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, 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 (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 New York Stock Exchange
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]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $1,970,203,170 on January 19, 1996.
There were 52,050,717 shares of Common Stock, 20,802,108 shares of Class
B Stock and 1,199,072 shares of Series A Cumulative Convertible Stock
outstanding as of January 19, 1996.
______________________
Documents Incorporated by Reference
Portions of the Company's 1995 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
8, 1996 are incorporated by reference in Part III of this Report.
[page]
<PAGE>
HARCOURT GENERAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
TABLE OF CONTENTS
PART I Page No.
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security 6
Holders
PART II
Item 5. Market for the Registrant's Common Equity 6
and Related Stockholder Matters
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants 7
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 7
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial 10
Owners and Management
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedules 10
and Reports on Form 8-K
Signatures 12
[page]
<PAGE>
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 operations in career transition and related
professional services. The Company sold its insurance business in October
1994. In addition, the Company's subsidiary, The Neiman Marcus Group, Inc.,
sold its Contempo Casuals business in June 1995. In December 1993 the Company
completed the spinoff of its motion picture exhibition business to the
shareholders of the Company. See "Discontinued Operations" below for
additional information about these discontinued operations.
A. PUBLISHING
Harcourt Brace & Company ("Harcourt Brace") is among the world's largest
publishing houses, publishing books, scholarly journals and related materials
in both print and electronic media 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.
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 and other
materials for the college and university market under the Harcourt Brace,
Saunders and Dryden Press imprints. The Psychological Corporation provides
tests and related products and services for educational, psychological,
clinical and professional assessment and, through its subsidiary Assessment
Systems, which was acquired in May 1995, provides computerized tests for
business and professional credentialing and licensing.
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, social and
computer 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.
[page]
<PAGE>
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 67% of the outstanding equity, on a
fully-converted basis, of The Neiman Marcus Group, Inc. ("NMG"), which
operates Neiman Marcus, Bergdorf Goodman and NM Direct.
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 26, 1995,
NMG filed an Annual Report on Form 10-K with respect to its fiscal year ended
July 29, 1995. 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 STORES
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, 1995, Neiman Marcus operated 28 stores in 25
cities. The average Neiman Marcus store size is 141,000 gross square feet and
the stores range in size from 90,000 gross square feet to 269,000 gross square
feet.
In August 1995, Neiman Marcus opened a new store in Short Hills, New
Jersey. Neiman Marcus plans to open new stores in King of Prussia,
Pennsylvania, and Paramus, New Jersey, in 1996, and in Honolulu, Hawaii, in
1999. In addition, Neiman Marcus recently opened a new 464,000 square foot
national service and distribution center located in Longview, Texas.
[page] 2<PAGE>
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 has an important direct marketing
business which is operated by NM Direct.
NM DIRECT
NM Direct operates a state-of-the-art direct marketing business, which
distributes its own catalogues as well as those of Neiman Marcus and Horchow.
NM Direct offers a wide array of apparel, home furnishings and gift items to
its domestic and international mail order customers.
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.
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. The
Company believes that the principal competitive factors for DBM are quality of
service (including its ability to respond promptly to clients' needs for
services) and price.
D. DISCONTINUED OPERATIONS
On June 30, 1995, NMG sold its Contempo Casuals subsidiary to The Wet
Seal, Inc. for approximately 250,000 shares of Wet Seal Class A Common Stock
and $100,000 in cash.
[page] 3<PAGE>
On October 31, 1994, the Company sold its insurance operations to GNA
Corporation, an affiliate of General Electric Capital Corporation, for $410.4
million in cash. 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.
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. See Note 2 of the Notes to
Consolidated Financial Statements for further information regarding certain
agreements which govern the ongoing relationship between Harcourt General and
GCC.
E. CERTAIN ADDITIONAL INFORMATION
1. Employees
<TABLE>
<CAPTION>
Percentage of Employees
Number of Each Operating Unit
Number of of Part-Time Covered by Collective
Employees Employees Bargaining Agreements
<S> <C> <C> <S>
Harcourt Brace 4,750 90 None
& Company
The Neiman
Marcus Group 9,800 1,250 1.3%
Drake Beam Morin 550 375 None
Corporate 119 1 None
</TABLE>
The figures in the above table are approximate as of October 31, 1995. 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 1995,
including information on capital expenditures, seasonality, liquidity, capital
resources and other financial information, reference is made to the
"Management's Discussion & Analysis of Financial Condition and Results of
Operations" section on pages 23 through 26 of the Company's Annual Report to
Stockholders for the fiscal year ended October 31, 1995 (the "1995 Annual
Report"), which information is incorporated herein.
[page] 4<PAGE>
3. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The information set forth under the heading "Additional Financial
Information" in Note 3 of the Notes to Consolidated Financial Statements on
page 34 of the 1995 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, a suburb of Boston. 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.
At October 31, 1995, the office, warehouse and other facilities owned or
leased by Harcourt Brace and its publishing affiliates were located in 27
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), Irving, Texas (NM Direct) and New York
City (Bergdorf Goodman). At October 31, 1995, the approximate square footage
used in NMG's operations was as follows:
<TABLE>
<CAPTION>
Owned
Subject to
Owned Ground Lease Leased Total
<S> <C> <C> <C> <C>
Stores ................... 348,000 1,630,000 2,402,000 4,380,000
Distribution centers
and office facilities... 585,000 94,000 765,000 1,444,000
</TABLE>
Leases for Neiman Marcus stores, including renewal options, range from
30 to 99 years. 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 in Irving, Texas where its
NM Direct operations are located in a 585,000 square foot facility. NMG
recently opened a 464,000 square foot distribution center for Neiman Marcus
Stores in Longview, Texas which replaced certain existing distribution
centers.
[page] 5<PAGE>
At October 31, 1995, Drake Beam Morin conducted its business from 82
leased offices in the United States and 81 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 10 of the Notes to Consolidated
Financial Statements under the heading "Leases" on page 39 of the 1995 Annual
Report, which is incorporated herein.
ITEM 3. LEGAL PROCEEDINGS
In previous reports, the Company described certain class action cases
entitled In re Harcourt Brace Jovanovich, Inc. Securities Litigation and
Nivram Corp. v. Harcourt Brace Jovanovich, Inc., et. al. The allegations in
these cases related to actions of Harcourt Brace Jovanovich, Inc. that
occurred prior to its acquisition by the Company in 1991. The parties settled
these cases during fiscal 1995. The disposition of these cases did 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 1995 Annual Report is
incorporated herein:
(i) the last paragraph of Note 6 of the Notes to Consolidated Financial
Statements on page 36 of the 1995 Annual Report relating to restrictions
on the Company's ability to pay dividends;
(ii) "Dividends per share" in Note 14 of the Notes to Consolidated
Financial Statements on page 42 of the 1995 Annual Report; and
[page] 6<PAGE>
(iii) "Stock Information" on page 46 of the 1995 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 19, 1996, there were 2,039 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 the Company), reference
is made to the information contained in the Company's Proxy Statement
for the 1996 Annual Meeting of Stockholders under the heading "Stock
Ownership of Certain Beneficial Owners and Management."
ITEM 6. SELECTED FINANCIAL DATA
The response to this Item is contained in the 1995 Annual Report under
the caption "Five Year Summary" on page 44 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 1995 Annual Report under
the caption "Management s Discussion & Analysis of Financial Condition and
Results of Operations" on pages 23 through 26 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
1996 Annual Meeting of Stockholders under the captions "Election of Directors"
and "Section 16 Reports" and is incorporated herein.
[page] 7<PAGE>
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 - 71
Chairman of the Board 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 (until
November 1, 1995) and Chief Executive Officer of GC Companies, Inc.
since December 1993. Director of Liberty Mutual Insurance Company,
Liberty Mutual Fire Insurance Company, Liberty Financial Companies,
Inc., and Bank of Boston Corporation and its principal subsidiary, The
First National Bank of Boston. Mr. Smith is the father of Robert A.
Smith, a director and officer of the Company, the father-in-law of Brian
J. Knez, a director and officer of the Company, and the uncle of Jeffrey
R. Lurie, a nominee for director of the Company.
Robert J. Tarr, Jr. - 52
President, Chief Executive Officer (since December 1991), Chief
Operating Officer and Director of the Company and of The Neiman Marcus
Group, Inc.
John R. Cook - 54
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.
Peter Farwell - 52
Vice President - Corporate Relations of the Company and of The Neiman
Marcus Group, Inc.
Eric P. Geller - 48
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 - 44
Vice President and Treasurer of the Company and of The Neiman Marcus
[page] 8<PAGE>
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 - 39
Vice President-Human Resources of the Company and of The Neiman Marcus
Group, Inc. 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 - 38
President and Chief Executive Officer of Harcourt Brace & Company since
May 1995; President of the Scientific, Technical, Medical and
Professional Group of Harcourt Brace from 1993 to May 1995; Group Vice
President of the Scientific, Technical and Medical Group of Harcourt
Brace from 1991 to 1993; Vice President of the Company since November
1991; Assistant to the President of the Company prior thereto. Director
of the Company since March 1995. Mr. Knez is the son-in-law of Richard
A. Smith, Chairman of the Board of the Company, and the brother-in-law
of Robert A. Smith, a director and officer of the Company.
Michael F. Panutich - 47
Vice President - General Auditor of the Company and of The Neiman Marcus
Group, Inc. since June 1993; Vice President - Accounting of the Company
and of The Neiman Marcus Group, Inc. prior thereto.
Stephen C. Richards - 40
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 LLP, from
June 1990 to May 1993.
Craig B. Sawin - 39
Vice President - Planning and Analysis of the Company and of The Neiman
Marcus Group, Inc.
Robert A. Smith - 36
Group Vice President of the Company since December 1991 and of The
Neiman Marcus Group, Inc. since January 1992; Vice President - Corporate
Development of the Company prior to December 1991; Vice President -
Corporate Development of The Neiman Marcus Group, Inc. prior to January
1992; President and Chief Operating Officer of GC Companies, Inc. since
November 1995. Director of the Company. Mr. Smith is the son of
Richard A. Smith, Chairman of the Board of the Company, the brother-in-
law of Brian J. Knez, a director and officer of the Company, and the
cousin of Jeffrey R. Lurie, a nominee for director of the Company.
[page] 9<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Proxy Statement for the
1996 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
1996 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
1996 Annual Meeting of Stockholders under the captions "Executive
Compensation" and "Transactions Involving Management" and is incorporated
herein.
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 1995 Annual Report to Shareholders and are
incorporated herein by reference to Item 8 hereof:
Consolidated Balance Sheets - October 31, 1995 and 1994.
Consolidated Statements of Earnings for the fiscal years
ended October 31, 1995, 1994, and 1993.
Consolidated Statements of Cash Flows for the fiscal years
ended October 31, 1995, 1994 and 1993.
Consolidated Statements of Shareholders' Equity for the
fiscal years ended October 31, 1995, 1994 and 1993.
[page] 10<PAGE>
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.
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, 1995.
[page] 11<PAGE>
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 25, 1996
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 25, 1996
Robert J. Tarr, Jr. Officer, Chief Operating
Officer and Director
Principal Financial
Officer:
s/John R. Cook Senior Vice President and January 25, 1996
John R. Cook Chief Financial Officer
Principal Accounting
Officer:
s/Stephen C. Richards Vice President and January 25, 1996
Stephen C. Richards Controller
[page] 12<PAGE>
Directors:
s/William F. Connell January 25, 1996
William F. Connell
s/Jack M. Greenberg January 25, 1996
Jack M. Greenberg
s/Herbert W. Jarvis January 25, 1996
Herbert W. Jarvis
s/Brian J. Knez January 25, 1996
Brian J. Knez
s/Lynn Morley Martin January 25, 1996
Lynn Morley Martin
s/Maurice Segall January 25, 1996
Maurice Segall
s/Richard A. Smith January 25, 1996
Richard A. Smith
s/Robert A. Smith January 25, 1996
Robert A. Smith
s/Paula Stern January 25, 1996
Paula Stern
s/Sidney Stoneman January 25, 1996
Sidney Stoneman
s/Hugo Uyterhoeven January 25, 1996
Hugo Uyterhoeven
s/Clifton R. Wharton, Jr. January 25, 1996
Clifton R. Wharton, Jr.
[page] 13<PAGE>
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 Company s 8 1/4% Senior Notes Due 2002 and the
Company s 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, 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.
*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.
[page] 14<PAGE>
*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 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, incorporated herein by
reference to Exhibit 10.5 to the Company s Annual Report on
Form 10-K for the fiscal year ended October 31, 1994.
*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
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(a) 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 of the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1990.
*10.9(b) Deferred Compensation Agreement dated as of December 15,
1994, between the Company and Richard A. Smith.
[page] 15<PAGE>
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(a)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.
10.11(b)Amended and Restated Intercompany Services Agreement
dated as of November 1, 1995, between the Company and GC
Companies, Inc.
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,
incorporated herein by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1994.
*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.
*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.
[page] 16<PAGE>
11.1 Computation of Average Number of Shares Outstanding
Used In Determining Primary and Fully Diluted Earnings
Per Share.
13.1 1995 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.
[page] 17<PAGE>
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, 1995 and 1994, and
for each of the three years in the period ended October 31, 1995, and have
issued our report thereon dated December 8, 1995. Such consolidated financial
statements and report are included in the Company s 1995 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, present fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 8, 1995
[page] F-1<PAGE>
<TABLE>
<CAPTION>
HARCOURT GENERAL, INC. AND SUBSIDIARIES. SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED OCTOBER 31, 1995
(In thousands)
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
Description of Period Expenses Describe Describe of Period
_________________________________________________________________________________________________________
YEAR ENDED OCTOBER 31, 1995
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $26,439 32,077 - 36,030(B) $22,486
(deducted from accounts receivable)
Allowance for book returns (A) $49,091 82,548 - 82,236(C) $49,403
(deducted from accounts receivable)
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)
(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) Books actually returned during the year.
</TABLE>
[page] F-2<PAGE>
DEFERRED COMPENSATION AGREEMENT
AGREEMENT made as of the 15th day of December, 1994, by and between
Harcourt General, Inc., a Delaware corporation (the "Company"), and Richard A.
Smith (the "Executive")
WHEREAS the Executive is Chairman of the Board of the Company; and
WHEREAS the Executive's base salary and maximum bonus eligibility could
allow the Executive to receive in excess of $1 million in compensation for the
Company's Fiscal Year 1995 and succeeding Fiscal Years; and
WHEREAS certain provisions of the Internal Revenue Code of 1986, in
effect (the "Code"), could have the effect of disallowing a tax deduction to
the Company for any compensation paid to the Executive in excess of $1 million
in any Fiscal Year; and
WHEREAS the Company wishes to preserve the tax deduction for the
Executive's compensation and to keep the Executive whole for any current
reduction in income resulting from such limit on the deductibility of
compensation to the Executive.
NOW, THEREFORE, it is agreed as follows:
1. The Company and the Executive hereby agree that payment of all
compensation otherwise payable to the Executive for Fiscal Year 1995 and
succeeding Fiscal Years which would not be deductible by the Company on
account of the provisions of the Code shall be deferred (the "Deferred
Compensation") until such time as the Company shall be entitled to take the
tax deduction for such payment.
2. The Deferred Compensation shall be credited with interest at the
same rate and in the same manner as is provided from time to time to
[page]<PAGE>
participants in the Company's Key Executive Deferred Compensation Plan. Such
interest shall become part of Deferred Compensation and shall be payable in
accordance with paragraph 1 above.
3. This Agreement does not amend or affect in any manner the Amended
and Restated Deferred Compensation Agreement between the Company and the
Executive dated August 27, 1990.
4. The Company shall not be required to set aside or segregate any of
its assets of any kind to meet any of its obligations hereunder. All its
obligations hereunder shall be reflected by book entries only, and the
Executive shall have no rights on account of this Agreement to any specific
assets of the Company. Any rights that the Executive may have on account of
this Agreement shall be only those of a general unsecured creditor.
