SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended July 31, 1996
Commission File Number 1-4925
HARCOURT GENERAL, INC.
(Exact of name of registrant as specified in its charter)
Delaware 04-1619609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 September 10, 1996, the number of shares outstanding of each of the
issuer's classes of common stock was:
Class Shares Outstanding
Common Stock, $1 Par Value 51,061,435
Class B Stock, $1 Par Value 20,051,192
<PAGE>
HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of July 31, 1996
and October 31, 1995 1
Condensed Consolidated Statements of Earnings for the Nine
and Three Months Ended July 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended July 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5-9
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) July 31, October 31,
1996 1995
Assets
<S> <C> <C>
Current assets:
Cash and equivalents $ 315,909 $ 363,750
Short-term investments 124,745 243,073
Accounts receivable, net 477,495 372,700
Inventories 573,852 495,222
Deferred income taxes 79,083 79,083
Other current assets 71,967 55,970
Total current assets 1,643,051 1,609,798
Property and equipment, net 571,883 540,347
Other assets:
Prepublication costs, net 202,763 164,449
Intangible assets, net 469,542 442,566
Other 147,179 127,176
Total other assets 819,484 734,191
Total assets $3,034,418 $2,884,336
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities of
long-term liabilities $ 159,942 $ 15,484
Accounts payable 280,969 284,481
Accrued liabilities 324,220 334,479
Taxes payable 62,579 58,104
Other current liabilities 79,814 52,423
Total current liabilities 907,524 744,971
Long-term liabilities:
Notes and debentures 739,253 789,008
Other long-term liabilities 218,649 210,846
Total long-term liabilities 957,902 999,854
Deferred income taxes 198,398 198,398
Shareholders' equity:
Preferred stock 1,162 1,210
Common stock 71,108 72,699
Paid-in capital 728,795 727,285
Cumulative translation adjustments (6,458) (5,166)
Retained earnings 175,987 145,085
Total shareholders' equity 970,594 941,113
Total liabilities and shareholders' equity $3,034,418 $2,884,336
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
1<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
(In thousands except for per share amounts) Nine Months Three Months
Ended July 31, Ended July 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $2,421,996 $2,251,041 $ 879,212 $813,255
Costs applicable to revenues 1,421,773 1,325,425 460,406 424,937
Selling, general and administrative
expenses 735,140 678,353 236,626 221,416
Corporate expenses 23,627 25,356 7,787 7,936
Operating earnings 241,456 221,907 174,393 158,966
Investment income 20,957 31,955 5,534 8,198
Interest expense (61,876) (68,577) (20,431) (21,782)
Earnings from continuing operations
before income taxes 200,537 185,285 159,496 145,382
Income taxes (68,183) (62,997) (54,229) (49,430)
Earnings from continuing operations 132,354 122,288 105,267 95,952
Loss from discontinued
operations, net - (11,727) - (11,421)
Net earnings $ 132,354 $ 110,561 $ 105,267 $ 84,531
Weighted average number of common
and common equivalent shares
outstanding 72,832 77,557 72,578 74,391
Earnings per common share:
Earnings from continuing operations $ 1.82 $ 1.58 $ 1.45 $ 1.29
Loss from discontinued
operations, net - (.15) - (.15)
Net earnings $ 1.82 $ 1.43 $ 1.45 $ 1.14
Dividends per share:
Common Stock $ .51 $ .48 $ .17 $ .16
Class B Stock $ .459 $ .432 $ .153 $ .144
Series A Stock $ .5835 $ .5505 $ .1945 $ .1835
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands) Nine Months
Ended July 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations $132,354 $122,288
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 127,706 122,470
Other items 3,592 (1,455)
Changes in current assets and liabilities:
Accounts receivable (105,318) (116,849)
Inventories (78,633) (64,981)
Other current assets (1,410) 7,713
Current liabilities 18,889 (921)
97,180 68,265
Discontinued operating activities - 934
Net cash provided by operating activities 97,180 69,199
Cash flows from investing activities:
Capital expenditures (184,799) (147,275)
Purchase of short-term investments (140,755) (297,847)
Maturities of short-term investments 244,470 -
Acquisitions (19,197) (41,250)
Other investing activities (35,619) 295
Net cash used for investing activities (135,900) (486,077)
Cash flows from financing activities:
Proceeds from borrowings 93,250 47,665
Repayment of debt (1,088) (246,961)
Repurchase of Common Stock (67,150) (220,039)
Proceeds from receivables securitization - 245,965
Dividends paid (36,016) (35,468)
Other financing activities 1,883 757
Net cash used for financing activities (9,121) (208,081)
Cash and equivalents:
Decrease during the period (47,841) (624,959)
Beginning balance 363,750 819,659
Ending balance $315,909 $194,700
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3<PAGE>
HARCOURT GENERAL, INC. AND SUBSIDIARIES
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 July 31, 1996 condensed
consolidated financial statements include the April 27, 1996 condensed
consolidated financial statements of The Neiman Marcus Group, Inc. (NMG).
