SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended January 31, 1995
Commission File Number 1-4925
HARCOURT GENERAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1619609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, MA 02167
(Address of principal executive offices) (Zip Code)
(617)232-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
As of March 6, 1995, the number of shares outstanding of each of the issuer's
classes of common stock was:
Class Shares Outstanding
Common Stock, $1 Par Value 56,634,663
Class B Stock, $1 Par Value 21,316,009
<PAGE>
HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information
Page Number
Item 1. Condensed Consolidated Balance Sheets as of
January 31, 1995 and October 31, l994 1
Condensed Consolidated Statements of Earnings for the
Three Months Ended January 31, l995 and l994 2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended January 31, l995 and l994 3
Notes to Condensed Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit 11.1 12
Exhibit 27.1 13
<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands)
January 31, October 31,
1995 l994
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 592,942 $ 819,659
Short-term investments 266,984 -
Accounts receivable, net 558,966 578,575
Inventories 559,169 466,177
Deferred income taxes 90,501 90,501
Other current assets 61,621 66,096
Total current assets 2,130,183 2,021,008
Property and equipment, net 527,330 521,670
Other assets:
Prepublication costs, net 163,120 164,160
Intangible assets 418,556 422,566
Other 112,763 112,960
Total other assets 694,439 699,686
Total assets $3,351,952 $3,242,364
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities of
long-term liabilities $ 200,870 $ 119,529
Accounts payable 297,638 273,098
Accrued liabilities 351,724 363,333
Taxes payable 22,908 71,209
Other current liabilities 112,035 47,835
Total current liabilities 985,175 875,004
Long-term liabilities:
Notes and debentures 915,517 915,464
Other long-term liabilities 209,313 207,877
Total long-term liabilities 1,124,830 1,123,341
Deferred income taxes 196,664 196,664
Shareholders' equity:
Preferred stock 1,451 1,453
Common stock 77,921 77,887
Paid-in capital 727,083 726,505
Cumulative translation adjustments (6,795) (4,710)
Retained earnings 245,623 246,220
Total shareholders' equity 1,045,283 1,047,355
Total liabilities and shareholders' equity $3,351,952 $3,242,364
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
(In thousands except
for per share amounts)
For the three months
ended January 31,
1995 1994
<S> <C> <C>
Revenues $720,656 $703,751
Costs applicable to revenues 444,172 443,053
Selling, general and administrative expenses 237,821 224,887
Corporate expenses 9,112 9,377
Operating earnings 29,551 26,434
Investment income 11,124 4,062
Interest expense (22,802) (21,241)
Earnings from continuing operations before
income taxes 17,873 9,255
Income taxes (6,077) (3,332)
Earnings from continuing operations 11,796 5,923
Earnings from discontinued insurance operations - 14,039
Net earnings $ 11,796 $ 19,962
Weighted average number of common and common
equivalent shares outstanding 79,802 79,855
Earnings per common share:
Earnings from continuing operations $ .15 $ .07
Earnings from discontinued insurance operations - .18
Net earnings $ .15 $ .25
Dividends per share:
Common stock $ .16 $ .15
Class B stock $ .144 $ .135
Series A stock $ .1835 $ .1725
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands)
For the three months
ended January 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations $ 11,796 $ 5,923
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Deferred income taxes - (45,345)
Depreciation and amortization 44,322 39,388
Other items (83) 610
Changes in assets and liabilities:
Accounts receivable 20,161 (8,884)
Inventories (92,124) (93,405)
Other current assets 4,540 (3,241)
Current liabilities 28,020 85,785
Net cash provided (used) by operating activities 16,632 (19,169)
Cash flows from investing activities:
Capital expenditures (43,726) (38,118)
Purchase of short-term investments (266,984) -
Net cash used by investing activities (310,710) (38,118)
Cash flows from financing activities:
Proceeds from borrowing, net 81,500 116,200
Repayment of debt (300) (18,852)
Cash dividends paid (12,392) (11,602)
Equity transactions, net (1,447) (2,468)
Net cash provided by financing activities 67,361 83,278
Cash and equivalents
Increase during the period (226,717) 25,991
Beginning balance 819,659 466,925
Ending balance $592,942 $492,916
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of presentation
The condensed consolidated financial statements of Harcourt General, Inc.