5. No benefit payable under this Agreement, and no interest or rights
hereunder of the Executive or any other person, shall be subject to the claims
of any creditor or to attachment, garnishment or other legal process, nor
shall the Executive or any beneficiary have any right to alienate, anticipate,
commute, pledge, encumber or assign any interest or rights under this
Agreement.
6. This Agreement shall be binding upon and inure to the benefit of
the Company, its successors and assigns, and the Executive and his heirs,
executors, administrators and legal representatives.
EXECUTED UNDER SEAL on the day first above written.
HARCOURT GENERAL, INC.
/s/ Eric Geller
By: ERIC GELLER
Title: Sr. V-P & General Counsel
/s/ Richard A. Smith
Richard A. Smith
[page]<PAGE>
AMENDED AND RESTATED
INTERCOMPANY SERVICES AGREEMENT
This Amended and Restated Intercompany Services Agreement ("Agreement"),
dated as of November 1, 1995, between Harcourt General, Inc., a Delaware
corporation ("Harcourt"), and GC Companies, Inc., a Delaware corporation (the
"Company").
WHEREAS, Harcourt has provided corporate services to the Company
pursuant to the Intercompany Services Agreement between Harcourt General and
the Company dated December 14, 1993 (the "Original Agreement");
WHEREAS, Harcourt and the Company wish to terminate the Original
Agreement and provide for the ongoing provision of a reduced and flexible
level of Corporate Services (as defined in paragraph 1 below) by Harcourt to
the Company; and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Agreement, Harcourt and the Company hereby agree
as follows:
1. Corporate Services To Be Made Available. For the period provided
for under paragraph 6 hereof, Harcourt agrees to make available to the Company
the services of Richard A. Smith, the Company's Chairman and Chief Executive
Officer, and Robert A. Smith, the Company's President and Chief Operating
Officer, together with such other services as to which the respective Chief
Executive Officers of Harcourt and the Company may from time to time agree
(collectively the "Corporate Services"), on the terms provided herein.
Harcourt and the Company will cooperate in planning the scope and timing
of the Corporate Services provided by Harcourt under this Agreement in order
to minimize or eliminate interference with the conduct of Harcourt's business
activities. If such interference is unavoidable, Harcourt will apportion, in
its sole discretion, the available services in a fair and reasonable manner.
2. Standard of Conduct. In providing Corporate Services to the
Company, Harcourt's officers and employees shall conduct themselves in
accordance with the Company's written policies and procedures. Harcourt will
use reasonable efforts in providing the Corporate Services to the Company and
will perform such services with the same degree of care, skill and prudence
customarily exercised for its own operations. Notwithstanding the foregoing,
in providing such Corporate Services Harcourt and its directors, officers and
employees will not be responsible for and shall have no liability for the
accuracy, completeness or timeliness of any advice or service or any return,
report, filing or other document which it or any of them provides, prepares or
assists in preparing, except to the extent that any inaccuracy, incompleteness
or untimeliness arises from the gross negligence or willful misconduct of
Harcourt or its directors, officers or employees. The Company shall
indemnify, defend and hold harmless Harcourt and its directors, officers and
[page]
<PAGE>
employees from and against any and all damage, cost, loss, liability and
expense (including reasonable attorneys' fees) in connection with any and all
actions or threatened actions arising out of the performance of the Corporate
Services hereunder, except in circumstances where the party that would
otherwise be indemnified hereunder is found by a court of competent
jurisdiction to have not met the standard of care described in the preceding
sentence. In no event will Harcourt or its directors, officers or employees
be liable for any indirect, special or consequential damages in connection
with or arising out of the performance of Corporate Services under this
Agreement.
3. Cost of Services.
(a) Promptly following the commencement of the term of this Agreement
Harcourt and the Company shall estimate the probable level of
Corporate Services to be provided under this Agreement and shall
agree upon the amount of the fee to be paid to Harcourt by the
Company for the Company's fiscal year ending October 31, 1996, on
the assumption that such estimated level of Corporate Services
will actually be provided. In determining the fee to be paid,
Harcourt and the Company shall value Corporate Services based on
Harcourt's direct and indirect costs allocable thereto, calculated
in accordance with Harcourt's usual accounting practices.
(b) The Company agrees to pay to Harcourt on the first business day of
each fiscal quarter (except that the payment for the fiscal
quarter beginning November 1, 1995 shall be made promptly after
the initial determination of the fee in accordance with
subparagraph (a)) that portion of the fee, determined initially as
set forth in subparagraph (a) and subject to adjustment in
accordance with subparagraph (c), attributable to the Corporate
Services to be provided by Harcourt during such quarter.
(c) As soon as practicable after the end of fiscal 1996, but in no
event later than January 31, 1997, Harcourt and the Company shall,
based on a detailed review, determine the actual level of
Corporate Services rendered by Harcourt during fiscal 1996 and
make such adjustments in the fee as is necessary to reflect such
level. Harcourt shall cause its employees to keep records of the
time they devote in providing Corporate Services to the Company,
in order to facilitate such review and determination and to permit
a proper adjustment to be made. With the benefit of experience,
Harcourt and the Company shall estimate the level of Corporate
Services to be provided for the Company's fiscal years subsequent
to fiscal 1996, and shall follow the same procedures for payment,
review and adjustment.
(d) The Company also agrees to reimburse Harcourt, within 15 business
days of presentation of invoices therefor, for all reasonable out-
of-pocket expenses incurred by Harcourt in providing Corporate
Services, including expenses for outside professional services
incurred by Harcourt for the benefit of and with the approval of
the Company.
[page] 2<PAGE>
(e) The failure of the Company to make any payment hereunder within 30
days of the date such payment is due shall result in the Company
owing Harcourt interest at the rate of 10% per annum on the amount
due from the date payable to the actual payment date.
4. Requirement of Approval By Independent Directors of the Company.
All determinations on behalf of the Company made pursuant to paragraphs 3 and
6 hereof must be approved by a committee consisting solely of directors of the
Company who are not employed by or otherwise affiliated with Harcourt (the
"Independent Committee"). In carrying out its duties pursuant to this
Agreement, the Independent Committee may retain such independent accountants,
lawyers and other experts as it deems necessary or prudent to retain, and the
expenses of all such professionals shall be reimbursed by the Company.
5. Information and Witnesses. Harcourt shall provide to the Company
and the Company shall provide to Harcourt, upon the other's written request,
at reasonable times, full and complete access to, and duplication rights with
respect to, any and all Information, as defined below, as the other may
reasonably request and require, and Harcourt shall use its best efforts to
make available to the Company, and the Company shall use its best efforts to
make available to Harcourt, upon the other's written request, the officers,
directors, employees and agents of Harcourt and of the Company, respectively,
as witnesses to the extent that such persons may reasonably be required in
connection with any legal, administrative or other proceedings in which the
Company or Harcourt, as the case may be, may from time to time be a party;
provided, however, that neither Harcourt nor the Company need provide any
Information or make available witnesses to the other to the extent that doing
so would (i) unreasonably interfere with the performance by any person of such
person's duties to the party to which a request under this paragraph 5 is made
or otherwise causes unreasonable burden to such party, (ii) result in a waiver
of any attorney-client or work product privilege of such party or its legal
counsel, (iii) require either Harcourt or the Company to provide any
Information which relates to the subject matter of any legal, administrative
or other proceeding in which Harcourt and the Company are adverse parties, or
(iv) result in any breach of any agreement with a third party; and provided,
further, that the party providing Information or making available witnesses
pursuant to this paragraph 5 shall be entitled to receive from the other
party, upon presentation of reasonably detailed invoices therefor, payment of
its reasonable out-of-pocket costs (including reasonable attorneys fees)
incurred in connection with providing Information or making witnesses
available. The term Information as used in this paragraph 5 means any
books, records, contracts, instruments, data, facts and other information in
the possession or under the control of either Harcourt or the Company and
necessary or desirable for use in legal, administrative or other proceedings
or for auditing, accounting or tax purposes.
6. Term of Agreement. This Agreement shall become effective as of
November 1, 1995, shall remain in effect through October 31, 1996, and shall
continue in effect thereafter unless terminated as of the end of a month, with
respect to the performance of Corporate Services in whole or in part, by
either party upon not less than 90 days written notice. Termination of
Corporate Services in part shall not result in the termination of this
[page] 3<PAGE>
Agreement. Termination of Corporate Services in whole shall result in the
termination of this Agreement except that the obligations of the parties under
paragraphs 3, 5 and 9 shall continue after such termination. A final fee
adjustment on the basis described in paragraph 3(c) shall be made within 90
days of the date as of which Corporate Services are terminated in whole. An
appropriate revision of quarterly fees remaining to be paid shall be made
following the date as of which Corporate Services are terminated in part. The
Original Agreement is hereby terminated effective November 1, 1995, provided
that the obligations of Harcourt and the Company in paragraphs 3, 5 and 9 of
the Original Agreement shall continue and shall be subsumed into the
obligations under the same numbered paragraphs of this Agreement.
7. Independence. All employees and representatives of Harcourt
providing the Corporate Services to the Company will be deemed for purposes of
all compensation and employee benefits to be employees or representatives of
Harcourt and not employees or representatives of the Company. In performing
such services such employees and representatives will be under the direction,
control and supervision of Harcourt (and not of the Company) and Harcourt will
have the sole right to exercise all authority with respect to the employment
(including termination of employment), assignment and compensation of such
employees and representatives.
8. Independent Contractor. The relationship of Harcourt to the
Company which is created hereunder is that of an independent contractor. This
Agreement is not intended to create and shall not be construed as creating
between the Company and Harcourt the relationship of affiliate, principal and
agent, joint venture, partnership, or any other similar relationship, the
existence of which is hereby expressly denied.
9. Confidentiality. Any and all information which is not generally
known to the public which is exchanged between the parties in connection with
the performance of this Agreement, whether of a technical or business nature,
shall be considered to be confidential. The parties agree that confidential
information shall not be disclosed to any third party or parties without the
written consent of the other party, except as permitted below. Each party
shall take reasonable measures to protect against disclosure of confidential
information by its officers, employees and agents. Confidential information
shall not include any information (i) which is or becomes part of the public
domain other than as a result of the breach of a party's obligation hereunder,
(ii) which is obtained from third parties who are not bound by confidentiality
obligations or (iii) which is required to be disclosed by law or the rules of
any state or Federal regulatory agency or any securities exchange (including
NASDAQ) on which the Company's or Harcourt's securities might be listed for
trading. The provisions of this section shall survive the termination of this
Agreement.
[page] 4<PAGE>
10. Miscellaneous.
(a) Nonassignability of Agreement. Except by operation of law or in
connection with the sale of all or substantially all the assets of
a party hereto, this Agreement shall not be assignable, in whole
or in part, directly or indirectly, by either party hereto without
the prior written consent of the other, and any attempt to assign
any rights or obligations arising under this Agreement without
such consent shall be void; provided, however, that the provisions
of this Agreement shall be binding upon, inure to the benefit of
and be enforceable by Harcourt and the Company and their
respective successors and permitted assigns.
(b) Further Assurances. Subject to the provisions hereof, each of the
parties hereto shall make, execute, acknowledge and deliver such
other actions and documents as may be reasonably required in order
to effectuate the purposes of this Agreement, and to comply with
all applicable laws, regulations, orders and decrees, and obtain
all required consents and approvals and make all required filings
with any governmental agency, other regulatory or administrative
agency, commission or similar authority, as may be necessary or
desirable in this connection.
(c) Waivers. No failure or delay on the part of Harcourt or the
Company in exercising any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any
such right, or any abandonment or discontinuance of steps to
enforce such a right, preclude any other or further exercise
thereof or the exercise of any other right. No modification or
waiver of any provision of this Agreement nor consent to any
departure by Harcourt or the Company therefrom shall in any event
be effective unless the same shall be in writing, and then such
waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Any consent or waiver by the
Company under this paragraph 10(c) shall be approved by the
Independent Committee.
(d) Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the transactions
contemplated hereby.
(e) Amendments. Except as provided in paragraph 1 with respect to
changes in the level of Corporate Services which may be agreed by
the respective Chief Executive Officers of Harcourt and the
Company without approval of or authorization by their respective
Boards of Directors, this Agreement may be amended or supplemented
only in writing executed by the parties hereto under authorization
by their respective Boards of Directors (including, in the case of
the Company, the approval of the Independent Committee).
(f) Notices. All notices, approvals and other communications provided
for herein shall be validly given, made or served, if in writing
[page] 5<PAGE>
and delivered personally, by telegram or by telephonic facsimile
transmission, or sent by registered mail, postage prepaid, to:
The Company at: 27 Boylston Street
Chestnut Hill, MA 02167
Attention: President
Harcourt at: 27 Boylston Street
Chestnut Hill, MA 02167
Attention: President
and shall become effective upon receipt.
(g) Governing Law. Despite any different result required by any
conflicts of law provisions, this Agreement shall be governed by
the laws of the Commonwealth of Massachusetts.
(h) Force Majeure. Anything else in this Agreement notwithstanding,
Harcourt shall be excused from performance hereunder while, and to
the extent that, its performance is prevented by fire, drought,
explosion, flood, invasion, rebellion, earthquake, civil
commotion, strike or labor disturbance, governmental or military
authority, act of God, mechanical failure or any other event or
casualty beyond the reasonable control of Harcourt, whether
similar or dissimilar to those enumerated in this paragraph
(hereafter a "Casualty"). In the event of a Casualty, the Company
shall be responsible for making its own alternative arrangements
with respect to the interrupted services.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
HARCOURT GENERAL, INC.
/s/ R J Tarr Jr.
___________________________
Robert J. Tarr, Jr.
President and
Chief Executive Officer
GC COMPANIES, INC.
/s/ Richard A. Smith
___________________________
Richard A. Smith
Chairman and
Chief Executive Officer
[page] 6<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
HARCOURT GENERAL, INC. AND SUBSIDIARIES
OCTOBER 31, 1995
EXHIBIT TO FORM 10-K
COMPUTATION OF AVERAGE NUMBER OF SHARES OUTSTANDING USED IN DETERMINING PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE
(In thousands) 1995 1994 1993
PRIMARY
<S> <C> <C> <C>
1. Weighted average number of
Common shares outstanding 75,006 77,802 76,493
2. Assumed conversion of Series A
Cumulative Convertible Preferred Stock 1,480 1,677 2,736
3. Assumed exercise of certain stock
options based on average market value
during the year 278 330 396
4. Weighted average number of shares used
in primary per share computations 76,764 79,809 79,625
FULLY DILUTED (A)
1. Weighted average number of
Common shares outstanding 75,006 77,802 76,493
2. Assumed exercise of Series A
Cumulative Convertible Preferred Stock 1,480 1,677 2,736
3. Assumed exercise of certain stock
options based on market value
at October 31 291 340 420
4. Weighted average number of shares used
in primary per share computations 76,777 79,819 79,649
(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] <PAGE>
EXHIBIT 13.1
<PAGE>
Harcourt General
1995 Annual Report
[PICTURE - Ladies shoe displayed on books - encircled by text]
<PAGE>
HARCOURT GENERAL
MANAGING TO CREATE VALUE
------------------------
As the symbolic circle on the cover of this annual report implies, Harcourt
General views the task of creating value for its shareholders as a continuous
process. We take this process seriously by managing our businesses aggressively
for high quality earnings and cash flow; by investing the capital necessary to
grow revenues, improve margins and control expenses; and by pursuing strategic
acquisition opportunities. Many companies measure their performance one quarter
or one year at a time. We maintain a much longer term perspective. Over time,
we have delivered on our commitment to create lasting shareholder value through
consistent earnings growth, stock price appreciation and 27 consecutive years
of cash dividend increases.
