parties to the swap agreement. The incremental
pre-tax interest expense incurred due to the interest rate swap agreement was
$2.3 million in 1994, $2.4 million in 1993 and $1.3 million in 1992.
Harcourt General, Inc. and Subsidiaries
40
<PAGE>
LONG-TERM DEBT
The fair value of Harcourt General's and NMG's senior debt and subordinated
notes was $734.7 million on October 31, 1994 and was based upon comparable
publicly-traded issues.
14. COMPARATIVE QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The 1994 and 1993 comparative quarterly financial information has been
restated to reflect the discontinued insurance and theatre operations.
<TABLE>
<CAPTION>
(In thousands except for per share data) 1994
- ---------------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 703,751 $ 832,678 $ 815,114 $ 802,679 $ 3,154,222
=========== ========== ========== ========== ===========
GROSS PROFIT $ 260,698 $ 283,072 $ 365,109 $ 333,424 $ 1,242,303
=========== ========== ========== ========== ===========
EARNINGS FROM
Continuing operations $ 5,923 $ 2,920 $ 45,521 $ 43,156 $ 97,520
Discontinued operations 14,039 8,394 43,664 13,915 80,012
........... .......... .......... ........... ...........
NET EARNINGS $ 19,962 $ 11,314 $ 89,185 $ 57,071 $ 177,532
----------- ---------- ---------- ----------- -----------
NET EARNINGS PER COMMON SHARE FROM
Continuing operations $ .07 $ .04 $ .57 $ .54 $ 1.22
Discontinued operations .18 .10 .55 .17 1.00
........... .......... .......... ........... ...........
Net earnings $ .25 $ .14 $ 1.12 $ .71 $ 2.22
=========== ========== ========== =========== ==========
DIVIDENDS PER SHARE
Common Stock $ 0.15 $ 0.15 $ 0.15 $ 0.16 $ 0.61
Class B Stock $ 0.135 $ 0.135 $ 0.135 $ 0.144 $ 0.549
Series A Stock $ 0.1725 $ 0.1725 $ 0.1725 $ 0.1835 $ 0.7010
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(In thousands except for per share data) 1993
- ---------------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 668,811 $ 792,019 $885,775 $ 761,106 $ 3,107,711
=========== ========== ========= ========== ===========
GROSS PROFIT $ 273,186 $ 246,936 $423,360 $ 316,537 $ 1,260,019
=========== ========== ========= ========== ===========
EARNINGS (LOSS) FROM
Continuing operations $ 15,452 ($ 4,541) $ 93,352 $ 15,191 $ 119,454
Discontinued operations 16,353 10,346 13,403 11,777 51,879
----------- ---------- --------- ---------- -----------
Net earnings $ 31,805 $ 5,805 $106,755 $ 26,968 $ 171,333
=========== ========== ========= ========== ===========
NET EARNINGS (LOSS) PER COMMON SHARE FROM
Continuing operations $ .19 ($ .06) $ 1.17 $ .19 $ 1.50
Discontinued operations .21 .13 .17 .15 .65
........... .......... .......... ........... ...........
NET EARNINGS $ .40 $ .07 $ 1.34 $ .34 $ 2.15
=========== ========== ========== =========== ===========
DIVIDENDS PER SHARE
Common Stock $ 0.14 $ 0.14 $ 0.14 $ 0.15 $ 0.57
Class B Stock $ 0.126 $ 0.126 $ 0.126 $ 0.135 $ 0.513
Series A Stock $ 0.1475 $ 0.1475 $0.1475 $ 0.1575 $ 0.60
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Harcourt General, Inc. and Subsidiaries
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Harcourt General, Inc.
Chestnut Hill, Massachusetts
We have audited the consolidated balance sheets of Harcourt General, Inc.
and its subsidiaries as of October 31, 1994 and 1993 and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended October 31, 1994. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harcourt
General, Inc. and its subsidiaries as of October 31, 1994 and 1993 and the
results of their operations and their cash flows for each of the three years
in the period ended October 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 12 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" in fiscal 1992.