(the Company) are submitted in response to the requirements of Form 10-Q
and should be read in conjunction with the consolidated financial
statements in the Company's Annual Report on Form 10-K. In the opinion
of management, these statements contain all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
results for the interim periods presented. The January 31, 1995
condensed consolidated financial statements include the October 29, l994
condensed consolidated financial statements of The Neiman Marcus Group,
Inc. (NMG), which were filed with the Securities and Exchange Commission
on Form 10-Q. The Company owns approximately 65% of the fully-converted
equity of NMG.
The Company's businesses are seasonal in nature, and historically the
results of operations for these periods have not been indicative of the
results for the full year.
2. Short-term investments
Short-term investments, which consisted of commercial paper, certificates
of deposit, corporate debt securities and U.S. Government securities at
January 31, 1995, are carried at cost plus accrued interest, which
approximates market value.
3. Discontinued operations
On October 31, 1994, the Company sold its insurance businesses to an
affiliate of General Electric Capital Corporation for $410.4 million in
cash. The condensed consolidated financial statements for the quarter
ended January 31, 1994 have been restated to report separately the
operating results of these discontinued operations. Revenues applicable
to discontinued insurance operations were $128.5 million for the three
months ended January 31, 1994.
4. Securitization of credit card receivables
On or about March 15, 1995, NMG expects to sell all of its Neiman Marcus
credit card receivables through a subsidiary to a trust in exchange for
certificates representing undivided interests in such receivables.
Certificates representing an undivided interest in $246.0 million of
these receivables will be sold to third parties in a public offering of
$225.0 million 7.60% Class A certificates and $21.0 million 7.75% Class B
certificates. NMG anticipates using the proceeds from this offering to
pay down existing debt. NMG's subsidiary will retain the remaining
undivided interest in the receivables not represented by the Class A and
Class B certificates. A portion of that interest will be subordinated to
the Class A and Class B certificates. NMG will continue to service all
receivables for the trust.
5. Interest rate lock agreements
4
<PAGE>
In anticipation of the $246.0 million securitization of its credit card
receivables, NMG entered into several forward interest rate lock
agreements. The agreements allowed NMG to establish a weighted average
effective rate of approximately 8.0% on the certificates to be issued as
part of the securitization. In March 1995, NMG paid $5.4 million to
settle all of its interest rate lock agreements.
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Stock purchase program
On March 10, 1995, the Board of Directors authorized a "Dutch Auction"
self-tender offer to purchase up to 5,000,000 shares of the Company's
Common Stock. The tender price will range from $36.00 up to $41.50 per
share. The offer is expected to commence on or about March 15, 1995 and
expire on or about April 11, 1995, unless extended.
5
<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended January 31, 1995 versus Three Months Ended January 31, 1994
The following table illustrates revenues and operating earnings by business segment for the three
months ended January 31.
<CAPTION>
<S> <C> <C>
(In thousands) 1995 1994
Revenues:
Publishing $168,490 $160,993
Specialty retailing 519,669 507,634
Professional services 32,497 35,124
Total revenues $720,656 $703,751
Operating earnings (loss):
Publishing ($ 11,901) ($ 7,403)
Specialty retailing 46,426 37,041
Professional services 4,138 6,173
Corporate expenses (9,112) (9,377)
Total operating earnings $ 29,551 $ 26,434
</TABLE>
Publishing
Publishing revenues increased $7.5 million or 4.6% compared to the same period
last year. The increase was primarily due to higher revenues in the
scientific, technical, medical and professional publishing (STMP) group and
the educational publishing group, partially offset by lower revenues from the
international publishing business. The educational publishing group's
increase was due, in part, to the Company's acquisition of the Brown-ROA
religious publishing operation in the second half of fiscal 1994.
The publishing operating loss increased by $4.5 million compared to the same
period last year. The increased operating loss resulted from higher selling
and marketing expenses in the educational publishing group as well as higher
operating expenses related to the Company's 1994 acquisitions, partially
offset by higher operating earnings in the STMP group.
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter. The
operating results of The Neiman Marcus Group, Inc. (NMG) for the quarter ended
October 29, 1994 were consolidated with the operating results of the Company
for the quarter ended January 31, 1995.