CONTENTS
1 Financial Review
2 At-A-Glance
4 Letter to Our Shareholders
9 Reinvesting in Our Future
15 Realizing Attractive Returns
21 Creating Lasting Value
22 Mission Statement
23 Financial Section
45 Directors and Officers
46 Shareholder Information
<PAGE>
<TABLE>
FINANCIAL REVIEW
(fiscal years ended October 31)
(amounts in millions)
<CAPTION>
1992 1993 1994 1995
<S> <C> <C> <C> <C>
Revenues $2,471.7 $2,758.6 $2,850.8 $3,034.7
Operating Earnings (Loss) $ 198.0 $ 257.9 $ 310.1 $ 317.9
After Tax Earnings (Loss) From Continuing Operations $ 86.0 $ 127.9 $ 147.3 $ 177.6
Earnings (Loss) Per Share From Continuing Operations $ 1.09 $ 1.60 $ 1.84 $ 2.31
Cash Generated By Continuing Operations (1):
Publishing $ 215.9 $ 246.8 $ 260.3 $ 297.8
Specialty Retailing $ 135.5 $ 178.8 $ 205.4 $ 210.1
Professional Services $ 26.1 $ 31.4 $ 26.1 $ 17.5
-------- -------- -------- --------
Total $ 377.5 $ 457.0 $ 491.8 $ 525.4
(1) Cash generated by continuing operations is comprised of operating earnings plus depreciation and
amortization.
Capital Spending
Publishing $ 106.5 $ 92.9 $ 122.8 $ 122.7
Specialty Retailing $ 58.6 $ 48.5 $ 63.6 $ 92.5
Professional Services $ 2.9 $ 4.8 $ 6.9 $ 3.8
-------- -------- -------- --------
Total Capital Spending $ 168.0 $ 146.2 $ 193.3 $ 219.0
The above charts depict only four years of operating results because fiscal
1991 was affected by the following important factors:
1. Harcourt General and Harcourt Brace Jovanovich (HBJ) operated as separate
companies prior to their merger, which was completed at the beginning of
fiscal 1992.
2. Significant charges for write-offs and restructuring related to the merger
with HBJ were recognized in 1991.
3. Substantial interest expense associated with HBJ's high debt levels was
incurred in 1991, only partially offset by investment income earned from the
Company's investment portfolio.
</TABLE>
1
<PAGE>
AT-A-GLANCE
On the surface, our core businesses of publishing and specialty retailing may
appear to be different. But in fact they share a number of similar
characteristics. Harcourt Brace and The Neiman Marcus Group are leaders in the
publishing and specialty retailing industries. Both enjoy worldwide name
recognition through their prestigious franchises, trademarks and imprints.
They are innovators and highly regarded for strong management practices and
loyal customer relationships. Together, these businesses share a common
strategic goal: To aggressively pursue opportunities to maximize returns for
Harcourt General's shareholders. Their consolidated results illustrate how two
diverse businesses can be managed to achieve that common goal.
PUBLISHING
- ----------
[logo Harcourt Brace flush left] HARCOURT BRACE SCHOOL One of the nation's
leading publishers of textbooks and related instructional materials for
kindergarten through grade 8.
<TABLE>
1992 1993 1994 1995
<S> <C> <C> <C> <C>
Publishing Revenues $865,336 $944,545 $919,498 $1,017,637
Publishing Operating Earnings $124,503 $142,177 $165,436 $ 177,531
</TABLE>
HARCOURT BRACE COLLEGE A premier publisher of instructional materials for the
post-secondary educational market under the Harcourt Brace, Dryden Press and
Saunders College imprints.
HARCOURT BRACE INTERNATIONAL Headquartered in London with operations in Tokyo,
Sydney, Toronto and Montreal, the International Group publishes locally and
distributes U.S.-published product worldwide.
HARCOURT BRACE PROFESSIONAL Operates the leading bar review course for law
students, a CPA review course for accountants and publishes reference and
engagement materials, and accounting and tax practice newsletters.
HARCOURT BRACE TRADE Publishes distinguished literature for children and adults
under Harcourt Brace, Harvest and several children's books imprints.
[logo]HOLT, RINEHART AND WINSTON One of the most reputable imprints in the
educational market, HRW publishes instructional materials for grades 7 through
12.
[logo]THE PSYCHOLOGICAL CORPORATION The nation's leading publisher of tests and
related products and services for educational, psychological, clinical and
professional assessment and the leading provider of computerized tests for the
credentialing and licensing markets.
[logo]ACADEMIC PRESS One of the leading international publishers of books and
scholarly journals in the life, physical and social sciences.
[logo]WB SAUNDERS Since 1888, the world's leading publisher of medical books
and periodicals for the health sciences.
SPECIALTY RETAILING
- -------------------
[logo] NEIMAN MARCUS A world-renowned franchise focusing on the high-end
segment of the specialty retailing marketplace through its 28 fine stores
nationwide.
[logo]BERGDORF GOODMAN With a reputation of elegance and an exclusive
designer showcase presentation in its two stores on Fifth Avenue in New
York City, Bergdorf Goodman is a true worldwide destination shopping
experience.
[logo]NM Direct A state-of-the-art direct mail operation which provides a
distinctive selection of merchandise coupled with convenient at-home shopping
through the Neiman Marcus, Horchow and Tries catalogues.
<TABLE>
1992 1993 1994 1995
<S> <C> <C> <C> <C>
Specialty Retailing Revenues $1,484,945 $1,667,825 $1,789,461 $1,888,249
Specialty Retailing Operating Earnings $ 90,976 $ 134,302 $ 157,713 $ 161,698
</TABLE>
2
<PAGE>
1995 HIGHLIGHTS -- MAJOR PUBLISHING BUSINESSES
ELEMENTARY Outstanding year, with reading and mathematics products generating
significant revenue and profit growth.
HRW Maintained very ambitious product development calendar with introduction of
new French and Spanish programs, a new edition of Adventures in Literature and
three science titles.
COLLEGE Higher revenues and significant cost reductions improved profitability
in a challenging market.
THE PSYCHOLOGICAL CORPORATION Acquired Assessment Systems, Inc., a leader in
the rapidly advancing market for computerized testing services, and achieved
earnings increase.
ACADEMIC PRESS Established Internet presence for electronic delivery of its
scientific books and journals while achieving record financial results.
WB SAUNDERS Investments in nursing and health professions continued; journal
expansion program maintained; revisions of medical textbooks remain on
schedule for publication in 1996 and 1997.
1996 OUTLOOK -- MAJOR PUBLISHING BUSINESSES
ELEMENTARY Sales outlook reduced following very strong 1995 due to limited 1996
adoption calendar; introductions of new reading and social studies programs
brighten the outlook for 1997.
HRW Assortment of new programs revamps product lineup, building expectations for
strong 1996 sales and profit gains.
COLLEGE Modest growth anticipated in a continuing difficult market environment.
THE PSYCHOLOGICAL CORPORATION New product introductions, led by the popular
Stanford Achievement Test - 9th edition, and integration of ASI's computerized
testing business should sustain growth trends.
ACADEMIC PRESS Continued growth of journal and book business expected along
with increasing shift to electronic distribution.
WB SAUNDERS Strong performance outlook based on key clinical book publication
schedule and continued growth in nursing and allied health fields.
<TABLE>
<CAPTION>
PUBLISHING REVENUE HISTORY
(In millions) 1992 1993 1994 1995
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Elementary $124.4 $187.4 $145.3 $ 190.0
Secondary 99.0 125.0 120.5 123.7
College 147.3 149.0 145.4 150.1
Testing 96.5 93.2 99.1 117.9
STMP 348.9 323.0 342.0 371.0
International 86.7 84.0 83.2 82.7
Trade 29.1 30.7 34.3 37.9
Elimination of
intercompany sales (66.6) (47.8) (50.3) (55.7)
-------------------------------------------
Total $865.3 $944.5 $919.5 $1,017.6
- -------------------------------------------------------------------
</TABLE>
1995 HIGHLIGHTS -- SPECIALTY RETAILING
THE NEIMAN MARCUS GROUP Sale of Contempo Casuals in June focuses specialty
retailing businesses exclusively on the upscale market. Securitization of
credit card receivables raises $246 million in cash.
NEIMAN MARCUS STORES Achieved record earnings, with operating margins rising to
9.5%.
Successfully opened its 28th Neiman Marcus, a 137,000 square foot store, in The
Mall at Short Hills, New Jersey. Broke ground on a new 464,000 square foot
national service and distribution center located in Longview, Texas, scheduled
for completion in early 1996.
Completed major remodels in Westchester, NY; Northbrook, IL; and NorthPark in
suburban Dallas.
NM DIRECT Implemented cost reduction programs in Spring Season to counteract
sharply higher postage and paper costs.
Consolidated distribution operations into newly expanded facility in Las
Colinas, Texas.
BERGDORF GOODMAN Operating margins improved to 6.9% as the Bergdorf Goodman Men
store achieved profitability.
1996 OUTLOOK -- SPECIALTY RETAILING
NEIMAN MARCUS STORES Operating results should benefit from two new locations:
Short Hills, NJ, which opened in August, and King of Prussia, PA, scheduled to
open in February 1996.
Opening of new service and distribution center will consolidate distribution
function from several separate facilities, generating cost savings and other
efficiencies.
NM DIRECT Improved financial performance expected, reflecting lower expenses as
a result of a reduced number of catalogues, pages and circulation.
BERGDORF GOODMAN Renovations in main store will include creation of a new world
class beauty salon and spa, and expansion of the decorative home area.
Bergdorf Goodman Men will gain additional space on its main floor, permitting
the creation of a new central entrance on Fifth Avenue.
SPECIALTY RETAILING REVENUE HISTORY
<TABLE>
<CAPTION>
(In millions) 1992 1993 1994 1995
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neiman Marcus Stores $1,084.8 $1,219.0 $1,311.5 $1,398.8
Bergdorf Goodman 199.1 219.1 229.5 241.5
NM Direct 201.0 229.7 248.5 247.9
-------------------------------------------
Total $1,484.9 $1,667.8 $1,789.5 $1,888.2
- -------------------------------------------------------------------
</TABLE>
3
<PAGE>
HARCOURT GENERAL 1995 Annual Report
LETTER TO OUR SHAREHOLDERS
--------------------------
This year's annual report focuses on the management philosophy which
has guided our Company during 34 years of public ownership. During this time,
our goal has been, and remains today, to create lasting value for our
shareholders.
We believe we can best accomplish this goal by investing in and effectively
managing our operating businesses to generate increasing cash flows and
earnings. This in turn will lead to appreciation in the Company's stock price
and a rising stream of cash dividends for our shareholders. Our two core
businesses, publishing and specialty retailing, continue to grow in value. At
our Harcourt Brace publishing subsidiary, we are investing heavily in new
products and technologies to secure our market leadership positions into the
next century. The Neiman Marcus Group has substantially completed its store
remodeling program, is firmly positioned as the nation's leading upscale
retailer, and is now beginning to realize attractive cash returns from
significant past capital investments.
We're pleased by the progress recorded against our goals in 1995, with
significant achievements throughout our two core businesses as well as the
completion of several corporate activities designed to enhance shareholder
value. The year, however, was not without frustration as we were unable to find
a significant acquisition opportunity to redeploy the Company's large cash
balances and underutilized debt capacity. We continue our search for an
operating business capable of generating returns higher than the relatively low
rates currently being realized by our investment portfolio. We remain true to
our disciplined, value-oriented approach in assessing acquisition opportunities
and will be patient in the current environment of extremely high valuations,
ever vigilant for the right opportunity when it becomes available.
4
<PAGE>
<TABLE>
RESULTS FROM CONTINUING OPERATIONS
<CAPTION>
(In millions, except for per share amounts) 1993 1994 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $2,758.6 $2,850.8 $3,034.7
Operating earnings $ 257.9 $ 310.1 $ 317.9
Operating margin 9.3% 10.9% 10.5%
Earnings from continuing operations $ 127.9 $ 147.3 $ 177.6
Earnings per share from continuing operations $ 1.60 $ 1.84 $ 2.31
Capital expenditures $ 159.9 $ 196.2 $ 220.1
Common dividends paid per share $ 0.57 $ 0.61 $ 0.65
</TABLE>
SHARE REPURCHASE
One of the most significant corporate actions during the year was the
successful "Dutch Auction" repurchase by the Company of 5.4 million common
shares at $40.50 per share, for a total cost of approximately $220 million.
The repurchase of shares was a judicious use of the large capital balance
accumulated from the strong cash flows of our core businesses and the sale in
October 1994 of the insurance business acquired with Harcourt Brace several
years earlier. After this share repurchase, we still have adequate cash
balances as well as ready access to other sources of capital to pursue
attractive acquisition opportunities that might become available. Following
the completion of the "Dutch Auction," the Board of Directors authorized an
open market repurchase program for up to an additional 2.5 million shares of
the Company's common stock. Between the end of our scale year and the end of
December, that program resulted in the repurchase of approximately 1.1 million
shares at a total price of $42.1 million, equal to an average of approximately
$39.40 per share. The combined effect of the share repurchases has reduced the
number of common and common equivalent shares outstanding to approximately
73.5 million.
Our two core businesses performed well in 1995, leading to strong financial
returns for the year. More importantly, we continue to reinvest in both
businesses, strengthening their competitive positions and further enhancing
their long-term outlook and value. Revenues in 1995 rose 6.5% to $3.03
billion, while operating earnings increased 2.5% to $317.9 million. After-tax
earnings from continuing operations grew 20.6% to $177.6 million, while
earnings per share from continuing operations, benefiting from the previously
discussed share repurchase program, rose 25.5% to $2.31.
PUBLISHING
The Harcourt Brace publishing operations, which continue to generate the
majority of our earnings, maintained their growth momentum in 1995, with
revenues increasing 10.7% to just over $1 billion and operating earnings
rising 7.3% to $177.5 million. We were pleased to meet our earnings targets
despite unprecedented increases in paper prices during the year. This
performance reflects a very strong year in the educational businesses, paced by
a 34.2% revenue gain in the elementary business. Sales of elementary reading
products were particularly strong, boosted by sizable market shares in the
Tennessee, Alabama, West Virginia and Indiana adoptions. We were also pleased
by the improved profitability of our college operations, which benefited from
sales increases and from cost reduction programs undertaken to offset the
continuation of a difficult, slow-growth market. Our scientific, technical,
medical, professional (STMP) group had a 9.9% increase in revenues for the
year. Earnings were only slightly higher, however, as a profit decline in the
WB Saunders medical business offset most of the profit gains at our Academic
Press scientific publisher and in our London-based publishing group.
As we look to the future, we are optimistic about our publishing businesses.
Our reinvestment in Harcourt Brace continues at an aggressive pace, with
capital expenditures in 1995 totaling $123 million and an additional $150
million budgeted for 1996. Approximately 90% of these funds are committed to
producing new and revised programs throughout our publishing businesses. As
we enter the final years of this decade, our educational and STMP businesses
will have strong, broad product offerings to maintain and expand upon their
competitive positions.
5
<PAGE>
HARCOURT GENERAL 1995 Annual Report
[PHOTO - Richard A. Smith, sitting on left, Robert J. Tarr, Jr. standing; both
at conference table. Books and Ladies shoe displayed on conference table]
Our investment program at Harcourt Brace also includes the evaluation and
development of a number of technology-driven opportunities for educational
and STMP markets. For the past year, we have been involved in a joint venture
with Edmark Corporation to develop new lines of multimedia software products
for the elementary school market. That collaboration has gone well and in the
coming year it will generate several important multimedia products in
reading/language arts and social studies. Demand for technology products is
limited in educational markets today because of the lack of installed
computer systems in the classroom, inadequate teacher training and overall
tight funding. Our goal is to stay abreast of technological developments, to
offer our customers competitive electronic products, and to maintain a level
of expertise that will enable us to respond to demand for these products as
it further materializes. In the STMP area, the use of technology is much more
prevalent, and we have assumed a leadership position. Last year, Academic
Press was the first major publisher to announce a plan to make all of its
journals available on the Internet for on-line delivery. AP is also
discussing site-licensing agreements for its journals with several
institutional customers.
We completed an important acquisition during the year which broadens our
testing business and adds a new growth element to the Company. Assessment
Systems, Inc. (ASI), the nation's leading provider of computer-delivered
licensing and credentialing examinations and related information services,
was acquired by The Psychological Corporation in May. ASI has annual revenues
of about $30 million and operates through more than 50 permanent testing
centers across the country.