Deloitte & Touche LLP
Boston, Massachusetts
December 5, 1994
STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Harcourt General, Inc. and its subsidiaries is
responsible for the integrity and objectivity of the financial and operating
information contained in this Annual Report, including the consolidated
financial statements covered by the Independent Auditors' Report. These
statements were prepared in conformity with generally accepted accounting
principles and include amounts that are based on the best estimates and
judgments of management.
The Company maintains a system of internal financial controls which
provides management with reasonable assurance that transactions are recorded
and executed in accordance with its authorization; that assets are properly
safeguarded and accounted for; and that records are maintained so as to permit
preparation of financial statements in accordance with generally accepted
accounting principles. This system includes written policies and procedures,
an organizational structure that segregates duties, and a comprehensive program
of periodic audits by the internal auditors. The Company has policies and
guidelines which require employees to maintain a high level of ethical
standards. In addition, the Audit Committee of the Board of Directors,
consisting solely of outside directors, meets periodically with management, the
internal auditors and the independent auditors to review internal accounting
controls, audit results and accounting principles and practices, and recommend
the selection of independent auditors to the Board of Directors.
John R. Cook
Senior Vice President and Chief Financial Officer
Stephen C. Richards
Vice President and Controller
Harcourt General, Inc. and Subsidiaries
42
<PAGE>
FIVE YEAR SUMMARY - (Unaudited) (1)(2)
<TABLE>
<CAPTION>
(In thousands except for per share amounts) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Publishing $ 919,498 $ 944,545 $ 865,336 $ 807,689 $ 853,725
Specialty retailing 2,092,906 2,016,914 1,808,354 1,744,800 1,688,611
Professional services 141,818 146,252 121,391 103,795 82,212
---------- ---------- ---------- ---------- ----------
TOTAL $3,154,222 $3,107,711 $2,795,081 $2,656,284 $2,624,548
========== ========== ========== ========== ==========
OPERATING EARNINGS (LOSS)
Publishing $ 165,436 $ 142,177 $ 124,503 ($ 73,792) $ 121,650
Specialty retailing 120,704 120,191 81,510 82,277 99,191
Professional services 22,072 28,395 23,938 14,309 17,062
Corporate expenses (35,456) (47,307) (41,876) (40,706) (42,072)
Merger and restructuring charges (48,401) - - (72,777) -
---------- ---------- ---------- ---------- ----------
Operating earnings (loss) 224,355 243,456 188,075 (90,689) 195,831
Investment income 14,239 14,072 23,239 128,533 124,411
Interest expense (86,219) (84,585) (85,442) (348,260) (363,021)
Other income (expense), net - 18,303 8,341 (15,171) 126,020
---------- ---------- ---------- ---------- ----------
Earnings (loss) from continuing operations
before income taxes, extraordinary item
and cumulative effect of accounting change 152,375 191,246 134,213 (325,587) 83,241
Income tax (expense) benefit (54,855) (71,792) (54,017) 57,780 (38,493)
---------- ---------- ----------- ---------- ----------
Earnings (loss) from continuing operations
before extraordinary item and cumulative
effect of accounting change 97,520 119,454 80,196 (267,807) 44,748
Discontinued operations, net 80,012 51,879 27,674 (25,315) (14,365)
Extraordinary item, net - - 419,557 - -
Accounting change, net - - (32,967) - -
---------- ---------- ---------- ---------- ----------
Net earnings (loss) 177,532 171,333 494,460 (293,122) 30,383
Dividends on Harcourt Brace
preferred stock - - - 12,684 18,242
NET EARNINGS (LOSS) APPLICABLE
TO COMMON SHAREHOLDERS $ 177,532 $ 171,333 $ 494,460 ($ 305,806) $ 12,141
========== ========== ========== ========== ==========
Depreciation and amortization $ 163,094 $ 169,254 $ 153,417 $ 293,776 $ 153,678
Capital expenditures 196,160 159,860 185,997 164,917 136,106
Total assets 3,242,364 2,805,878 2,675,962 3,908,330 4,154,008
Total long-term liabilities 1,123,341 1,107,371 1,086,053 980,224 2,658,734
Weighted average number of common and
common equivalent shares outstanding 79,809 79,625 79,139 78,876 79,027
AMOUNTS PER SHARE OF
COMMON STOCK
Earnings (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting change $ 1.22 $ 1.50 $ 1.01 ($ 3.40) $ .57
Net earnings (loss) applicable to
common shareholders $ 2.22 $ 2.15 $ 6.25 ($ 3.88) $ .15
Dividends paid on common stock $ .61 $ .57 $ .53 $ .49 $ .45
- ---------------------------------------------------------------------------------------------------------------------------
(1) In October 1994, the Company sold its insurance operations. Effective
December 15, 1993, the Company distributed its theatre operations to the
Company's shareholders. In November 1989, Harcourt Brace sold its six
theme parks and related land holdings.