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. The Company owns approximately 59% of the common
stock of NMG. See Note 4 below.
The Company's businesses are seasonal in nature, and historically the
results of operations for these periods have not been indicative of the
results for the full year.
2. Discontinued operations
On June 30, 1995, NMG sold its Contempo Casuals operations to The Wet
Seal, Inc. Revenues applicable to the discontinued Contempo Casuals
operations were $47.9 million and $174.3 million for the thirteen and the
thirty-nine week periods ended April 29, 1995. The losses from
discontinued operations recorded in the thirteen and thirty-nine week
periods ended April 29, 1995 are net of applicable income tax benefits of
$8.2 million and $8.4 million, respectively.
3. Stock purchase programs
In April 1995, the Company completed a "Dutch Auction" tender offer and
purchased approximately 5.4 million shares of the Company's Common Stock
at $40.50 per share.
In May 1995, the Company's Board of Directors authorized the purchase of
up to 2.5 million shares of the Company's Common Stock on the open
market. In March 1996, the Company's Board of Directors authorized an
increase in the open market stock purchase program to 3.5 million shares
of the Company's Common Stock. During the nine months ended July 31,
1996, the Company purchased approximately 1.7 million shares at an
average price of $39.18 per share under this buyback program.
4. NMG public offering
On September 11, 1996, NMG filed with the Securities and Exchange
Commission a Registration Statement for a public offering of NMG's common
stock. If the offering and related transactions are completed as
described in the Registration Statement, NMG will use all of the net cash
proceeds from the offering, together with shares of its common stock and
borrowings under its revolving credit agreement, to purchase from the
Company all of the NMG preferred stock held by the Company. The
aggregate consideration which the Company will receive for its NMG
preferred stock will be approximately $416.4 million consisting of $135
million in NMG common stock valued at the public offering price and the
remainder in cash. At the conclusion of the offering and the related
transactions, the Company's cash will be increased by the cash portion of
the consideration received for its NMG preferred stock, less applicable
taxes, and no gain or loss will be recognized. The Company will still
own a majority of the outstanding NMG common stock, and NMG will not have
any preferred stock outstanding.
4<PAGE>
HARCOURT GENERAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
<TABLE>
The following table illustrates revenues and operating earnings from
continuing operations by business segment.
<CAPTION>
Nine Months Ended July 31, Three Months Ended July 31,
(In thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Publishing $ 739,763 $ 687,516 $377,131 $365,530
Specialty retailing 1,589,381 1,467,604 474,059 415,746
Professional services 92,852 95,921 28,022 31,979
Total revenues $2,421,996 $2,251,041 $879,212 $813,255
Operating earnings:
Publishing $ 113,601 $ 101,659 $139,884 $133,848
Specialty retailing 142,980 135,504 41,655 30,013
Professional services 8,502 10,100 641 3,041
Corporate expenses (23,627) (25,356) (7,787) (7,936)
Total operating earnings $ 241,456 $ 221,907 $174,393 $158,966
</TABLE>
Nine Months Ended July 31, 1996 Compared To Nine Months Ended July 31, 1995
Publishing
Publishing revenues for the nine months ended July 31, 1996 increased
7.6% to $739.8 million from $687.5 million for the nine months ended
July 31, 1995. The increase was primarily attributable to higher testing
program and college publishing revenues, offset in part by decreased
elementary program revenues, at the Company's educational publishing group,
and significantly higher revenues at the scientific, technical, medical
and professional (STMP) publishing group. The testing program revenue growth
was primarily a result of the acquisition of Assessment Systems, Inc. in the
third quarter of 1995, while the decline in elementary publishing revenues
reflects fewer adoption opportunities in comparison to 1995. STMP revenue
growth reflects both increased book and journal sales at W.B. Saunders as
well as revenue increases due to the acquisition of International Medical
News Group (IMNG) in the first quarter of 1996.
Publishing operating earnings increased 11.7% compared with the same period
last year. STMP operating earnings, specifically at W.B. Saunders and
Academic Press, were significantly higher than those of the prior year due
to higher sales volume of W.B. Saunders books, W.B. Saunders and Academic
Press journals, and lower selling, general and administrative expenses as a
percentage of revenues. Operating earnings for the educational publishing
group decreased in comparison to the same period last year primarily
as a result of expected lower sales volume and increased sample
an administrative costs.
5<PAGE>
HARCOURT GENERAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter.
Accordingly, the operating results of The Neiman Marcus Group, Inc. (NMG) for
the thirty-nine weeks ended April 27, 1996 are consolidated with the Company's
operating results for the nine months ended July 31, 1996.