We expect our publishing businesses to continue their steady progress in 1996.
Fewer adoption opportunities will make the upcoming year difficult for the
elementary business; however, our secondary business should experience strong
growth from the introduction of new programs in language arts, foreign
languages, mathematics and social studies. The addition of ASI and the
introduction of the ninth edition of the successful Stanford Achievement Test
provide the foundation for improved results at The Psychological Corporation.
Our college business, though stabilized, will continue to be affected by a
soft market for new textbooks. The STMP group should perform very well in
1996, with continued growth at Academic Press and a favorable outlook for WB
Saunders based on its production schedule for revised editions of successful
major medical books.
6
<PAGE>
SPECIALTY RETAILING
Despite a difficult retailing environment, our specialty retailing operations
had excellent results in 1995. Revenues increased 5.5% to $1.89 billion, and
operating earnings rose 2.5% to $161.7 million. Most importantly, in June the
Contempo Casuals junior retail chain, which had been performing poorly, was
sold, allowing The Neiman Marcus Group to focus exclusively on the upscale
segment of the market. Financial results for the year were highlighted by
strong performances by Neiman Marcus Stores and Bergdorf Goodman, both of
which achieved significant gains in revenues, operating margins and earnings. NM
Direct, the mail order operation, had significantly lower earnings as a result
of soft demand for its women's apparel and sharply higher paper and postage
costs.
For the year, The Neiman Marcus Group contributed after-tax earnings from
continuing operations of $64.8 million, equal to $.84 per share, to Harcourt
General's results, compared to $63.1 million, equal to $.79 per share, in 1994.
Including the results of the divested Contempo Casuals business, The Neiman
Marcus Group contributed net earnings of $53.1 million, equal to $.69 per
share, to 1995's results, compared to $13.4 million, equal to $.17 per share,
in 1994.
Reflecting the past years of significant investment in its stores, people and
infrastructure, The Neiman Marcus Group stands today as the clear leader in
the upscale retail market serving affluent customers. We believe these
businesses have entered a phase where they will generate significant cash
returns on those investments. Consistent with that view, in November of 1995,
Harcourt General purchased 831,400 common shares of The Neiman Marcus Group
from an institutional investor for $18.75 per share, or a total of $15.6
million. That purchase increased the Company's ownership in The Neiman Marcus
Group to 58.6% of the outstanding common equity.
PROFESSIONAL SERVICES
The professional services segment, which consists of the Drake Beam Morin
outplacement business, had another difficult year in 1995, with revenues
falling to $128.9 million from $141.8 million in 1994. Even though demand for
outplacement services is growing, the marketplace is extremely price
sensitive, resulting in declining sales dollars and significant pressure on
profit margins. As a result, operating earnings in 1995 fell to $13.1 million
from $22.1 million in the prior year. We continue to implement cost reduction
programs throughout DBM to bring expenses in line with the current pricing
environment and hope to see an improvement in 1996 results.
DIVIDEND INCREASE
In September, the Board of Directors voted to increase the quarterly cash
dividend 6.3% to 17 cents per share. This is the 27th consecutive year that
the Board has increased the cash payment to shareholders and the 37th
consecutive year that the Company has paid cash dividends.
In May 1995, Brian J. Knez was promoted to president and chief executive
officer of Harcourt Brace & Company. He had been president of the STMP group
since 1993 and prior to that oversaw the University and Professional
Publishing group. Brian leads an extremely talented management team at
Harcourt Brace, one which adds to our confidence that these businesses will
remain leaders within their market segments for many years to come.
Harcourt General is strongly focused on its two core businesses of publishing
and upscale specialty retailing. We will continue to reinvest in and
strengthen those franchises while we patiently seek opportunities to redeploy
excess cash in new operating businesses. We appreciate your support as we
work diligently toward our goal of creating lasting value for our
shareholders.
/s/ Richard A. Smith /s/ Robert J. Tarr, Jr.
Richard A. Smith Robert J. Tarr, Jr.
Chairman of the Board President and
Chief Executive Officer
January 5, 1996
7
<PAGE>
[PICTURE - Upright book - encircled by text]
[SET IN CIRCLE - product development - new technologies - strategic
partnerships - acquisitions]
8
<PAGE>
PUBLISHING
REINVESTING IN OUR FUTURE
- -------------------------
By funding an aggressive, continuous investment program in new products, new
technologies and new business affiliations, we have solidified the leadership
position of the Harcourt Brace publishing operations in worldwide markets and
are positioned to generate significant returns into the 21st century.
PRODUCT DEVELOPMENT
Content is the lifeblood of publishing. Throughout Harcourt Brace, investments
are being made to ensure that new publishing programs become market leaders and
that the strong backlist of titles is revised on a regular basis.
NEW TECHNOLOGIES
The electronic revolution is progressing -- faster in markets such as
scientific and professional publishing and much slower in educational sectors.
As a content provider, Harcourt Brace is committed to providing information in
formats most valued by the end user, whether those formats be an emerging
on-line electronic service or the tried and true print on paper.
STRATEGIC PARTNERSHIPS
Not all expertise has to be in-house. Harcourt Brace has forged strategic
alliances to gain access to new technologies and distribution channels. Our
value added is the content and our understanding of the educational and STMP
markets.
ACQUISITIONS
Significant synergies exist in publishing acquisitions. We are constantly
seeking opportunities to strengthen our existing businesses and to expand
beyond our current horizons by acquiring other content providers.
9
<PAGE>
[PICTURE - Cross section of information sources offered by Harcourt Brace &
Company. Text in center of picture.]
Content is the real currency of the information revolution. New
technologies will enable us to leverage Harcourt Brace's rich library of
content and enhance its value to students and professionals around the globe.
10
<PAGE>
PRODUCT DEVELOPMENT During the four years that Harcourt Brace has been owned
and managed by Harcourt General, more than $450 million has been reinvested
into its publishing businesses, with approximately 90% of those dollars funding
new products and the revision of backlist titles. In 1995, Harcourt Brace
School introduced a new program, Science AnyTime, to complement its existing
and very successful elementary reading and math programs. The Company's new
reading program, Signatures, will be introduced for the important California
adoption in 1997. In addition, in the upcoming year, Harcourt Brace School will
introduce a new social studies program, Stories in Time, which will compete in
the 1997 Texas adoption. This new program will enable Harcourt Brace School to
participate in the four major segments -- reading, math, science and social
studies -- that account for more than 80% of the elementary market.
Holt, Rinehart and Winston is completing a very ambitious product development
calendar. New programs in Spanish, French and German have been introduced to
support HRW's position as the leading secondary foreign language publisher.
New biology and chemistry programs have strengthened the science list, and
Adventures, a newly revised classic literature program, adds to HRW's
leadership in language arts. In 1996, HRW will introduce a revision of its
leading integrated language arts program, Elements of Literature, as well as a
new offering in mathematics, a revision of SciencePlus, and a mixed media World
History program.
[PICTURE - Display of the variety of products offered by Harcourt Brace &
Company.]
In the college market, Harcourt Brace has focused its publishing effort on
humanities, social sciences, sciences, business and custom publishing. Major
new titles which contributed to an improved 1995 performance include:
Sternberg, In Search of the Human Mind; Porter and Norton, Financial
Accounting; and Brown, Organic Chemistry.
In the testing business, The Psychological Corporation has issued the ninth
edition of its highly successful Stanford Achievement Test, maintaining its
position in the forefront of performance assessment. Important clinical
products which should benefit future sales include the Wechsler Intelligence
Scale for Children, third edition; and the Wechsler Adult Intelligence Scales,
third edition.
In the STMP group, Academic Press is maintaining its strong publishing
schedule, with more than 400 scientific and technical books released during the
past year. In addition, Academic Press published 184 scholarly journals. In
1993, Academic Press introduced the AP Professional imprint to publish
technical and reference books in both print and electronic format for the
computer professional. This line now has more than 150 titles in print and a
publication schedule of approximately 50 titles annually.
WB Saunders published 178 books and 136 periodicals in 1995 for the health
sciences market. Over the past five years, WB Saunders has added 36 new
journals and 12 new clinics to its roster. The medical book
11
<PAGE>
production schedule is particularly strong over the next two years, with a
number of WB Saunders' very successful major clinical textbooks due for
revision, including Braunwald: Heart Disease, 5th edition. The number of
publications for nursing and allied health professionals also continues to
grow, expanding Saunders' presence in these important, growing markets.
INTERNATIONAL
Harcourt Brace International was restructured last year, with the elimination
of the Orlando-based export operations and the establishment of a new
consolidated headquarters in London. This new organization will increase
Harcourt Brace's presence in major overseas regions, including Europe,
Central and South America, and the Pacific Rim. Our new organizational
structure will improve our ability to explore local publishing as well as
acquisitions and joint ventures.
PROFESSIONAL
The professional publishing group continues to expand from its solid base.
More than 30,000 students completed the nation's leading bar review course,
BAR/BRI, in 1995, and our growing CPA review course,
[PICTURE - Display of a sampling of publications offered by Harcourt Brace &
Company.]
Conviser Duffy, increased enrollments approximately 25%. We also continue to
expand on the highly successful GAAP, GAAS and Governmental GAAP Guides for
accountants with CD-ROM versions and ancillary products.
TRADE
Harcourt Brace Trade had a very successful 1995. The children's business was
particularly strong, led by top sellers such as Stellaluna and new titles
such as Smoky Night, recipient of the prestigious Caldecott Medal award.
Successful adult books included Umberto Eco's national best-seller, The
Island of the Day Before and David Guterson's Snow Falling on Cedars, winner
of the PEN/Faulkner award.
NEW TECHNOLOGIES Harcourt Brace is developing electronic products at a pace
which reflects market realities. We will let the customer determine in which
format our information is most useful, and we will deliver our content in that
format. Our business most affected by technological change today is Academic
Press, whose information is used by scientific researchers who are highly
computer literate and have access to on-line services. Academic Press has taken
a leadership position by creating a comprehensive new service on the Internet,
making its books and journals available for review and purchase. AP is also
discussing site-licensing agreements that will allow large users such as
educational institutions to access AP's journals on-line.
12
<PAGE>
Some users of both scientific and medical journals are indicating a preference
for journals in CD-ROM format. During the past year, WB Saunders' journals
Blood and Journal of Clinical Oncology and AP's journal Virology were made
available in this electronic format.
In the educational field, the movement toward electronic product is much
slower. Harcourt Brace College will publish its first true electronic
stand-alone product, a chemistry CD-ROM program, in 1996. In the high school
and elementary markets, we are incorporating multimedia components into all
our instructional programs; however, the market has yet to fully develop, as
widespread availability of multimedia equipment does not currently exist in
classrooms.
We are staying abreast of technological developments in our markets by
utilizing third parties to gain access to technology when necessary, by
maintaining a core technology group within each operating unit, and by
utilizing the expertise of Archipelago Productions, our internal multimedia
production firm. We have also broadened the mandate of Archipelago to become a
multimedia publisher in its own right, using text and illustrative materials to
produce interactive electronic products.
[PICTURE - Display of a sampling of products offered by Harcourt Brace &
Company.]
STRATEGIC PARTNERSHIPS Last year Harcourt Brace formed an alliance with Edmark
Corporation, a leading software developer, to create new multimedia products
for the elementary market. During 1996 the first jointly developed products
will be introduced as components of Harcourt Brace's new elementary reading
program, Signatures, and the new social studies program, Stories in Time.
Harcourt Brace has also entered into an exclusive license agreement with
Broderbund Software to produce a Harcourt edition of The Amazing Writing
Machine. This word processing software provides a rich environment for
students to apply the writing skills they are developing in concert with
their instructional programs. A distribution agreement with Tom Snyder
Productions has also enabled Harcourt Brace School to offer programs from
this award-winning company as an integrated part of Stories in Time. Last
year, Harcourt Brace College joined with Merriam-Webster to publish
electronic products that combine the best-selling Harbrace College Handbook
with the Merriam-Webster Collegiate Dictionary.
ACQUISITIONS In addition to organic growth opportunities within our publishing
businesses, acquisitions represent a significant opportunity. In May 1995, The
Psychological Corporation acquired Assessment Systems, Inc. (ASI), which
provides computerized testing services for licensing and credentialing of
professional and trade groups. ASI has a strong position in the insurance and
real estate fields, and a growing presence in nurse aide and allied health
markets. Last year, ASI administered more than 325,000 tests to individuals
seeking licenses or credentials for a profession or trade.
13
<PAGE>
[PICTURE - Tailor's mannequin encircled by text]
[SET IN CIRCLE - upscale market focus - expansion and remodeling - outstanding
customer service - effective merchandising and promotion]
14
<PAGE>
SPECIALTY RETAILING
REALIZING ATTRACTIVE RETURNS
- ----------------------------
Substantial investments made to expand and enhance The Neiman Marcus Group's
specialty retailing operations are generating outstanding results, with
operating earnings from continuing operations growing at an average compound
rate of 30% over the past five years.
UPSCALE MARKET FOCUS
With Neiman Marcus Stores, Bergdorf Goodman and NM Direct, we are focused
exclusively on serving affluent customers with the nest merchandise and highest
levels of service possible.
EXPANSION AND REMODELING
Since 1988, more than $500 million has been invested in stores, infrastructure
and people, resulting in the most modern, attractive store base in the industry
and a 23% expansion in gross square footage at Neiman Marcus Stores and
Bergdorf Goodman.
OUTSTANDING CUSTOMER SERVICE
No stronger commitment to customer service exists in the industry than that
found at The Neiman Marcus Group, where personnel at all levels are
consistently trained in the art of exceeding customer expectations.
EFFECTIVE MERCHANDISING AND PROMOTION
Working in partnership with the world's leading designers, Neiman Marcus and
Bergdorf Goodman are constantly creating new merchandising programs to capture
and hold the attention of our customers.
15
<PAGE>
[PICTURE - Montage of photos depicting products and environment offered by
The Neiman Marcus Group, Inc. Text in center of picture.]
We believe The Neiman Marcus Group today has the most modern and attractive
stores of any national retailer, supported by a highly efficient infrastructure
and extremely strong relationships with the world's leading designers of fine
merchandise.
16
<PAGE>
UPSCALE MARKET FOCUS The divestiture of the Contempo Casuals junior women's
business in June 1995 permits The Neiman Marcus Group to focus exclusively on
the high-end segment of the specialty retailing market that serves affluent
customers across the country.
The Neiman Marcus and Bergdorf Goodman customer base consists of
fashion-conscious individuals with an appreciation for high quality,
exclusive designer merchandise. These customers are uncompromising in their
search for quality and are knowledgeable about the value of high-end,
designer brand names because of the important role fashion plays in their
everyday lives.
Both Neiman Marcus and Bergdorf Goodman have developed strong relationships
with the world's leading designer resources to ensure that our customers have
access to the nest merchandise available. These designers know that our
stores offer an upscale residential type environment that highlights their
merchandise most effectively and that our skilled sales associates have the
customer relationships and product knowledge to maximize merchandise sales.
[PICTURE - Products offered by The Neiman Marcus Group, Inc.]
EXPANSION AND REMODELING In the eight years we have managed The Neiman Marcus
Group, more than $500 million has been reinvested in the businesses, with the
bulk of those funds spent on remodeling existing stores and building new
stores. More than one-half of the Neiman Marcus Store square footage today is
new or has been remodeled since 1987. During this time, we have opened six new
Neiman Marcus Stores: McLean, VA (outside Washington, DC); Denver; Minneapolis;
Scottsdale; Troy, MI (outside Detroit); and, in August 1995, Short Hills, NJ.
These new stores have increased the Neiman Marcus gross square footage by more
than 20% to nearly 4 million square feet. In addition, Bergdorf Goodman opened
its men's store in New York City, across Fifth Avenue from its main store, in
the fall of 1990.
In February 1996, a new Neiman Marcus will open in King of Prussia, PA, just
outside Philadelphia; and in the fall of 1996 Neiman Marcus will open a new
store in Paramus, NJ. These two new stores will add nearly 300,000 square
feet to the Neiman Marcus store base. In 1999, Neiman Marcus is scheduled to o
pen a 160,000 square foot store in Honolulu, Hawaii.
