SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended April 30, 1996
Commission File Number 1-4925
HARCOURT GENERAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1619609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, MA 02167
(Address of principal executive offices) (Zip Code)
(617) 232-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
As of June 5, 1996, the number of shares outstanding of each of the issuer's
classes of common stock was:
Class Shares Outstanding
Common Stock, $1.00 Par Value 52,893,966
Class B Stock, $1.00 Par Value 20,051,210
<PAGE>
HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of
April 30, 1996 and October 31, l995 1
Condensed Consolidated Statements of Earnings for the
Three and Six Months Ended April 30, l996 and l995 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended April 30, l996 and l995 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit 11.1 13
Exhibit 27.1 14
<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands)
April 30, October 31,
1996 l995
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 363,612 $ 363,750
Short-term investments 166,324 243,073
Accounts receivable, net 342,453 372,700
Inventories 509,823 495,222
Deferred income taxes 79,083 79,083
Other current assets 78,682 55,970
Total current assets 1,539,977 1,609,798
Property and equipment, net 569,312 540,347
Other assets:
Prepublication costs, net 191,990 164,449
Intangible assets, net 463,244 442,566
Other 144,478 127,176
Total other assets 799,712 734,191
Total assets $2,909,001 $2,884,336
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities of
long-term liabilities $ 196,776 $ 55,484
Accounts payable 239,334 284,481
Accrued liabilities 323,494 334,479
Taxes payable 19,135 58,104
Other current liabilities 121,598 52,423
Total current liabilities 900,337 784,971
Long-term liabilities:
Notes and debentures 717,114 749,008
Other long-term liabilities 215,795 210,846
Total long-term liabilities 932,909 959,854
Deferred income taxes 198,398 198,398
Shareholders' equity:
Preferred stock 1,171 1,210
Common stock 71,092 72,699
Paid-in capital 728,681 727,285
Cumulative translation adjustments (6,282) (5,166)
Retained earnings 82,695 145,085
Total shareholders' equity 877,357 941,113
Total liabilities and shareholders' equity $2,909,001 $2,884,336
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
1<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
(In thousands except for per share amounts)
Six Months Three Months
Ended April 30, Ended April 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $1,542,784 $1,437,786 $844,343 $774,477
Costs applicable to revenues 961,367 900,488 543,127 501,791
Selling, general and administrative
expenses 498,514 456,937 263,235 234,004
Corporate expenses 15,840 17,420 8,437 8,402
Operating earnings 67,063 62,941 29,544 30,280
Investment income 15,423 23,757 7,249 12,634
Interest expense (41,445) (46,795) (20,990) (23,994)
Earnings from continuing operations
before income taxes 41,041 39,903 15,803 18,920
Income taxes (13,954) (13,567) (5,373) (6,184)
Earnings from continuing operations 27,087 26,336 10,430 12,736
Earnings (loss) from discontinued
operations, net - (306) - 1,498
Net earnings $ 27,087 $ 26,030 $ 10,430 $ 14,234
Weighted average number of common
and common equivalent shares
outstanding 73,155 79,141 72,949 78,479
Earnings per common share:
Earnings from continuing operations $ .37 $ .33 $ .14 $ .16
Earnings from discontinued
operations, net - - - .02
Net earnings $ .37 $ .33 $ .14 $ .18
Dividends per share:
Common Stock $ .34 $ .32 $ .17 $ .16
Class B Stock $ .306 $ .288 $ .153 $ .144
Series A Stock $ .389 $ .367 $ .1945 $ .1835
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands)
Six Months
Ended April 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations $ 27,087 $ 26,336
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 84,429 82,371
Other items 1,188 (3,966)
Changes in current assets and liabilities:
Accounts receivable 29,668 9,914
Inventories (14,742) (3,661)
Other current assets (8,911) 3,440
Current liabilities (24,932) (46,644)
93,787 67,790
Discontinued operating activities - 4,110
Net cash provided by operating activities 93,787 71,900
Cash flows from investing activities:
Capital expenditures (131,498) (90,583)
Purchase of short-term investments (126,196) (273,221)
Maturities of short-term investments 188,332 -
Acquisitions (17,467) -
Other investing activities (25,589) -
Net cash used by investing activities (112,418) (363,804)
Cash flows from financing activities:
Proceeds from borrowings 108,550 43,000
Repayment of debt (764) (10,701)
Repurchase of Common Stock (67,150) (220,039)
Dividends paid (24,042) (23,927)
Other financing activities 1,899 2,092
Net cash provided (used) by
financing activities 18,493 (209,575)
Cash and equivalents
Decrease during the period (138) (501,479)
Beginning balance 363,750 819,659
Ending balance $363,612 $318,180
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3<PAGE>
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of presentation
The condensed consolidated financial statements of Harcourt General, Inc.