In June 1995, NMG sold its Contempo Casuals operations to The Wet Seal, Inc.
Revenues in the thirty-nine weeks ended April 27, l996 increased 8.3% over
revenues in the thirty-nine weeks ended April 29, 1995. Comparative sales for
the period increased 5.3%. Neiman Marcus store openings in Short Hills, New
Jersey in August 1995 and King of Prussia, Pennsylvania in February 1996 also
contributed to the overall increase in revenues.
NMG's operating earnings increased 5.5% to $143.0 million in the thirty-nine
week period ended April 27, 1996 compared to $135.5 million in 1995. An $11.9
million reduction in finance charge income related to the securitization of
NMG s credit card receivables in March 1995 was offset by higher operating
earnings resulting from increased sales volume at Neiman Marcus Stores and NM
Direct in comparison to the prior year.
Professional Services
Professional services revenues decreased 3.2% to $92.9 million from $95.9
million in the same period last year. The decrease was primarily due to lower
volume in group outplacement programs.
Professional services operating earnings decreased $1.6 million to $8.5
million compared with the same 1995 period. The decrease was primarily
attributable to the lower sales volume, offset in part by lower operating
expenses as a percentage of revenues.
Investment Income
Investment income decreased $11.0 million to $21.0 million compared to the
same nine month period in 1995. The decrease was due to a reduction in the
average portfolio balance primarily as a result of the Company s common stock
purchase program which commenced in April 1995 and, to a lesser extent, a
lower rate of return on portfolio assets.
Interest Expense
Interest expense decreased 9.8% to $61.9 million from $68.6 million in the
comparable period last year. The decrease was primarily due to the use of NMG
securitization proceeds to pay down outstanding NMG bank debt.
Income Tax Expense
The Company's effective tax rate is estimated to be 34.0% in fiscal 1996,
unchanged from fiscal 1995.
6<PAGE>
HARCOURT GENERAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Quarter Ended July 31, 1996 Compared to Quarter Ended July 31, 1995
Publishing
Publishing revenues increased by $11.6 million or 3.2% for the three months
ended July 31, 1996 compared to the same period last year. Substantially
higher revenues at STMP were partially offset by decreased sales volume at the
educational publishing group and in international sales. STMP revenues
increased primarily as a result of higher book sales at W.B. Saunders and the
IMNG acquisition. At the educational publishing group, anticipated volume
decreases in sales of elementary programs resulting from fewer adoption
opportunities outweighed the revenue increases of the college and testing
program businesses.
Operating earnings increased by $6.0 million or 4.5% compared to the same
period last year. The improvement was attributable to higher sales volume and
lower selling and marketing costs as a percentage of revenues at W.B. Saunders
and improved gross margins and volume at Academic Press. These increases at
STMP were partially offset by a decline in operating earnings at the
educational publishing group which primarily related to the lower sales
volume.
Specialty Retailing
Results of NMG are reported with a lag of one quarter. Accordingly, NMG's
operating results for its quarter ended April 27, 1996 are consolidated with
the Company's operating results for the quarter ended July 31, 1996.
Revenues in the thirteen weeks ended April 27, l996 increased 14.0% over
revenues in the thirteen weeks ended April 29, 1995. Comparative sales for
the period increased 9.2%. New Neiman Marcus stores in Short Hills, New
Jersey and King of Prussia, Pennsylvania also contributed to the higher
revenues.
Operating earnings increased 38.8% to $41.7 million in the thirteen week
period ended April 27, 1996 compared to $30.0 million in 1995. The increase
was primarily a result of the higher sales volume, and significantly improved
operating margins at NM Direct related to comparatively lower circulation
costs in 1996.
Professional Services
Professional services revenues decreased 12.4% to $28.0 million in the 1996
third quarter from $32.0 million in the 1995 third quarter. The decrease
resulted from lower volume in both group and executive outplacement programs.
Professional services operating earnings decreased $2.4 million to $.6 million
compared to the same period in the prior year. The decrease was primarily due
to the lower sales volume.
Investment Income
Investment income decreased $2.7 million to $5.5 million compared with the
same period last year, due primarily to a lower average portfolio balance as a
result of the Company s common stock repurchase program.
Interest Expense
Interest expense decreased 6.2% to $20.4 million compared to $21.8 million in
last year's third quarter. The decrease resulted from the use of NMG
securitization proceeds to pay down outstanding NMG bank debt.
7<PAGE>
HARCOURT GENERAL, INC. AND SUBSIDIARIES
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.
During the nine months ended July 31, l996, the Company had sufficient cash
flows to fund working capital, capital expenditures and dividend requirements.