The remodeling and expansion program has produced the most modern and
attractive national store network in the industry and has enabled us to
reclaim non-selling space and increase efficiencies. One of the keys to the
profit margin improvement achieved by Neiman Marcus Stores has been its ability
to increase
17
<PAGE>
merchandise sales through existing real estate. The remodeling and expansion
program has contributed greatly to our success in that effort, witnessed by
the increase in sales per gross square foot within Neiman Marcus Stores from
less than $300 in 1992 to approximately $360 in 1995.
OUTSTANDING CUSTOMER SERVICE At Neiman Marcus, Bergdorf Goodman and NM Direct,
our customers demand the highest levels of service, and we are committed to
satisfying their demands. Therefore, we have made significant investment in
this area, including the implementation of intensified training programs and
increases in the overall number of sales associates within our stores.
As in any service-oriented business, feedback is the vital component which
measures effectiveness. We ensure our impeccable service by conducting
ongoing surveys which monitor customer satisfaction. At Bergdorf Goodman Men,
a clientele specialist greets customers at the door and is available to
personally accompany them throughout the store if they so desire.
[PICTURE - Products offered by The Neiman Marcus Group, Inc.]
At Neiman Marcus Stores, an outside shopping service is employed to regularly
shop each store, as well as our competitors, rating sales associates on a
broad range of customer service categories. These results, which are part of
our store managers' performance evaluations, consistently rank Neiman Marcus
at the top of the list in customer service.
EFFECTIVE MERCHANDISING AND PROMOTION Neiman Marcus Stores, Bergdorf Goodman
and NM Direct realize that success in the upscale market niche they serve
requires a special air in their merchandising and promotion programs. They are
constantly striving to generate interest, gain attention and capture the
imagination of customers.
One of the most successful marketing programs in the retail industry is
represented by the Neiman Marcus Christmas Catalogue, which has developed a
worldwide reputation. NM Direct works all year to collect an outstanding
assortment of merchandise and to produce the Christmas catalogue, which is
mailed to more than 3 million individuals. The catalogue kick-off in
September has become a true media event, with widespread coverage by radio,
television, newspapers and magazines around the world. In 1995, the famous His
and Hers gift was a full year of first class travel for two on United Airlines
and the right to emblazon
18
<PAGE>
the buyer's name on the nose of a United Boeing 777. The gift was auctioned
off with any amount over $100,000 going to AmeriCares, a disaster relief
organization that airlifts emergency medical supplies around the globe. The
winning bid of $177,747 resulted in a charitable donation of $77,747.
For the past two years, Neiman Marcus Stores has served holiday shoppers with
the NM Holiday Express Train. In 1995, the train toured 10 U.S. cities from
San Antonio, Texas to Cleveland, Ohio featuring fine quality merchandise. This
innovative tour not only generates nationwide media coverage, but also
represents a unique way to embrace customers in markets too small to support
a Neiman Marcus Store.
In-store events are a major vehicle to bring customers into our facilities
and to highlight specific merchandise. In 1995, more than 3,000 special events
ranging from trunk shows featuring specific designers, to fashion show
luncheons, to special tie-ins with charitable organizations were held at
Neiman Marcus Stores.
[PICTURE - Array of catalogues offered by NM Direct]
The opening of the Short Hills store featured a black tie charity gala to
benefit three New Jersey organizations: The American Paralysis Association, the
Paper Mill Playhouse and the Woman's Association of Morristown Memorial
Hospital. More than 750 guests attended, supporting the three charities and
gaining important exposure for the new store. Similar events will launch the
new stores in King of Prussia, PA and Paramus, NJ later this year.
Neiman Marcus Stores' most effective marketing is direct communication with
its customers. In the coming year, a new concept, "Magalogues," will combine
all store catalogues issued throughout the year into a monthly magazine
format that not only promotes product but also includes customer service
articles, designer profiles and other highlights. The first issue in February
1996 will be mailed to approximately 500,000 Neiman Marcus customers.
These and many other merchandising activities combine to create the
successful marketing efforts of Neiman Marcus and Bergdorf Goodman.
19
<PAGE>
[PICTURE - Stack of button down shirts next to a stack of books, both
encircled by text.]
[SET IN CIRCLE - building on strong franchises - maintaining long-term horizon
----------------------------- -----------------------------
- - exploring new opportunities]
---------------------------
20
<PAGE>
HARCOURT GENERAL
CREATING LASTING VALUE
- ----------------------
As we manage our existing core businesses, we continue to search for
acquisition opportunities with a patient, disciplined approach. A healthy
balance sheet and substantial borrowing capacity provide ample resources to
take advantage of the right opportunity.
BUILDING ON STRONG FRANCHISES
The imprints of Harcourt Brace and the brands of The Neiman Marcus Group are
all strong franchises within their respective marketplaces -- franchises with
strong consumer identities that are associated with quality, integrity and
superior customer service. Our reinvestment programs are designed to protect
and build upon those franchises, adding to their value for shareholders.
MAINTAINING LONG-TERM HORIZON
The ability and willingness to think and act long-term is critical to our
success. Corporate actions which have created substantial and lasting
shareholder value, such as the sale of our soft drink bottling business in 1989
and the acquisition of Harcourt Brace in 1991, would not have been possible if
quarterly or annual earnings targets took precedence over longer term value
creation objectives.
EXPLORING NEW OPPORTUNITIES
Our search for new opportunities is active, and our horizons are wide. As
owner-managers, our goals are firmly in line with our shareholders. We seek to
create value, not growth for its own sake. Our approach is disciplined and
value-oriented. We are patient, a particularly important virtue in the current
environment of highly inflated prices. Over time, we will uncover opportunities
that meet our goals.
21
<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:
- - We will maintain an uncompromising commitment to quality and the highest
levels of customer service in all our businesses and endeavors.
- - We will adhere to the highest levels of integrity and ethical standards in
dealing with all constituencies, including customers, suppliers and employees.
- - We will aspire to achieve a leadership position in every one of our
operating businesses.
- - 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.
- - We will strive to maximize the potential of all employees and maintain a
professionally challenging work environment.
- - We will be socially responsible and provide financial and human resource
support for worthwhile causes, especially in those communities in which we
operate.
FINANCIAL CONTENTS
23 Management's Discussion & Analysis of Financial Condition
and Results of Operations
27 Consolidated Statements of Earnings
28 Consolidated Balance Sheets
30 Consolidated Statements of Cash Flows
31 Consolidated Statements of Shareholders' Equity
32 Notes to Consolidated Financial Statements
43 Independent Auditors' Report
44 Five Year Summary
45 Directors and Officers
46 Shareholder Information
22
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
- ---------------------------------------------------------
AND RESULTS OF OPERATIONS
- -------------------------
SEGMENT OPERATING RESULTS
Results have been restated to reflect the Company's insurance and theatre
businesses and The Neiman Marcus Group's Contempo Casuals business as
discontinued operations. The following table presents revenues and operating
earnings by continuing business segment:
<TABLE>
<CAPTION>
Years ended October 31 1995 1994 1993
- ------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
REVENUES
Publishing $1,017,637 $ 919,498 $ 944,545
Specialty retailing 1,888,249 1,789,461 1,667,825
Professional services 128,850 141,818 146,252
-----------------------------------
Total revenues $3,034,736 $2,850,777 $2,758,622
-----------------------------------
OPERATING EARNINGS
Publishing $ 177,531 $ 165,436 $ 142,177
Specialty retailing 161,698 157,713 134,302
Professional services 13,062 22,072 28,395
Corporate expenses (34,395) (35,081) (46,932)
-----------------------------------
Total operating earnings $ 317,896 $ 310,140 $ 257,942
- ------------------------------------------------------------------------
</TABLE>
OPERATING RESULTS 1995 VS. 1994
Earnings from continuing operations were $177.6 million or $2.31 per share in
1995 compared to $147.3 million or $1.84 per share in 1994. The improved
earnings in 1995 resulted from higher publishing and specialty retailing
earnings, partially offset by lower professional services earnings. Higher
investment income also contributed to the earnings increase. The 1995 earnings
per share amount includes the effect of the purchase of approximately 5.4
million shares of the Company's common stock through a "Dutch Auction" tender
offer in April 1995.
PUBLISHING
Publishing revenues in 1995 increased 10.7% to $1.02 billion from $919.5
million in the previous year. Significant increases were achieved at the
Company's educational and scientific, technical, medical and professional
(STMP) groups. These improvements in 1995 were partially offset by lower
international group revenues. Educational group revenue gains resulted
primarily from sales of elementary products in reading, mathematics and
science, and testing programs, while STMP revenues increased principally
because of higher journal sales at both Academic Press and WB Saunders.
The publishing segment had operating earnings of $177.5 million in 1995, a 7.3%
increase from $165.4 million in 1994. Significant operating earnings gains at
the educational group and a slight increase at the STMP group were partially
offset by lower international group earnings. Overall, operating margins were
negatively affected by increased costs of paper, prepublication amortization
and fulfillment.
SPECIALTY RETAILING
Specialty retailing revenues in 1995 increased 5.5% to $1.89 billion from $1.79
billion in 1994. The higher revenues were a result of increased transaction
volume and a higher average sale amount at both Neiman Marcus Stores and
Bergdorf Goodman. Revenues at NM Direct were essentially at compared to 1994.
Operating earnings from specialty retailing increased 2.5% to $161.7 million in
1995 from $157.7 million in 1994. Increased earnings in 1995 at Neiman Marcus
Stores and Bergdorf Goodman were partially offset by lower NM Direct earnings.
Both Neiman Marcus Stores and Bergdorf Goodman improved gross profit as a
result of increased transaction volume and higher average sale amounts,
partially offset by higher markdowns. Lower NM Direct earnings were principally
due to reduced demand for apparel and higher paper and postage costs. Due to
deflation in NMG's LIFO index in 1995, NMG recognized a credit of $10.4
million, which had the effect of improving gross profit. In 1994, the impact of
the LIFO method of accounting reduced gross profit by $2.4 million.
The securitization of NMG's credit card receivables, which was completed in
March 1995, had the effect of reducing finance charge income by $7.1 million in
1995. Finance charge income in future periods will also be reduced.
23 Harcourt General, Inc. and Subsidiaries
<PAGE>
PROFESSIONAL SERVICES
Revenues from the professional services segment decreased 9.1% to $128.9
million in 1995 from $141.8 million in 1994. The decrease was a result of
reduced prices for outplacement services, reflecting an increasingly
competitive marketplace.
Operating earnings for the professional services segment decreased 40.8% to
$13.1 million in 1995 compared with $22.1 million in 1994. The decrease was
primarily due to lower margins that have resulted from increased competition.
CORPORATE EXPENSES
Corporate expenses decreased 2.0% to $34.4 million in 1995 compared to $35.1
million in 1994, primarily due to lower professional fees.
INVESTMENT INCOME
Investment income increased $25.7 million to $39.9 million in 1995 from $14.2
million in the previous year. The increase was due to a larger portfolio
balance as a result of the sale of the Company's insurance business in October
1994 and a higher rate of return on portfolio assets.
INTEREST EXPENSE
Interest expense increased 2.9% to $88.7 million in 1995 from $86.2 million in
1994. The increase was primarily the result of higher interest rates on NMG
bank debt.
INCOME TAXES
The Company's effective income tax rate was 34.0% in 1995, compared to 38.2% in
1994. The decrease in the rate was due to settlements of prior years' state and
federal tax returns, and lower state and foreign taxes.
DISCONTINUED OPERATIONS
The loss from discontinued operations of $11.7 million in 1995 included $1.8
million of after-tax Contempo Casuals operating losses and an after-tax loss on
disposal of $9.9 million. In 1994, earnings from discontinued operations
included after-tax earnings of $37.1 million related to the Company's insurance
business, an after-tax gain of $8.0 million on the sale of the insurance
business, $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
and an after-tax loss from Contempo Casuals operations of $49.8 million, which
included an after-tax restructuring charge of $28.1 million.
OPERATING RESULTS 1994 VS. 1993
Earnings from continuing operations were $147.3 million or $1.84 per share in
1994 compared to $127.9 million or $1.60 per share in 1993.
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 prepublication
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.
SPECIALTY RETAILING
Revenues from specialty retailing increased 7.3% in 1994 to $1.79 billion from
$1.67 billion in 1993. The increase resulted from comparable store increases at
both Neiman Marcus Stores and Bergdorf Goodman, as well as higher revenues at
NM Direct.
Operating earnings from specialty retailing were $157.7 million in 1994
compared to $134.3 million in 1993. The increase was primarily due to the
higher revenues.
Harcourt General, Inc. and Subsidiaries 24
<PAGE>
PROFESSIONAL SERVICES
Revenues from the professional services segment decreased 3.0% 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 accounts that
contributed significantly less 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 25.3%, or $11.9 million, to $35.1 million in 1994.
The decrease 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 EXPENSE
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.
INCOME TAXES
The Company's effective income tax rate was approximately 38% in both 1994 and
1993.
DISCONTINUED OPERATIONS
Earnings from discontinued operations in 1994 included after-tax earnings
related to the Company's insurance business of $37.1 million, an after-tax gain
of $8.0 million on the sale of the insurance business, $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, and an after-tax loss from Contempo
Casuals of $49.8 million. The 1993 earnings from discontinued operations
included after-tax earnings from insurance of $46.0 million, after-tax theatre
earnings of $5.8 million and an after-tax loss from Contempo Casuals of $8.4
million.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion analyzes liquidity and capital resources by
operating, investing and financing activities as presented in the Company's
consolidated statements of cash flows.
Cash provided by continuing operating activities in 1995 was $308.3 million
compared to $193.5 million in 1994. The cash provided by the Company's
operations was more than sufficient to fund working capital, capital
expenditures and dividend requirements.
The most significant changes in working capital were increases in inventories
of $54.4 million and accounts receivable of $38.3 million, which were partially
offset by a $26.0 million increase in accounts payable and accrued liabilities.
Investing activities in 1995 included capital expenditures of $220.1 million,
the purchase of $243.1 million of short-term investments and business
acquisitions of $42.5 million.
Publishing capital expenditures in 1995 totaled $122.7 million and were
principally related to prepublication costs. Capital expenditures for the
publishing business are expected to approximate $150.0 million in fiscal 1996.
Specialty retailing capital expenditures in 1995 totaled $93.5 million and
primarily related to the construction of three new stores and a national
distribution center and the renovation of several existing stores. In August
1995, the Company opened a new Neiman Marcus store in Short Hills, New Jersey.
Additionally, the Company expects to open new stores in King of Prussia,
Pennsylvania in the spring of 1996 and Paramus, New Jersey in the fall of 1996.
Completion of the distribution center is planned by the spring of 1996.
Capital expenditures for NMG are currently estimated at $100.0 million in
fiscal 1996.
The Company's short-term investments are highly liquid and consist of high
quality commercial paper, certificates of deposit, corporate debt securities
and U.S. Government securities.
Financing activities primarily reflect the purchase of approximately 5.4
million shares of the Company's common stock for $220.0 million through a
"Dutch Auction" tender offer, $47.7 million of dividend payments,
25 Harcourt General, Inc. and Subsidiaries
<PAGE>
additional borrowings of $17.1 million under NMG's revolving credit agreements
and a $246.0 million securitization of NMG's credit card receivables. In March
1995, NMG sold all of its Neiman Marcus credit card receivables through a
subsidiary to a trust in exchange for certificates representing an undivided
interest in such receivables. Certificates representing an undivided interest
in $246.0 million of these receivables were 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 used 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 is subordinated to the Class A and Class B
certificates. NMG will continue to service all receivables for the trust.
NMG also eliminated its quarterly cash dividend on 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 October 31, 1995, the Company's consolidated long-term debt totaled $959.9
million. That amount included $271.1 million of NMG debt, which is not
guaranteed by Harcourt General.
In addition to its funded debt, the Company has significant lease commitments
which require cash outflows. Lease payments from continuing operations totaled
$80.3 million in 1995, and minimum lease payments in 1996 are expected to be at
comparable levels.