(2) Prior year amounts have been restated to reflect the sale of the
Company's insurance operations.
Harcourt General, Inc. nd Subsidiaries
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
<S> <C> <C>
DIRECTORS EXECUTIVE OFFICERS OPERATING OFFICERS
RICHARD A. SMITH (1)(4) RICHARD A. SMITH PUBLISHING
Chairman of the Board Chairman of the Board
and Chairman of the JAMES P. LEVY
Executive Committee ROBERT J. TARR, JR. President
President, Chief Harcourt Brace Education Group
SIDNEY STONEMAN (4) Executive Officer and
Vice Chairman of the Board Chief Operating Officer BRIAN J. KNEZ
President
WILLIAM F. CONNELL (2)(4) JOHN R. COOK Harcourt Brace STMP Group
Chairman and Senior Vice President
Chief Executive Officer, and Chief Financial Officer SPECIALTY RETAILING
Connell Limited Partnership
ERIC P. GELLER BURTON TANSKY
JACK M. GREENBERG (2)(3) Senior Vice President, Chairman and Chief
Vice Chairman and General Counsel and Secretary Executive Officer
Chief Financial Officer, Neiman Marcus Stores
McDonald's Corporation ROBERT A. SMITH
Group Vice President B.D. FEIWUS
HERBERT W. JARVIS (2)(4) President and
Former President and STAFF OFFICERS Chief Executive Officer
Chief Executive Officer, NM Direct
Sybron Corporation PETER FARWELL
and Director of several Vice President-Corporate STEPHEN C. ELKIN
corporations Relations Chairman and Chief Executive
Officer
LYNN MORLEY MARTIN (3)(4) PAUL F. GIBBONS Bergdorf Goodman
Former U.S. Secretary of Labor and Vice President and
former member of U.S. House of Treasurer ROBERT S. KELLEHER
Representatives; Davee Chair, J.L. President and Chief
Kellogg School of Management at GERALD T. HUGHES Operating Officer
Northwestern University; Advisor, Vice President-Human Contempo Casuals
Deloitte & Touche LLP and Director Resources
of several corporations PROFESSIONAL SERVICES
MICHAEL F. PANUTICH
MAURICE SEGALL (3) Vice President- WILLIAM J. MORIN
Former Chairman and Chief Executive General Auditor Chairman and Chief
Officer, Zayre Corp.; Senior Executive Officer
Lecturer, M.I.T. and Director of STEPHEN C. RICHARDS Drake Beam Morin
several corporations Vice President and
Controller
ROBERT A. SMITH (1)
Group Vice President CRAIG B. SWAIN
Vice President-
DR. PAULA STERN (2) Planning and Analysis
Former Chairwoman, U.S. International
Trade Commission; President, The Stern
Group, Inc.; Senior Fellow,
Progressive Policy Institute and
Director of several corporations
ROBERT J. TARR, JR. (1)
President, Chief
Executive Officer and
Chief Operating Officer
HUGO UYTERHOEVEN (2)(3)(4)
Timken Professor of
Business Administration,
Harvard Business School
DR. CLIFTON R. WHARTON, JR.