Cash provided by operating activities for the period was $97.2 million. The
publishing and professional services business segments provided $101.2 million
of cash from operations while NMG's operations used $4.0 million.
Net earnings from continuing operations before depreciation and amortization
provided cash of $260.1 million while changes in working capital and other
items used cash of $162.9 million. The primary items affecting working
capital were increases in accounts receivable of $105.3 million and
inventories of $78.6 million, due to higher sales volume and the opening of
two new Neiman Marcus stores during the period.
The Company's capital expenditures totaled $184.8 million in the nine months
ended July 31, 1996. Publishing capital expenditures were $111.7 million and
related principally to expenditures for prepublication costs. The Company
expects capital expenditures in the publishing business to approximate $170.0
million in fiscal 1996. Specialty retailing capital expenditures in the 1996
period totaled $70.8 million and primarily related to the construction of
three new stores, a new distribution and service center and existing store
renovations. NMG s capital expenditures in fiscal 1996 were $85.7 million.
During the nine months ended July 31, 1996, $244.5 million of short-term
investments matured, and the Company purchased $140.8 million of short-term
investments. These investments are highly liquid and consist of high quality
commercial paper, certificates of deposit, corporate debt securities and U.S.
Government securities. In November 1995, the Company acquired 831,400 shares
of NMG common stock in a privately negotiated transaction at $18.75 per share.
In May 1996, the Company acquired an additional 300,000 shares of NMG common
stock in a privately negotiated transaction at $24.13 per share.
Financing activities primarily reflect the payment of $36.0 million in
dividends and the purchase of approximately 1.7 million shares of the
Company's common stock for $67.2 million on the open market at an average
price of $39.18 per share. NMG's financing activities reflect additional
borrowings of $93.3 million under its revolving credit agreements. NMG
eliminated its quarterly cash dividend on common stock beginning with its
third quarter of fiscal 1995. Elimination of this dividend conserves
approximately $7.6 million of NMG's cash annually. At July 31, 1996, the
Company's consolidated long-term liabilities totaled $957.9 million. That
amount includes approximately $385.0 million of NMG long-term liabilities,
which are not guaranteed by the Company.
8<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Continued)
At July 31, 1996, the Company had available the entire $400 million under its
revolving credit agreement with thirteen banks. The Company's revolving
credit agreement expires in December 1999. At April 27, 1996, NMG had $355
million available under its revolving credit facility, which expires in April
2000.
The Company believes its cash on hand, cash generated from operations and its
debt capacity will be sufficient to fund its planned capital growth as well as
its working capital 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 did not file any reports on Form 8-K during the
quarter ended July 31, 1996.
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: September 13, 1996 s/John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: September 13, 1996 s/Stephen C. Richards
Stephen C. Richards
Vice President and Controller
Principal Accounting Officer
11<PAGE>
<TABLE>
EXHIBIT 11.1
HARCOURT GENERAL, INC. AND SUBSIDIARIES
Computation of weighted average number of shares outstanding used in determining primary and fully
diluted earnings per share:
<CAPTION>
(In thousands) Nine Months Three Months
Ended July 31, Ended July 31,
1996 1995 1996 1995
PRIMARY
<S> <C> <C> <C> <C>
1. Weighted average number of common
shares outstanding 71,332 75,737 71,104 72,702
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,298 1,526 1,281 1,417
3. Assumed exercise of certain stock
options based on average market
value 202 294 193 272
4. Weighted average number of shares
used in primary per share
computations 72,832 77,557 72,578 74,391
FULLY DILUTED (A)
1. Weighted average number of common
shares outstanding 71,332 75,737 71,104 72,702
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,298 1,526 1,281 1,417
3. Assumed exercise of all dilutive
options based on higher of
average or closing market value 203 312 193 291
4. Weighted average number of shares
used in fully diluted per share
computations 72,833 77,575 72,578 74,410
(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>
<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
statement.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 315,909
<SECURITIES> 124,745
<RECEIVABLES> 499,859
<ALLOWANCES> 22,364
<INVENTORY> 573,852
<CURRENT-ASSETS> 1,643,051
<PP&E> 907,600
<DEPRECIATION> 335,717
<TOTAL-ASSETS> 3,034,418
<CURRENT-LIABILITIES> 907,524
<BONDS> 739,253
0
1,162
<COMMON> 71,108
<OTHER-SE> 898,324
<TOTAL-LIABILITY-AND-EQUITY> 3,034,418
<SALES> 2,421,996
<TOTAL-REVENUES> 2,421,996
<CGS> 1,421,773
<TOTAL-COSTS> 2,180,540
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 82,587
<INTEREST-EXPENSE> 61,876
<INCOME-PRETAX> 200,537
<INCOME-TAX> 68,183
<INCOME-CONTINUING> 132,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,354
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.82
</TABLE>