Between October 31, 1995 and November 30, 1995, the Company purchased
approximately 1.1 million shares of its common stock at an average price of
approximately $39.40 per share and approximately 0.8 million shares of NMG
common stock at $18.75 per share.
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 the
Company's annual operating earnings are historically generated in the third
quarter of its fiscal year since that quarter includes the important
educational publishing selling season.
Conversely, second quarter operating earnings have historically been minimal
during a period when publishing revenues are at their lowest level, and that
business segment typically reports operating losses. Those losses partially
offset retail earnings, which have historically been at their highest point
since the Company's second quarter includes NMG's holiday selling season.
IMPACT OF INFLATION
The Company's financial statements are prepared on a historical cost basis
under generally accepted accounting principles. The Company uses the last-in,
first-out (LIFO) method of accounting for substantially all of its inventories.
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 financial
position or results of operations of 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 1995, the Board of Directors voted to increase the quarterly cash
dividend on the Common Stock to 17 cents per share. The Board also increased
the quarterly cash dividend on the Series A Stock to 19.45 cents per share and
on the Class B Stock to 15.30 cents per share.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets," which is effective for fiscal years beginning after
December 15, 1995. In October 1995, the FASB issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), which is effective for transactions entered into in fiscal years that
begin after December 15, 1995. SFAS 123 establishes a fair value based method
of accounting for stock-based compensation plans. The effect of adopting both
of these standards is not expected to be material to the Company's financial
position or results of operations.
Harcourt General, Inc. and Subsidiaries 26
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
- -----------------------------------
<CAPTION>
Years ended October 31 1995 1994 1993
==============================================================================================
(In thousands except for per share amounts)
<S> <C> <C> <C>
Revenues $3,034,736 $2,850,777 $2,758,622
Costs applicable to revenues 1,765,090 1,656,525 1,571,650
Selling, general and administrative expenses 917,355 849,031 882,098
Corporate expenses 34,395 35,081 46,932
----------------------------------------
OPERATING EARNINGS 317,896 310,140 257,942
Investment income 39,945 14,239 14,072
Interest expense (88,735) (86,219) (84,585)
Other income, net -- 18,303
----------------------------------------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 269,106 238,160 205,732
Income tax expense (91,496) (90,885) (77,876)
----------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 177,610 147,275 127,856
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET (11,727) 30,257 43,477
----------------------------------------
NET EARNINGS $ 165,883 $ 177,532 $ 171,333
- ----------------------------------------------------------------------------------------------
AMOUNTS PER SHARE OF COMMON STOCK
Earnings from continuing operations $ 2.31 $ 1.84 $ 1.60
Earnings (loss) from discontinued operations (.15) .38 .55
----------------------------------------
NET EARNINGS $ 2.16 $ 2.22 $ 2.15
==============================================================================================
</TABLE>
See notes to consolidated financial statements
27 Harcourt General, Inc. and Subsidiaries
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<CAPTION>
October 31 1995 1994
================================================================================
(In thousands)
<S> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and equivalents $ 363,750 $ 819,659
Short-term investments 243,073 --
Accounts receivable, net 372,700 578,575
Inventories 495,222 466,177
Deferred income taxes 79,083 90,501
Other current assets 55,970 66,096
-----------------------------
TOTAL CURRENT ASSETS 1,609,798 2,021,008
=============================
PROPERTY AND EQUIPMENT
Land, buildings and improvements 496,660 496,424
Fixtures and equipment 330,602 328,235
-----------------------------
827,262 824,659
Less accumulated depreciation and amortization (286,915) (302,989)
-----------------------------
TOTAL PROPERTY AND EQUIPMENT, NET 540,347 521,670
==============================
OTHER ASSETS
Prepublication costs, net 164,449 164,160
Intangible assets, net 442,566 422,566
Other 127,176 112,960
-----------------------------
TOTAL OTHER ASSETS 734,191 699,686
=============================
TOTAL ASSETS $2,884,336 $3,242,364
================================================================================
</TABLE>
See notes to consolidated financial statements
Harcourt General, Inc. and Subsidiaries 28
<PAGE>
<TABLE>
<CAPTION>
October 31 1995 1994
=============================================================================================================
(In thousands)
<S> <C> <C>
L I A B I L I T I E S
CURRENT LIABILITIES
Notes payable and current maturities of long-term liabilities $ 55,484 $ 119,529
Accounts payable 284,481 273,098
Accrued liabilities 334,479 363,333
Taxes payable 58,104 71,209
Other current liabilities 52,423 47,835
----------------------------
TOTAL CURRENT LIABILITIES 784,971 875,004
============================
LONG-TERM LIABILITIES
Notes and debentures 749,008 915,464
Other long-term liabilities 210,846 207,877
----------------------------
TOTAL LONG-TERM LIABILITIES 959,854 1,123,341
============================
DEFERRED INCOME TAXES 198,398 196,664
============================
COMMITMENTS AND CONTINGENCIES
S H A R E H O L D E R S ' E Q U I T Y
PREFERRED STOCK
Series A Cumulative Convertible -- $1 par value
Issued and outstanding -- 1,210 and 1,453 shares 1,210 1,453
COMMON STOCKS
Class B Stock $1 par value
Issued and outstanding -- 20,802 and 21,444 shares 20,802 21,444
Common Stock -- $1 par value
Issued and outstanding -- 51,897 and 56,443 shares 51,897 56,443
PAID-IN CAPITAL 727,285 726,505
CUMULATIVE TRANSLATION ADJUSTMENTS (5,166) (4,710)
RETAINED EARNINGS 145,085 246,220
----------------------------
TOTAL SHAREHOLDERS' EQUITY 941,113 1,047,355
============================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,884,336 $3,242,364
=============================================================================================================
</TABLE>
See notes to consolidated financial statements
29 Harcourt General, Inc. and Subsidiaries
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<CAPTION>
YEARS ENDED OCTOBER 31 1995 1994 1993
=================================================================================================================
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from continuing operations $ 177,610 $ 147,275 $ 127,856
Adjustments to reconcile earnings from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 175,737 149,973 154,740
Other income -- -- (20,755)
Deferred income taxes 13,152 (38,909) 13,145
Other 4,183 10,932 19,566
Changes in assets and liabilities:
Accounts receivable (38,259) (86,499) (105,218)
Inventories (54,376) (30,291) (61,870)
Other current assets 4,302 6,870 (11,746)
Accounts payable and accrued liabilities 25,974 34,187 88,246
---------------------------------------
308,323 193,538 203,964
Discontinued operating activities (3,410) (3,721) 49,799
---------------------------------------
Net cash provided by operating activities 304,913 189,817 253,763
=======================================
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (220,053) (196,160) (159,860)
Purchase of short-term investments (243,073) -- --
Proceeds from sale of insurance business -- 410,432 --
Acquisitions (42,490) (36,215) --
Other investing activities 1,441 (9,570) (2,057)
---------------------------------------
(504,175) 168,487 (161,917)
Discontinued operations investing activities -- -- (82,984)
---------------------------------------
Net cash provided (used) by investing activities (504,175) 168,487 (244,901)
=======================================
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing 17,065 73,800 77,200
Repayment of debt (247,431) (30,325) (6,500)
Repurchase of Common Stock (224,827) -- --
Proceeds from receivables securitization 245,965 -- --
Dividends paid (47,730) (47,183) (43,997)
Other equity transactions 311 (1,862) 632
---------------------------------------
Net cash provided (used) by financing activities (256,647) (5,570) 27,335
=======================================
CASH AND EQUIVALENTS
Increase (decrease) during the year (455,909) 352,734 36,197
Beginning balance 819,659 466,925 430,728
---------------------------------------
ENDING BALANCE $ 363,750 $ 819,659 $ 466,925
=================================================================================================================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 88,637 $ 82,409 $ 82,280
Income taxes $ 75,222 $ 56,821 $ 84,087
Non-cash items:
Tax settlement in discontinued operations $ -- $ 35,000 $ --
</TABLE>
See notes to consolidated financial statements
Harcourt General, Inc. and Subsidiaries 30
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------
<CAPTION>
Cumulative
Common Series A Paid-in Translation Retained
Stocks Stock Capital Adjustments Earnings
======================================================================================================================
(In thousands)
<S> <C> <C> <C> <C> <C>
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
Net earnings -- -- -- -- 165,883
Cash dividends paid -- -- -- -- (47,730)
Conversion of Series A Stock 243 (243) -- -- --
Repurchase of Common Stock (5,539) -- -- -- (219,288)
Translation adjustments -- -- -- (456) --
Other equity transactions, net 108 -- 780 -- --
-----------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1995 $72,699 $1,210 $ 727,285 $(5,166) $ 145,085
======================================================================================================================
</TABLE>
See notes to consolidated financial statements
31 Harcourt General, Inc. and Subsidiaries
<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 consisted 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.
SHORT-TERM INVESTMENTS
Short-term investments, which consisted of commercial paper, certificates of
deposit, corporate debt securities and U.S. Government securities, are carried
at cost plus accrued interest, which approximates fair value.
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
$49.4 million in 1995 and $49.1 million in 1994 and an allowance for doubtful
accounts of $22.5 million in 1995 and $26.4 million in 1994.
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.
Substantially all retail inventories are valued using the retail method on a
LIFO basis. If the FIFO method of inventory valuation had been used to value
inventory, the inventories would have been $14.2 million and $24.6 million
higher than reported at October 31, 1995 and October 31, 1994, 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 of the publications, 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
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.
RECEIVABLES AND FINANCE CHARGE INCOME
NMG's credit operations generate finance charge income, which is recognized as
income when earned and is recorded as a reduction of selling, general and
administrative expenses. Finance charge income amounted to $55.9 million in
1995, $54.3 million in 1994 and $36.3 million in 1993. The securitization of
NMG's credit card receivables, which was completed in March 1995, had the
effect of reducing finance charge income by $7.1 million in 1995. Finance
charge income in future periods will also be reduced (See Note 13).
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 32
<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 76.8 million in 1995, 79.8
million in 1994 and 79.6 million in 1993.
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 as discontinued operations the sale of
Contempo Casuals in fiscal 1995, the sale of the Company's insurance operations
in fiscal 1994 and the spinoff of the theatre operations in fiscal 1993.
/2/ DISCONTINUED OPERATIONS
<TABLE>
Discontinued operations consisted of the following:
<CAPTION>
Years ended October 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Loss from Contempo Casuals operations,
net of income tax benefits of $1,300, $36,000 and $6,100 $ (1,854) $(49,755) $(8,402)
Loss on disposal of Contempo Casuals,
net of income tax benefit of $7,100 (9,873) -- --
Earnings from insurance operations,
net of income taxes of $20,844 and $24,835 -- 37,056 46,036
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 -- -- 10,503
Theatre spinoff transaction expenses -- -- (4,660)
------- ------- ------
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS $(11,727) $ 30,257 $43,477
======== ======== =======
- -----------------------------------------------------------------------------------------------------
</TABLE>
CONTEMPO CASUALS OPERATIONS
On June 30, 1995, NMG sold its Contempo Casuals subsidiary to The Wet Seal,
Inc. (Wet Seal) for approximately 250,000 shares of Wet Seal Class A Common
Stock and $100,000 in cash. Contempo operates a chain of retail stores which
sells moderately priced fashion apparel and accessories primarily for young
women. Revenues related to the discontinued Contempo Casuals operations were
$207.2 million in 1995, $303.4 million in 1994 and $349.1 million in 1993.
INSURANCE OPERATIONS
In October 1994, the Company sold its insurance businesses to an affiliate of
General Electric Capital Corporation for $410.4 million in cash. Revenues
applicable to discontinued insurance operations were $485.8 million in 1994 and
$548.0 million in 1993.
THEATRE OPERATIONS
In December 1993, the Company completed the spinoff of its theatre operations
in a tax-free distribution to its shareholders. Revenues applicable to
discontinued theatre operations were $495.0 million in 1993. The newly created
company is named GC Companies, Inc. (GCC). 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 Intercompany Services Agreement, Harcourt General provided certain
management, accounting, financial, legal, tax and other corporate services to
GCC. The fees for these services, which totaled $3.1 million in fiscal 1995 and
$1.7 million in fiscal 1994, were based on Harcourt General's costs. This
agreement was modified effective November 1, 1995 to reduce the level of
services which Harcourt General will provide to GCC. These services will
include the services of Harcourt General's Chairman and Group Vice President
and such additional corporate services as the Chief Executive Officers of the
Company and GCC determine. The Company's Chairman continues to serve as the
Chairman and Chief Executive Officer of GCC and the Group Vice President of the
Company now serves as President and Chief Operating Officer of GCC. The fees
payable to Harcourt General by GCC have been and will continue to be subject to
the approval of a committee of directors of GCC who are not affiliated with
Harcourt General.
33 Harcourt General, Inc. and Subsidiaries
<PAGE>
TAX SETTLEMENTS
The Company recognized $35.0 million of tax benefits in fiscal 1994 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. Harcourt Brace also publishes and scores
tests that measure individual aptitude and competency and conducts bar
examination and accounting accreditation review courses.
SPECIALTY RETAILING
NMG operates three specialty retail businesses: Neiman Marcus Stores, NM Direct
and Bergdorf Goodman. Neiman Marcus Stores operates 28 stores in 15 states and
the District of Columbia; Bergdorf Goodman operates two stores in New York
City; and NM Direct operates NMG's mail order business, providing both apparel
and home items through its various mail order catalogues.
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 1995 1994 1993
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
REVENUES
Publishing $1,017,637 $ 919,498 $ 944,545
Specialty retailing 1,888,249 1,789,461 1,667,825
Professional services 128,850 141,818 146,252
---------------------------------------
TOTAL REVENUES $3,034,736 $2,850,777 $2,758,622
=======================================
OPERATING EARNINGS
Publishing $ 177,531 $ 165,436 $ 142,177
Specialty retailing 161,698 157,713 134,302
Professional services 13,062 22,072 28,395
Corporate expenses (34,395) (35,081) (46,932)
---------------------------------------
TOTAL OPERATING EARNINGS $ 317,896 $ 310,140 $ 257,942
=======================================
IDENTIFIABLE ASSETS
Publishing $ 922,629 $ 842,850 $ 739,746
Specialty retailing 1,191,085 1,408,238 1,362,657
Professional services 58,810 69,562 55,973
Corporate 711,812 921,714 973,031
---------------------------------------
TOTAL IDENTIFIABLE ASSETS $2,884,336 $3,242,364 $3,131,407
=======================================
CAPITAL EXPENDITURES
Publishing $ 122,669 $ 122,761 $ 92,864
Specialty retailing 93,514 65,074 56,325
Professional services 3,799 6,910 4,813
Corporate 71 1,415 5,858
---------------------------------------
TOTAL CAPITAL EXPENDITURES $ 220,053 $ 196,160 $ 159,860
=======================================
DEPRECIATION AND AMORTIZATION
Publishing $ 120,331 $ 94,879 $ 104,603
Specialty retailing 48,397 47,712 44,511
Professional services 4,412 4,006 3,036
Corporate 2,597 3,376 2,590
---------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION $ 175,737 $ 149,973 $ 154,740
=======================================
</TABLE>
Harcourt General, Inc. and Subsidiaries 34
<PAGE>
/4/ INTANGIBLE ASSETS
<TABLE>
Intangible assets consisted of the following:
<CAPTION>
October 31 1995 1994
- ---------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Goodwill $ 465,500 $431,645
Trademarks 73,000 73,000
Other 15,351 17,492
-------------------------
TOTAL 553,851 522,137
Accumulated amortization (111,285) (99,571)
-------------------------
TOTAL $ 442,566 $422,566
=========================
- ----------------------------------------------------------------------------
</TABLE>
During the past two years, the Company has acquired several publishing related
companies. The results of operations from these acquired entities are reflected
in the Company's statements of earnings from the date of acquisition. Cash
paid for acquisitions amounted to approximately $42.5 million in 1995 and $36.2
million in 1994.