Specialty retailing revenues in the thirteen weeks ended October 29, 1994
increased $12.0 million or 2.4% over revenues in the thirteen weeks ended
October 30, 1993. Higher revenues at Neiman Marcus and Bergdorf Goodman were
partially offset by lower revenues at Contempo Casuals. The decrease in
revenues at Contempo Casuals was primarily due to the closing of 40 under-
performing Contempo Casuals retail stores and all of the Pastille retail
stores in the fourth quarter of fiscal 1994.
A 25.3% increase in specialty retailing operating earnings was attributable to
6
<PAGE>
higher revenues, decreased markdowns, reduced occupancy costs as a result of
the Contempo Casuals and Pastille store closings in fiscal 1994, and higher
finance charge income, partially offset by higher selling costs.
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Professional Services
Professional services revenues decreased $2.6 million to $32.5 million in the
1995 first quarter from $35.1 million in the 1994 first quarter. The decrease
reflects lower volume in group and executive outplacement programs.
Professional services operating earnings decreased $2.0 million compared to
the same period in the prior year. The decrease is primarily attributable to
lower revenues.
Investment Income
Investment income increased $7.0 million to $11.1 million from the previous
year. The increase resulted both from a larger portfolio balance and a higher
rate of return on portfolio assets compared to the 1994 first quarter.
Interest Expense
Interest expense increased $1.6 million to $22.8 million compared to the same
period last year. The increase was the result of higher interest rates and
higher outstanding balances on NMG's bank borrowings.
Income Tax Expense
The Company's effective tax rate is expected to be 34% in fiscal 1995 compared
to 36% in fiscal 1994. The decrease is primarily due to lower state and
foreign taxes, and the expected benefit from certain tax advantaged
investments.
New Accounting Standards
During the first quarter of fiscal 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits." The effect of adopting this standard was not
material to the Company's financial position or results of operations.
The Company also adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," during the first quarter of fiscal 1995. The effect of adopting
this standard was not material to the Company's financial position or results
of operations.
7
<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The following discussion analyzes liquidity and capital resources by
operating, investing and financing activities as presented in the Company's
condensed consolidated statement of cash flows.
Cash provided by operating activities for the quarter ended January 31, l995
was $16.6 million. The publishing and professional services business segments
provided $68.5 million of cash from operations while NMG's operations used
$52.2 million of cash. The cash provided by the publishing and professional
services business segments was sufficient to fund their working capital,
capital expenditures and the Company's dividend requirements. NMG increased
its borrowings in order to fund working capital for the holiday season,
capital expenditures and its dividend requirements.
The most significant items affecting working capital were an increase in
inventories of $92.1 million, partially offset by a $28.0 million increase in
other current liabilities and a $20.2 million decrease in accounts receivable.
The increase in inventory was primarily attributable to NMG's holiday season.
Other current liabilities were higher due to the seasonal increase in unearned
subscriptions partially offset by approximately $50.0 million of tax payments
made during the quarter. The decrease in accounts receivable resulted from a
reduction in accounts receivable balances at publishing partially offset by an
increase at NMG.
Cash flows used by investing activities were $310.7 million for the quarter
ended January 31, 1995. The Company's investing activities included capital
expenditures totaling $43.7 million, principally related to publishing and
specialty retailing. Publishing capital expenditures in the 1995 quarter
totaled $22.3 million and were principally related to expenditures for
prepublication costs. Capital expenditures in the publishing business are
expected to approximate $150.0 million in fiscal 1995. Specialty retailing
capital expenditures in the 1995 quarter totaled $20.5 million and were
related to store renovations and expansion projects. Capital expenditures for
NMG in fiscal 1995 are expected to approximate $100.0 million and will
primarily relate to the construction of three new stores and the renovation of
three existing stores.
The Company also purchased $267.0 million of short-term investments during the
quarter. The short-term investments are highly liquid and consist of
commercial paper, certificates of deposit, corporate debt securities and U.S.
Government securities.
Financing activities reflect additional borrowings of $81.5 million under
NMG's revolving credit agreements and the payment of $12.4 million of
dividends. NMG has decided to eliminate the quarterly cash dividend on its
common stock beginning with its third quarter of fiscal 1995. Elimination of
this dividend will conserve approximately $7.6 million of NMG's cash annually.