Former Chairman and Chief
Executive Officer, TIAA-CREF
and Director of several
companies
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Nominating Committee
</TABLE>
44
<PAGE>
SHAREHOLDER INFORMATION
Requests for general information or published financial information can be made
in writing to the Corporate Relations Department, Harcourt General, Inc.,
27 Boylston Street, Chestnut Hill, MA 02167. Telephone: (617) 232-8200.
To hear the latest company news, including quarterly earnings releases,
or to request printed financial information or leave a message for the
Company's Transfer Agent, individuals may call The Shareholder Line at
(800) 225-9194, Extension 2345.
AUTOMATIC DIVIDEND REINVESTMENT AND CASH STOCK PURCHASE PLAN
The Plan provides stockholders with a convenient way to purchase Common shares
by reinvesting their Common and Series A cash dividends and/or by investing
additional cash amounts. The Company will absorb all brokerage and agency
fees for stock purchased in connection with the Plan. For further information,
please call The Shareholder Line or write to: Harcourt General, Inc., c/o The
First National Bank of Boston, Automatic Dividend Reinvestment Plan, Post
Office Box 1681, Boston, MA 02105.
TRANSFER AGENT AND REGISTRAR FOR COMMON, SERIES A AND CLASS B
STOCK
The First National Bank of Boston
Shareholder Services Division
Mail Stop 45-01-05
Post Office Box 644
Boston, MA 02102-0644
(800) 442-2001
FORM 10-K
The Company's Form 10-K as filed with the Securities and Exchange Commission is
available upon written request to the Corporate Relations Department of the
Company.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on Friday, March 10, 1995 at
10:00 a.m. at The First National Bank of Boston, 100 Federal Street, Boston,
Massachusetts.
STOCK INFORMATION
Harcourt General's Common Stock and Series A Cumulative Convertible Stock are
traded on the New York Stock Exchange under the symbols H and HPRA,
respectively. The following table indicates the quarterly price range of the
Common Stock and Series A Stock for the past two fiscal years. The prices for
fiscal 1993 and the "high" price for the first quarter of fiscal 1994 are prior
to the tax-free distribution of shares in GC Companies, Inc., which was
effective on December 15, 1993.
<TABLE>
<CAPTION>
COMMON STOCK
Quarter 1994 1993
- --------------------------------------------------------------
High Low High Low
<S> <C> <C> <C> <C>
First $44.00 $32.00 $38.13 $28.50
Second $37.88 $30.25 $37.50 $31.25
Third $39.50 $32.25 $40.00 $32.63
Fourth $38.00 $31.25 $46.13 $37.50
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SERIES A STOCK
Quarter 1994 1993
- --------------------------------------------------------------
High Low High Low
<S> <C> <C> <C>
First $42.00 $35.00 $37.13 $28.00
Second $40.25 $34.88 $36.63 $32.75
Third $41.75 $37.50 $39.00 $33.75
Fourth $40.25 $35.25 $46.00 $40.25
- --------------------------------------------------------------
</TABLE>
Harcourt General had 12,803 and 13,398 Common shareholders of record at
October 31, 1994 and 1993, respectively, and 691 and 847 Series A shareholders
of record at October 31, 1994 and 1993, respectively. Following an adjustment
related to the spinoff of GC Companies, the Series A shares are now convertible
into Common Stock on a 1:1.1 basis.
CORPORATE ADDRESS
Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02167
(617) 232-8200
Harcourt General is an Equal Opportunity Employer.
This book is printed on recycled paper.
<PAGE>
HARCOURT GENERAL, INC.
27 BOYLSTON STREET
CHESTNUT HILL, MA 02167
<PAGE>
HARCOURT
GENERAL,
INC.
1994
ANNUAL
REPORT
Exhibit 21.1
<TABLE>
HARCOURT GENERAL, INC.
SUBSIDIARIES & AFFILIATES
(includes Harcourt Brace and Neiman Marcus Group companies)
<CAPTION>
JURISDICTION
OF
NAME OF SUBSIDIARY INCORPORATION STOCKHOLDER
<S> <C> <C>
Acadata (London) Limited England Harcourt Brace & Company Limited (50%)
Academic Press, Inc. New York Harcourt Brace & Company
Academic Press Limited England Harcourt Brace & Company Limited (99%)
Harcourt Brace & Company (1%)
Bailliere Tindall Limited England Harcourt Brace & Company Limited (99%)
Harcourt Brace & Company (1%)
Bergdorf Goodman, Inc. New York Neiman Marcus Holdings, Inc.