Amortization expense was $17.2 million in 1995, $14.5 million in 1994 and $14.0
million in 1993.
/5/ THE NEIMAN MARCUS GROUP, INC.
The Company owns approximately 22.3 million shares of NMG Common Stock, all
500,000 outstanding shares of NMG's 9-1/4% Cumulative Redeemable Preferred Stock
(9-1/4% Preferred Stock) and all 1.0 million outstanding shares of NMG's 6%
Cumulative Convertible Preferred Stock (6% Preferred Stock). In November 1995,
the Company acquired an additional 831,400 shares of NMG Common Stock in a
privately negotiated transaction at $18.75 per share. On a fully-converted
basis, the shares presently owned by the Company represent approximately 67% 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, 1995 was approximately $41.70 per share, which was
substantially above the $17.125 market price of NMG's Common Stock on October
31, 1995.
The cash flows of NMG are not available to the Company, except through NMG
dividend payments.
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 charged at the
Company's cost 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 $6.5 million in 1995,
$6.9 million in 1994 and $7.2 million in 1993.
The Company's Chairman of the Board; President and Chief Executive Officer;
Senior Vice President and Chief Financial Officer; 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.
35 Harcourt General, Inc. and Subsidiaries
<PAGE>
/6/ LONG-TERM LIABILITIES
Long-term liabilities of Harcourt General and NMG at October 31, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
Interest Rate Maturity 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
HARCOURT GENERAL
Revolving credit agreement Variable Dec. 1999 $ -- $ --
Senior debt 8.25% Jun. 2002 149,358 149,291
Senior debt 8.88% Jun. 2022 147,963 147,945
Subordinated notes 9.38% Jun. 1997 124,844 124,750
Subordinated notes 9.50% Mar. 2000 124,873 124,841
Other long-term liabilities Various Various 145,385 135,775
--------------------
TOTAL HARCOURT GENERAL 692,423 682,602
NMG
Revolving credit agreement Variable Apr. 2000 70,000 306,000
Senior notes 9.89% May 1996 40,000 40,000
Senior notes 9.59% Aug. 1996 52,000 52,000
Senior notes 9.24% Dec. 1996 40,000 40,000
Senior notes Variable Dec. 1996 40,000 40,000
Other long-term liabilities Various Various 80,915 82,268
--------------------
Total NMG 322,915 560,268
Less current maturities (55,484) (119,529)
--------------------
TOTAL LONG-TERM LIABILITIES $959,854 $1,123,341
- -------------------------------------------------------------------------------
</TABLE>
The Company has a revolving credit agreement with 13 banks, pursuant to which
the Company may borrow up to $400 million. The agreement, which expires in
December 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.
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).
In April 1995, NMG replaced its $300 million revolving credit agreement and its
six $25 million revolving credit facilities with a five year, $500 million
revolving credit agreement. This agreement, which expires in April 2000, may be
terminated at any time on three business days' notice. The rate of interest
payable (6.2% at July 29, 1995) varies according to one of four pricing options
selected by NMG.
The NMG senior notes have no sinking fund requirements. All fixed rate senior
notes may be redeemed at any time at a premium plus accrued interest. The
variable rate note bears interest at LIBOR plus 0.7% (6.6% at July 29, 1995)
and is adjusted semi-annually.
Other long-term liabilities of NMG consist primarily of certain employee
benefit obligations and a liability for certain scheduled rent increases.
<TABLE>
The aggregate maturities of all long-term liabilities are as follows:
<CAPTION>
Harcourt
General NMG Total
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
1996 $ 3,600 $ 51,900 $ 55,500
1997 128,500 135,900 264,400
1998 4,000 4,000 8,000
1999 3,400 3,700 7,100
2000 128,200 73,700 201,900
Thereafter 424,700 53,700 478,400
</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 a
minimum net worth.
Harcourt General, Inc. and Subsidiaries 36
<PAGE>
/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 authorized shares of Series A Stock at October 31, 1995.
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, 1995, respectively.
In April 1995, the Company completed a "Dutch Auction" tender offer and
repurchased 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 an additional 2.5 million shares of Common Stock in the open
market. From October 31, 1995 through November 30, 1995, the Company
repurchased approximately 1.1 million shares at an average price of
approximately $39.40 per share.
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. There were 1.3 million authorized common shares available
for future awards under the 1988 Stock Incentive Plan at October 31, 1995.
Options outstanding at October 31, 1995 were granted at prices (not less than
100% of the fair market value on the date of grant) varying from $15.67 to
$33.25 per share and expire between 1996 and 2005. There were 84 employees with
options outstanding at October 31, 1995 with a weighted average exercise price
of $18.44.
There were 1.8 million shares of Common Stock reserved at October 31, 1995 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 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C>
Options outstanding - beginning of year 755,712 919,911 918,432
Granted 80,150 107,550 105,250
Exercised (86,643) (33,805) (131,676)
SAR surrenders (197,169) (68,860) (32,346)
Cancelled (8,602) (169,084) (19,680)
------- ------- -------
OPTIONS OUTSTANDING - END OF YEAR 543,448 755,712 839,980
- --------------------------------------------------------------------------------
EXERCISABLE OPTIONS - END OF YEAR 285,860 422,477 452,800
- --------------------------------------------------------------------------------
</TABLE>
The number of options outstanding and their exercise prices were adjusted
pursuant to a formula as a result of the spinoff of GCC. The adjustment
increased the number of options outstanding at the beginning of fiscal 1994 by
approximately 80,000.
37 Harcourt General, Inc. and Subsidiaries
<PAGE>
/8/ INCOME TAXES
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
Years ended October 31 Amount % Amount % Amount %
- -----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Statutory tax expense $(94,188) (35) $(83,356) (35) $(72,006) (35)
State income taxes, net of federal tax effect (5,932) (2) (5,853) (2) (5,837) (3)
Tax credits 106 -- 193 -- 704 --
Dividends received exclusion 1,893 1 2,042 1 1,646 1
Foreign tax rate differentials 501 -- 265 -- 310 --
Permanent items (3,563) (1) (3,069) (1) (1,734) (1)
Change in valuation allowance 7,187 2 -- -- -- --
Capital gains, settlements and other 2,500 1 (1,107) (1) (959) --
-----------------------------------------------------
INCOME TAX EXPENSE FROM CONTINUING OPERATIONS $(91,496) (34) $(90,885) (38) $(77,876) (38)
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Income tax expense was as follows:
<CAPTION>
Years ended October 31 1995 1994 1993
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CURRENT
Federal $70,696 $65,681 $68,138
State 8,249 9,329 6,304
DEFERRED
Federal 11,674 16,199 2,244
State 877 (324) 1,190
--------------------------------------------
INCOME TAX EXPENSE $91,496 $90,885 $77,876
- --------------------------------------------------------------------------------
</TABLE>
Significant components of the net deferred tax liabilities stated on a gross
basis were as follows:
<TABLE>
<CAPTION>
October 31 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
GROSS DEFERRED TAX ASSETS
Accrued liabilities and reserves $ 85,534 $ 97,026
Employee benefits 33,871 32,278
Postretirement health care benefits 37,606 37,001
Inventories 26,387 28,225
Difference in basis of assets acquired 35,585 42,772
------------------
Total gross deferred tax assets 218,983 237,302
Valuation allowance (18,351) (25,538)
------------------
NET DEFERRED TAX ASSETS 200,632 211,764
GROSS DEFERRED TAX LIABILITIES
Property, equipment, prepublication costs and intangibles 142,625 147,170
Pension and employee benefits accrual 19,744 21,340
Difference in basis of assets acquired 124,072 124,072
Accrued liabilities and reserves 33,506 25,345
------------------
Total gross deferred tax liabilities 319,947 317,927
------------------
NET DEFERRED TAX LIABILITIES $119,315 $106,163
</TABLE>
/9/ INVESTMENT AND OTHER INCOME
Investment income consisted of the following:
<TABLE>
<CAPTION>
Years ended October 31 1995 1994 1993
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest income $31,492 $ 5,510 $ 7,139
Dividend income 8,453 8,729 6,933
---------------------------------
TOTAL INVESTMENT INCOME $39,945 $14,239 $14,072
- --------------------------------------------------------------------------------
</TABLE>
Harcourt General, Inc. and Subsidiaries 38
<PAGE>
When NMG was formed as part of the restructuring of Carter Hawley Hale Stores,
Inc. (CHH) in 1987, 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 and NMG settled all legal
and tax issues between the parties. NMG paid CHH $7.7 million and was
discharged as guarantor of certain CHH employee benefits. At the time of this
settlement, NMG reevaluated its liabilities to CHH and recognized a gain of
$20.8 million in fiscal 1993, which is included in other income.
/10/ 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>
1995 1994 1993
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Minimum rent $71,900 $72,100 $70,600
Rent based on revenues 8,400 9,100 7,900
--------------------------------------
$80,300 $81,200 $78,500
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
Assuming renewal options are not exercised, the future minimum rental payments
will be as follows:
<CAPTION>
Harcourt
General NMG Total
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
1996 $30,100 $ 30,000 $ 60,100
1997 27,600 28,500 56,100
1998 22,200 27,800 50,000
1999 18,300 26,900 45,200
2000 15,100 26,300 41,400
Thereafter 64,900 536,900 601,800
</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, 1995, GCC's
aggregate future rental payments due under such theatre leases amounted to
approximately $700 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 $3.0 million of outstanding irrevocable letters of credit
relating to purchase commitments at July 29, 1995.
/11/ 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 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 of
Harcourt General and NMG is to contribute amounts that are deductible for
federal income tax purposes.
39 Harcourt General, Inc. and Subsidiaries
<PAGE>
<TABLE>
Net pension expense for continuing operations was as follows:
<CAPTION>
YEARS ENDED OCTOBER 31 1995 1994 1993
- -----------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Harcourt General $ 3.5 $ 3.1 $ 1.8
NMG 7.4 6.3 6.5
..........................................
NET PENSION EXPENSE $10.9 $ 9.4 $ 8.3
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
Net pension expense for both Harcourt General and NMG included the following components:
<CAPTION>
YEARS ENDED OCTOBER 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Service cost - benefits earned $ 12.8 $11.2 $ 9.5
Interest cost on projected benefit obligation 11.0 9.8 8.7
Actual return on assets (20.5) (2.8) (17.6)
Net amortization and deferral 7.6 (8.8) 7.7
............................................
NET PENSION EXPENSE $ 10.9 $ 9.4 $ 8.3
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The following table sets forth the plans' funded status and amounts recognized in the consolidated balance sheets
at October 31:
<CAPTION>
1995 1994
Funded Unfunded Funded Unfunded
Plans Plans Plans Plans
- ---------------------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
VESTED BENEFIT OBLIGATION $ 93.7 $ 13.4 $ 92.4 $ 14.0
- ---------------------------------------------------------------------------------------------------------------
ACCUMULATED BENEFIT OBLIGATION $105.4 $ 16.3 $ 96.8 $ 16.3
- ---------------------------------------------------------------------------------------------------------------
Projected benefit obligation $138.4 $ 27.2 $122.9 $ 23.9
Plan assets at fair value 169.1 -- 144.9 --
..........................................................
Overfunded (underfunded) projected obligation 30.7 (27.2) 22.0 (23.9)
Unrecognized net obligation at transition .2 .9 .5 2.8
Unrecognized net loss 6.6 .5 15.7 2.0
Unrecognized prior service cost (1.5) 3.8 1.5 (.2)
..........................................................
PREPAID (ACCRUED) PENSION COST RECOGNIZED
IN THE CONSOLIDATED BALANCE SHEETS $ 36.0 $(22.0) $ 39.7 $(19.3)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Plan assets included $8.9 million of Harcourt General Common and Series A Stock
at October 31, 1994. The plan did not hold any of the Company's Common or
Series A Stock at October 31, 1995.
<TABLE>
The plans' funded status by company as of October 31 was as follows:
<CAPTION>
1995 1994
Funded Unfunded Funded Unfunded
Plans Plans Plans Plans
- ---------------------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Harcourt General $21.6 $ (5.4) $24.4 $ (4.7)
NMG 14.4 (16.6) 15.3 (14.6)
..........................................................
$36.0 $(22.0) $39.7 $(19.3)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Assumptions used in the computation of pension costs for Harcourt General and NMG were as follows:
<CAPTION>
1995 1994 1993
HG NMG HG NMG HG NMG
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.5% 7.5% 7.5% 7.5% 7.5% 8.5%
Long-term rate of return on plan assets 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
Rate of increases in future compensation levels 6.0% 5.0% 6.0% 5.0% 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 plan of each company
permits employee contributions and provides for certain matching contributions.
The employee stock ownership plan of each company is non-contributory.
Harcourt General, Inc. and Subsidiaries
40
<PAGE>
/12/ 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.
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:
<TABLE>
<CAPTION>
1995 1994
==============================================================================
(In millions)
<S> <C> <C>
Retirees $38.0 $49.4
Fully eligible active plan participants 7.3 6.9
Other active plan participants 7.9 14.9
--------------
Accumulated postretirement benefit obligation 53.2 71.2
Unrecognized net gain 27.7 7.9
--------------
ACCRUED POSTRETIREMENT BENEFIT LIABILITY $80.9 $79.1
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
The postretirement benefit cost for continuing operations was as follows:
Years ended October 31 1995 1994 1993
==============================================================================
(In thousands)
<S> <C> <C> <C>
Service cost $ .7 $1.3 $1.5
Interest cost on accumulated benefit obligation 3.8 5.0 6.3
Net amortization and deferral (2.1) (.1) --
----------------------
POSTRETIREMENT BENEFIT COST $2.4 $6.2 $7.8
==============================================================================
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 16% in 1994 and 15% in 1995, 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 1995 and
1994.
An increase of 1% in the health care cost trend rate would increase the
accumulated postretirement benefit obligation as of October 31, 1995 by $3.3
million and the annual expense by $.3 million.
The Company paid $2.8 million in fiscal 1995, $3.7 million during fiscal 1994
and $3.0 million during fiscal 1993 for postretirement health care benefit
claims.
/13/ FINANCIAL INSTRUMENTS
SECURITIZATION OF CREDIT CARD RECEIVABLES
On March 15, 1995, NMG sold 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 were 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 used 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 the Class B
certificates. A portion of that interest is subordinated to the Class A and
Class B certificates. NMG will continue to service all receivables for the
trust.
In anticipation of the securitization, 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
issued as part of the securitization. On March 15, 1995, NMG paid $5.4 million
to settle all of its interest rate lock agreements.
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 fixed NMG's
interest rate on $50.0 million of its 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 $1.5 million at July
29, 1995, $2.8 million at July 30, 1994
41 Harcourt General, Inc. and Subsidiaries
<PAGE>
and $6.6 million at July 31, 1993. 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 $1.0 million in 1995, $2.3
million in 1994 and $2.4 million in 1993.
LONG-TERM DEBT
The fair value of Harcourt General's and NMG's senior debt and subordinated
notes was $745.3 million on October 31, 1995 and was based upon comparable
publicly-traded issues.
/14/ COMPARATIVE QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The 1995 and 1994 comparative quarterly financial information has been restated
to reflect Contempo Casuals and the Company's insurance businesses as
discontinued operations.