At January 31, 1995, the Company had $400.0 million available under its
revolving credit agreement with thirteen banks. The revolving credit
agreement expires in December 1999. NMG had $146.0 million available at
8
<PAGE>
January 28, 1995 under its $450.0 million committed credit facilities.
However, $250.0 million of NMG's committed credit facilities will expire on
March 31, 1995. NMG expects to replace its existing committed credit
facilities with a five year $500.0 million revolving credit facility in April
1995.
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
On or about March 15, 1995, NMG expects to sell all of its Neiman Marcus
credit card receivables through a subsidiary to a trust in exchange for
certificates representing undivided interests in such receivables.
Certificates representing an undivided interest in $246.0 million of these
receivables will be sold to third parties in a public offering of $225.0
million 7.60% Class A certificates and $21.0 million 7.75% Class B
certificates. NMG anticipates using the proceeds from this offering to pay
down existing debt. NMG's subsidiary will retain the remaining undivided
interest in the receivables not represented by the Class A and Class B
certificates. A portion of that interest will be subordinated to the Class A
and Class B certificates. NMG will continue to service all receivables for
the trust.
In anticipation of the $246.0 million securitization of its credit card
receivables, NMG entered into several forward interest rate lock agreements.
The agreements allowed NMG to establish a weighted average effective rate of
approximately 8.0% on the certificates to be issued as part of the
securitization. In March 1995, NMG paid $5.4 million to settle all of its
interest rate lock agreements.
On March 10, 1995, the Board of Directors authorized a "Dutch Auction" self-
tender offer to purchase up to 5,000,000 shares of the Company's Common Stock.
The tender price will range from $36.00 up to $41.50 per share. The offer is
expected to commence on or about March 15, 1995 and expire on or about April
11, 1995, unless extended.
The Company believes its cash on hand, cash generated from operations and its
current and future debt capacity will be sufficient to fund its planned
capital growth as well as its operating and dividend requirements.
9
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1 Computation of weighted average number of shares
outstanding used in determining primary and fully diluted
earnings per share.
27.1 Financial data schedule
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on November 14, 1994 to
report the sale of its insurance business.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARCOURT GENERAL, INC.
Date: March 13, 1995 /s/ John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: March 13, 1995 /s/ Stephen C. Richards
Stephen C. Richards
Vice President and
Controller
Principal Accounting
Officer
11
<PAGE>
EXHIBIT 11.1
HARCOURT GENERAL, INC.
Computation of weighted average number of shares outstanding used in
determining primary and fully diluted earnings per share:
(In thousands) For the three months
ended January 31,
1995 1994
PRIMARY
1. Weighted average number of common
shares outstanding 77,911 77,603
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,596 1,861
3. Assumed exercise of certain stock
options based on average
market value 295 391
4. Weighted average number of shares
used in primary per share
computations 79,802 79,855
FULLY DILUTED (A)
1. Weighted average number of common
shares outstanding 77,911 77,603
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,596 1,861
3. Assumed exercise of all dilutive
options based on higher of
average or closing market value 295 398
4. Weighted average number of shares
used in fully diluted per share
computations 79,802 79,862
(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%.<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JAN-31-1995
<CASH> 592,942
<SECURITIES> 266,984
<RECEIVABLES> 588,583
<ALLOWANCES> 29,617
<INVENTORY> 559,169
<CURRENT-ASSETS> 2,130,183
<PP&E> 841,478
<DEPRECIATION> 314,148
<TOTAL-ASSETS> 3,351,952
<CURRENT-LIABILITIES> 985,175
<BONDS> 915,517
<COMMON> 77,921
0
1,451
<OTHER-SE> 965,911
<TOTAL-LIABILITY-AND-EQUITY> 3,351,952
<SALES> 720,656
<TOTAL-REVENUES> 720,656
<CGS> 444,172
<TOTAL-COSTS> 691,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,729
<INTEREST-EXPENSE> 22,802
<INCOME-PRETAX> 17,873
<INCOME-TAX> 6,077
<INCOME-CONTINUING> 11,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,796
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