Bergdorf Graphics, Inc. New York Bergdorf Goodman, Inc.
Books for Professionals, Inc. Delaware Harcourt Brace & Company
Broadcasters, Inc. Texas Neiman Marcus Holdings, Inc.
C.C. Group Limited Hong Kong The Neiman Marcus Group, Inc. (50%)
Contempo Casuals (50%)
Contempo Casuals California The Neiman Marcus Group, Inc.
Coronado Publishers, Inc. Delaware Academic Press, Inc.
DBM de Mexico, S.A. de C.V. Mexico Drake Beam Morin, Inc. (99%)
DBM International, Inc. (1%)
DBM France, S.A. France Drake Beam Morin, Inc. (99%)
DBM International, Inc. Delaware Drake Beam Morin, Inc.
DBM Training and Consulting, Inc. Delaware Drake Beam Morin, Inc.
Devices for Learning, Inc. Delaware Harcourt Brace & Company
Drake Beam Morin-Canada, Inc. Ontario Drake Beam Morin, Inc.
Drake Beam Morin, Inc. Delaware SIFTCO, Inc.
Drake Beam Morin plc England and Drake Beam Morin, Inc.
Wales
Emcor, Inc. Delaware Harcourt General, Inc.
Executive In Residence, Inc. New York Drake Beam Morin, Inc.
Foundation for Marine Animal
Husbandry, Inc. Florida Harcourt Brace & Company
GCC Films, Inc. Delaware Harcourt General, Inc.
GCC Investment Trust Massachusetts Hammond Pond Investments, Inc. (50%)
Emcor, Inc. (50%)
GCC Land Co., Inc. Delaware Harcourt General, Inc.
General Cinema Broadcasting, Inc. Delaware Harcourt General, Inc.
GMN, INC. Delaware Harcourt General, Inc.
Grune & Stratton, Inc. New York Harcourt Brace & Company
Grune & Stratton Limited England Harcourt Brace & Company Limited (50%)
Harcourt Brace & Company (50%)
Hammond Pond Investments, Inc. Massachusetts SIFTCO, Inc.
Harcourt Brace & Company Delaware SIFTCO, Inc.
Harcourt Brace & Company
Australia Pty. Limited Australia Harcourt Brace & Company (99%)
Harcourt Brace & Company
Canada, Ltd. Ontario HRW and WBS Canada Corporation, Inc.
Harcourt Brace & Company Limited England Academic Press, Inc. (99%)
Harcourt Brace & Company (1%)
Harcourt Brace & Company Australia Harcourt Brace & Company
New Zealand Pty. Limited Australia Pty. Limited
Harcourt Brace FSC, Inc. U.S. Virgin Harcourt Brace & Company
Islands
Harcourt Brace Japan, Inc. Japan Harcourt Brace & Company (99.17%)
Harcourt Brace Legal and Delaware SIFTCO, Inc.
Professional Publications, Inc.
Harcourt General Charitable
Foundation, Inc. Massachusetts Harcourt General, Inc.
Harcourt General Services, Inc. Delaware Harcourt General, Inc.
Health Careers Academy New Jersey
Heritage Land Company, Inc. Oklahoma Harcourt Brace & Company
Holt, Rinehart and Winston, Inc. Delaware Harcourt Brace & Company
Holt, Rinehart and Winston
Limited England W. B. Saunders Company Limited (99%)
Harcourt Brace & Company (1%)
Holt, Rinehart & Winston Harcourt Brace & Company (99%)
Publishing Asia Limited Hong Kong Harcourt Brace & Company Australia Pty. Limited (1%)
HRW and WBS Canada
Corporation, Inc. New York Harcourt Brace & Company
HRW Distributors, Inc. Delaware Harcourt Brace & Company
Human Nature, Inc. Delaware Harcourt Brace & Company (83%)
Innovation Research, Inc. Delaware Harcourt Brace & Company
Johnson Reprint Company Limited England Harcourt Brace & Company Limited (99%)
Harcourt Brace & Company (1%)
Johnson Reprint Corporation New York Academic Press, Inc.