<TABLE>
<CAPTION>
1995
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
========================================================================================================================
(In thousands except for per share amounts)
<S> <C> <C> <C> <C> <C>
REVENUES $663.3 $774.5 $813.2 $783.7 $3,034.7
------------------------------------------------------------------------
GROSS PROFIT $264.6 $272.7 $388.4 $343.9 $1,269.6
------------------------------------------------------------------------
EARNINGS (LOSS) FROM
Continuing operations $ 13.6 $ 12.7 $ 96.0 $ 55.3 $ 177.6
Discontinued operations (1.8) 1.5 (11.4) -- (11.7)
------------------------------------------------------------------------
NET EARNINGS $ 11.8 $ 14.2 $ 84.6 $ 55.3 $ 165.9
------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON SHARE FROM
Continuing operations $ .17 $ .16 $ 1.29 $ .74 $ 2.31
Discontinued operations (.02) .02 (.15) -- (.15)
------------------------------------------------------------------------
NET EARNINGS $ .15 $ .18 $ 1.14 $ .74 $ 2.16
========================================================================================================================
DIVIDENDS PER SHARE
Common Stock $ .16 $ .16 $ .16 $ .17 $ .65
Class B Stock $ .144 $ .144 $ .144 $ .153 $ .585
Series A Stock $.1835 $.1835 $.1835 $.1945 $ .7450
<CAPTION>
1994
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
========================================================================================================================
(In thousands except for per share amounts)
<S> <C> <C> <C> <C> <C>
REVENUES $626.0 $739.8 $742.2 $742.8 $2,850.8
------------------------------------------------------------------------
GROSS PROFIT $249.2 $266.6 $351.0 $327.4 $1,194.2
------------------------------------------------------------------------
EARNINGS FROM
Continuing operations $ 12.1 $ 6.8 $ 77.6 $ 50.8 $ 147.3
Discontinued operations 7.8 4.5 11.6 6.3 30.2
------------------------------------------------------------------------
Net earnings $ 19.9 $ 11.3 $ 89.2 $ 57.1 $ 177.5
------------------------------------------------------------------------
EARNINGS PER COMMON SHARE FROM
Continuing operations $ .15 $ .08 $ .97 $ .63 $ 1.84
Discontinued operations .10 .06 .15 .08 .38
Net earnings $ .25 $ .14 $ 1.12 $ .71 $ 2.22
========================================================================================================================
DIVIDENDS PER SHARE
Common Stock $ .15 $ .15 $ .15 $ .16 $ .61
Class B Stock $ .135 $ .135 $ .135 $ .144 $ .549
Series A Stock $.1725 $.1725 $.1725 $.1835 $ .7010
</TABLE>
Harcourt General, Inc. and Subsidiaries 42
<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, 1995 and 1994 and the related consolidated
statements of earnings, shareholders' equity and cash flows for each of the
three years in the period ended October 31, 1995. 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, 1995 and 1994 and the results of
their operations and their cash flows for each of the three years in the period
ended October 31, 1995 in conformity with generally accepted accounting
principles.
/S/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Boston, Massachusetts
December 8, 1995
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 to 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
43 Harcourt General, Inc. and Subsidiaries
<PAGE>
<TABLE>
FIVE YEAR SUMMARY -- (UNAUDITED)
<CAPTION>
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
(In thousands except for per share amounts)
<S> <C> <C> <C> <C> <C>
REVENUES
Publishing $1,017,637 $ 919,498 $ 944,545 $ 865,336 $ 807,689
Specialty retailing 1,888,249 1,789,461 1,667,825 1,484,945 1,407,170
Professional services 128,850 141,818 146,252 121,391 103,795
..........................................................................
Total $3,034,736 $2,850,777 $2,758,622 $2,471,672 $2,318,654
- --------------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS (LOSS)
Publishing $ 177,531 $ 165,436 $ 142,177 $ 124,503 $ (73,792)
Specialty retailing 161,698 157,713 134,302 90,976 63,580
Professional services 13,062 22,072 28,395 23,938 14,309
Corporate expenses (34,395) (35,081) (46,932) (41,501) (40,331)
Merger and restructuring charges -- -- -- -- (72,777)
..........................................................................
OPERATING EARNINGS (LOSS) 317,896 310,140 257,942 197,916 (109,011)
Investment income 39,945 14,239 14,072 23,239 128,533
Interest expense (88,735) (86,219) (84,585) (85,442) (348,260)
Other income (expense), net -- -- 18,303 8,341 (15,171)
..........................................................................
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 269,106 238,160 205,732 144,054 (343,909)
Income tax (expense) benefit (91,496) (90,885) (77,876) (58,052) 65,292
..........................................................................
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 177,610 147,275 127,856 86,002 (278,617)
Discontinued operations, net (11,727) 30,257 43,477 21,868 (14,505)
Extraordinary item, net -- -- -- 419,557 --
Accounting change, net -- -- -- (32,967) --
..........................................................................
NET EARNINGS (LOSS) 165,883 177,532 171,333 494,460 (293,122)
Dividends on Harcourt Brace preferred stock -- -- -- -- 12,684
..........................................................................
NET EARNINGS (LOSS) APPLICABLE
TO COMMON SHAREHOLDERS $ 165,883 $ 177,532 $ 171,333 $ 494,460 $ (305,806)
- --------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 175,737 $ 149,973 $ 154,740 $ 140,522 $ 283,393
Capital expenditures $ 220,053 $ 196,160 $ 159,860 $ 185,997 $ 164,917
Total assets $2,884,336 $3,242,364 $2,805,878 $2,675,962 $3,908,330
Total long-term liabilities $ 959,854 $1,123,341 $1,107,371 $1,086,053 $ 980,224
Weighted average number of common and
common equivalent shares outstanding 76,764 79,809 79,625 79,139 78,876
AMOUNTS PER SHARE OF COMMON STOCK
Earnings (loss) from continuing operations
before extraordinary item and cumulative
effect of accounting change $ 2.31 $ 1.84 $ 1.60 $ 1.09 $ (3.53)
Net earnings (loss) applicable to common
shareholders $ 2.16 $ 2.22 $ 2.15 $ 6.25 $ (3.88)
Dividends paid on common stock $ .65 $ .61 $ .57 $ .53 $ .49
</TABLE>
Prior year amounts have been restated to reflect as discontinued operations the
sale of Contempo Casuals in June 1995, the sale of the Company's insurance
operations in October 1994 and the spinoff of the Company's theatre operations
in December 1993.
Harcourt General, Inc. and Subsidiaries
44
<PAGE>
DIRECTORS AND OFFICERS
- ----------------------
DIRECTORS
RICHARD A. SMITH (1)(4)
Chairman of the Board and Chairman of the Executive Committee
SIDNEY STONEMAN (4)
Vice Chairman of the Board
WILLIAM F. CONNELL (3)(4)
Chairman and Chief Executive Officer, Connell Limited Partnership
JACK M. GREENBERG (2)(3)
Vice Chairman and Chief Financial Officer, McDonald's Corporation
HERBERT W. JARVIS (2)(4)
Former President and Chief Executive Officer, Sybron Corporation and Director
of several corporations
BRIAN J. KNEZ
Vice President and President and Chief Executive Officer, Harcourt Brace &
Company
LYNN MORLEY MARTIN (3)(4)
Former U.S. Secretary of Labor and former member of U.S. House of
Representatives; Davee Chair, J.L. Kellogg School of Management at Northwestern
University; Advisor, Deloitte & Touche LLP and Director of several
corporations
MAURICE SEGALL (3)
Former Chairman and Chief Executive Officer, Zayre Corp.; Senior Lecturer,
M.I.T. and Director of AMR Corporation
ROBERT A. SMITH (1)
Group Vice President
DR. PAULA STERN (2)
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. (2)
Former Chairman and Chief Executive Officer, TIAA-CREF; Former Deputy
Secretary, U.S. Department of State and Director of several corporations
EXECUTIVE OFFICERS
RICHARD A. SMITH
Chairman of the Board
ROBERT J. TARR, JR.
President, Chief Executive Officer and Chief Operating Officer
JOHN R. COOK
Senior Vice President and Chief Financial Officer
ERIC P. GELLER
Senior Vice President, General Counsel and Secretary
ROBERT A. SMITH
Group Vice President
STAFF OFFICERS
Peter Farwell
Vice President, Corporate Relations
PAUL F. GIBBONS
Vice President and Treasurer
GERALD T. HUGHES
Vice President, Human Resources
MICHAEL F. PANUTICH
Vice President, General Auditor
STEPHEN C. RICHARDS
Vice President and Controller
CRAIG B. SWAIN
Vice President, Planning and Analysis
OPERATING OFFICERS
Publishing
BRIAN J. KNEZ
President and Chief Executive Officer, Harcourt Brace & Company
Specialty Retailing
BURTON TANSKY
Chairman and Chief Executive Officer, Neiman Marcus Stores
B.D. FEIWUS
President and Chief Executive Officer, NM Direct
STEPHEN C. ELKIN
Chairman and Chief Executive Officer, Bergdorf Goodman
Professional Services
CHARLES F. ALBRECHT, JR.
President and Chief Operating Officer, Drake Beam Morin
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Nominating Committee
45
<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. News and information about Harcourt General, Inc. is also available on
the Internet's World Wide Web at http://www.irin.com/H.
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 led 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 8, 1996 at
10:00 a.m. at The First National Bank of Boston, 100 Federal Street, Boston,
Massachusetts.
<TABLE>
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 "high"
price for the first quarter of fiscal 1994 is prior to the tax-free
distribution of shares in GC Companies, Inc., which was effective on
December 15, 1993.
<CAPTION>
COMMON STOCK
1995 1994
Quarter High Low High Low
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $37.38 $32.13 $44.00 $32.00
Second $40.88 $32.88 $37.88 $30.25
Third $45.75 $40.00 $39.50 $32.25
Fourth $44.75 $38.00 $38.00 $31.25
</TABLE>
<TABLE>
<CAPTION>
SERIES A STOCK
1995 1994
Quarter High Low High Low
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $40.00 $36.50 $42.00 $35.00
Second $44.00 $37.38 $40.25 $34.88
Third $49.13 $44.75 $41.75 $37.50
Fourth $48.13 $45.63 $40.25 $35.25
</TABLE>
Harcourt General had 8,694 and 12,803 Common shareholders of record at
October 31, 1995 and 1994, respectively, and 627 and 691 Series A shareholders
of record at October 31, 1995 and 1994, respectively. Each share of Series A
Stock is convertible into 1.1 shares of Common Stock at any time.
CORPORATE ADDRESS
Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02167
(617) 232-8200
Harcourt General is an Equal Opportunity Employer.
46
<PAGE>
Design: Belk Mignogna Associates, New York Photography: Charles Purvis, Amos
Chan
<PAGE>
Harcourt General, Inc. * 27 Boylston Street * Chestnut Hill, MA 02167
EXHIBIT 21.1
<TABLE>
<CAPTION>
HARCOURT GENERAL, INC.
SUBSIDIARIES & AFFILIATES
(includes Harcourt Brace, NMG and DBM companies)
JURISDICTION
OF
SUBSIDIARY/AFFILIATE INCORPORATION STOCKHOLDER
<S> <S> <S>
1471-3184 Quebec Inc. Quebec Harcourt Brace & Company Canada Ltd.
Academic Press, Inc. New York Harcourt Brace & Company
Academic Press Limited England Harcourt Brace & Company Limited (99%)
Harcourt Brace & Company (1%)
Alison Licensing, Inc. Delaware Assessment Systems, Inc.
Assessment Systems, Inc. Delaware The Psychological Corporation
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%)
Career Care, Inc. Delaware Drake Beam Morin, Inc.
Coronado Publishers, Inc. Delaware Academic Press, Inc.
DBM Australia Limited Delaware Drake Beam Morin, 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.
[page] -2-<PAGE>
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
Educalivres Group Inc. - Group Quebec Harcourt Brace & Company Canada, Ltd.
Educalivres Inc. Jean-Guy Blanchette
Emcor, Inc. Delaware Harcourt General, Inc.
Ermine Trading Corporation California The Neiman Marcus Group, Inc.
Executive In Residence, Inc. New York Drake Beam Morin, Inc.
Foundation for Marine Animal Husbandry, Florida Harcourt Brace & Company
Inc.
GCC Films, Inc. Delaware Harcourt General, Inc.
GMN, INC. Delaware Harcourt General, Inc.
General Cinema Broadcasting, 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%)
HG Land Co., Inc. Delaware Harcourt General, Inc.
HGI Investment Trust Massachusetts Hammond Pond Investments, Inc. (50%)
Emcor, Inc. (50%)
HRW and WBS Canada Corporation, Inc. New York Harcourt Brace & Company
HRW Distributors, Inc. Delaware Harcourt Brace & Company
Hammond Pond Investments, Inc. Massachusetts SIFTCO, Inc.
Harcourt Brace & Company Delaware SIFTCO, Inc.
Harcourt Brace & Company Australia Harcourt Brace & Company (99%)
Australia Pty. Limited
Harcourt Brace & Company Canada, Ltd. Ontario HRW and WBS Canada Corporation, Inc.
Dennis Ho Hing
Jean-Guy Blanchette
Harcourt Brace & Company Limited England Academic Press, Inc. (99%)
Harcourt Brace & Company (1%)
Harcourt Brace & Company New Zealand Australia Harcourt Brace & Company Australia
Pty. Limited Pty. Limited
Harcourt Brace FSC, Inc. U.S. Virgin Harcourt Brace & Company
Islands
[page] <PAGE>
HARCOURT GENERAL, INC.
SUBSIDIARIES & AFFILIATES
(continued)
JURISDICTION
OF
SUBSIDIARY/AFFILIATE INCORPORATION STOCKHOLDER
Harcourt Brace Japan, Inc. Japan Harcourt Brace & Company (99.17%)
Harcourt Brace Legal and Delaware SIFTCO, Inc.
Professional Publications, Inc.
Harcourt General Charitable Foundation, Massachusetts Harcourt General, Inc.
Inc.
Harcourt General Services, Inc. Delaware Harcourt General, Inc.
Health Careers Academy New Jersey
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 Publishing Asia Hong Kong Harcourt Brace & Company (99%)
Limited Harcourt Brace & Company Australia
Pty. Limited (1%)
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%)
KO Corporation Delaware HGI Investment Trust
Last Call, Inc. New Jersey The Neiman Marcus Group, Inc.
Lauriate Canada Inc. Ontario HRW and WBS Canada Corporation, Inc.
Learned & Tested, Inc., The Education Delaware Harcourt Brace & Company
Company
Louisiana CPR Review, Inc. Delaware Miller Comprehensive CPA Review, Inc.
MSRD, Inc. New York The Psychological Corporation
Miller Accounting Publications, Inc. Delaware Harcourt Brace & Company
Miller Comprehensive CPA Review, Inc. Delaware Legal and Professional Publications, Inc.
[page] --<PAGE>
HARCOURT GENERAL, INC.
SUBSIDIARIES & AFFILIATES
(continued)
JURISDICTION
OF
SUBSIDIARY/AFFILIATE INCORPORATION STOCKHOLDER
NM Direct de Mexico, S.A. de C.V. Mexico The Neiman Marcus Group, Inc. (99%)
Neiman Marcus Holdings, Inc. (1%)
Neiman Marcus Holdings, Inc. California The Neiman Marcus Group, Inc.
Neiman Marcus Holiday Express, Inc. Delaware The Neiman Marcus Group, Inc.
Neiman Marcus Funding Corporation Delaware The Neiman Marcus Group, Inc.
Pastille By Mail, Inc. Delaware The Neiman Marcus Group, Inc.
SIFTCO, Inc. Massachusetts Harcourt General, Inc.
T & A D Poyser Limited England Harcourt Brace & Company Limited (50%)
Harcourt Brace & Company (50%)
The Marine Research Center at Sea World, Florida
Inc.
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%)
-4-<PAGE>
</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 reports dated December 8, 1995, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Harcourt
General, Inc. for the year ended October 31, 1995.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 24, 1996
[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> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<CASH> 363750
<SECURITIES> 243073
<RECEIVABLES> 395186
<ALLOWANCES> 22486
<INVENTORY> 495222
<CURRENT-ASSETS> 1609798
<PP&E> 827262
<DEPRECIATION> 286915
<TOTAL-ASSETS> 2884336
<CURRENT-LIABILITIES> 784971
<BONDS> 749008
0
1210
<COMMON> 72699
<OTHER-SE> 867204
<TOTAL-LIABILITY-AND-EQUITY> 2884336
<SALES> 3034736
<TOTAL-REVENUES> 3034736
<CGS> 1765090
<TOTAL-COSTS> 2716840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 32077
<INTEREST-EXPENSE> 88735
<INCOME-PRETAX> 269106
<INCOME-TAX> 91496
<INCOME-CONTINUING> 177610
<DISCONTINUED> (11727)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 165883
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.16
</TABLE>