Last Call, Inc. New Jersey The Neiman Marcus Group, Inc.
Le Group Educalivres Inc. Quebec Harcourt Brace & Company Canada, Ltd.
Jean-Guy Blanchette
Learned & Tested, Inc.,
The Education Company Delaware Harcourt Brace & Company
Miller Accounting
Publications, Inc. Delaware Harcourt Brace & Company
Miller Comprehensive CPA
Review, Inc. Delaware Legal and Professional Publications, Inc.
MSRD, Inc. New York The Psychological Corporation
Neiman Marcus Holdings, Inc. California The Neiman Marcus Group, Inc.
Neiman Marcus Funding Corporation Delaware The Neiman Marcus Group, Inc.
NM Direct de Mexico, S.A. de C.V. Mexico The Neiman Marcus Group, Inc. (99%)
Neiman Marcus Holdings, Inc. (1%)
Pastille, Inc. Delaware The Neiman Marcus Group, Inc.
Pastille By Mail, Inc. Delaware The Neiman Marcus Group, Inc.
Reference Works Limited England W.B. Sauders Company Limited (99%)
Harcourt Brace & Company (1%)
Seminar Press Limited England Harcourt Brace & Company Limited (99%)
Harcourt Brace & Company (1%)
SIFTCO, Inc. Massachusetts Harcourt General, Inc.
T & A D Poyser Limited England Harcourt Brace & Company Limited (50%)
Harcourt Brace & Company (50%)
The Initiative for Better
Learning, Inc. Massachusetts Harcourt Brace & Company
The Marine Research Center
at Sea World, Inc. Florida
The Neiman Marcus Group, Inc. Delaware Harcourt General, Inc. (65%)
The Psychological Corporation New York Harcourt Brace & Company
The Psychological Corporation
Limited England Harcourt Brace & Company Limited (99%)
Harcourt Brace & Company (1%)
W. B. Saunders Company Delaware Harcourt Brace & Company
W. B. Saunders Company Limited England Harcourt Brace & Company Limited (99%)
Harcourt Brace & Company (1%)
</TABLE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statements of Harcourt General, inc. on Form S-3 (Nos. 33-13936
and 33-46148) and Form S-8 (No. 33-26079) of our report dated
December 5, 1994, appearing in and incorporated by reference in
this Annual Report on Form 10-K of Harcourt General, Inc. for the
year ended October 31, 1994.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 27, 1995
<TABLE> <S> <C>
<CAPTION>
EXHIBIT 27.1
Harcourt General
Article 5 of Regulation S-X
<ARTICLE> 5
<LEGEND>
The schedule contains a summary of financial information extracted from the
Consolidated Balance Sheet and Consolidated Statement of Earnings and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1994
<PERIOD-END> Oct-31-1994
<CASH> $ 819,659
<SECURITIES> 0
<RECEIVABLES> 605,014
<ALLOWANCES> 26,439
<INVENTORY> 466,177
<CURRENT-ASSETS> 2,021,008
<PP&E> 824,659
<DEPRECIATION> 302,989
<TOTAL-ASSETS> 3,242,364
<CURRENT-LIABILITIES> 875,004
<BONDS> 915,464
<COMMON> 77,887
0
1,453
<OTHER-SE> 968,015
<TOTAL-LIABILITY-AND-EQUITY> 3,242,364
<SALES> 3,154,222
<TOTAL-REVENUES> 3,154,222
<CGS> 1,911,919
<TOTAL-COSTS> 2,929,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 28,422
<INTEREST-EXPENSE> 86,219
<INCOME-PRETAX> 152,375
<INCOME-TAX> 54,855
<INCOME-CONTINUING> 97,520
<DISCONTINUED> 80,012
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 177,532
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
</TABLE>