(the Company) are submitted in response to the requirements of Form 10-Q
and should be read in conjunction with the consolidated financial
statements in the Company's Annual Report on Form 10-K. In the opinion
of management, these statements contain all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
results for the interim periods presented. The April 30, l996 condensed
consolidated financial statements include the January 27, l996 condensed
consolidated financial statements of The Neiman Marcus Group, Inc. (NMG).
NMG is a separate public company which is listed on the New York Stock
Exchange and is subject to the reporting requirements of the Securities
Exchange Act of 1934. The Company owns approximately 59% of the common
stock and 67% of the fully-converted equity of NMG.
The Company's businesses are seasonal in nature, and historically the
results of operations for these periods have not been indicative of the
results for the full year.
2. Discontinued operations
On June 30, 1995, NMG sold its Contempo Casuals operations to The Wet
Seal, Inc. The condensed consolidated financial statements have been
restated to present Contempo Casuals as a discontinued operation.
Revenues applicable to discontinued Contempo operations were $69.1
million and $126.4 million for the thirteen and twenty-six week periods
ended January 28, 1995.
3. Stock purchase programs
In April 1995, the Company completed a "Dutch Auction" tender offer and
purchased approximately 5.4 million shares of the Company's Common Stock
at $40.50 per share.
In May 1995, the Company's Board of Directors authorized the purchase of
up to 2.5 million shares of the Company's Common Stock on the open
market. In March 1996, the Company's Board of Directors authorized an
increase in the open market stock purchase program to 3.5 million shares
of the Company's Common Stock. During the six months ended April 30,
1996, the Company purchased approximately 1.7 million shares at an
average price of $39.18 per share under this buyback program.
4<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table illustrates revenues and operating earnings (loss) from continuing operations by
business segment.
<CAPTION>
Six Months Ended April 30, Three Months Ended April 30,
(In thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Publishing $ 362,632 $ 321,986 $ 185,604 $ 153,496
Specialty retailing 1,115,322 1,051,858 625,424 589,536
Professional services 64,830 63,942 33,315 31,445
Total revenues $1,542,784 $1,437,786 $ 844,343 $774,477
Operating earnings (loss):
Publishing ($ 26,283) ($ 32,189) ($ 14,949) ($ 20,288)
Specialty retailing 101,325 105,491 48,583 56,049
Professional services 7,861 7,059 4,347 2,921
Corporate expenses (15,840) (17,420) (8,437) (8,402)
Total operating earnings $ 67,063 $ 62,941 $ 29,544 $ 30,280
</TABLE>
Six Months Ended April 30, l996 Compared to Six Months Ended April 30, l995
Publishing
Publishing revenues for the six months ended April 30, l996 increased 12.6% to
$362.6 million from $322.0 million in the six months ended April 30, l995.
The increase was primarily attributable to higher testing program revenues and
sales of elementary reading, science and math programs at the Company's
educational publishing group, and higher revenues at the scientific,
technical, medical and professional (STMP) publishing group. The testing
program revenue growth was primarily a result of the Assessment Systems, Inc.
(ASI) acquisition completed in the third quarter of fiscal 1995, while the
STMP revenue growth reflects both increased book and journal sales at W.B.
Saunders as well as revenue increases due to the acquisition of International
Medical News Group (IMNG) in the first quarter of fiscal 1996.
The publishing operating loss decreased $5.9 million or 18.3% compared with
the same period last year. The decrease was primarily due to improved
earnings at the STMP publishing group, which resulted from higher sales volume
and reduced plate amortization costs. The operating loss at the educational
publishing group was reduced slightly, as sales volume increases were largely
offset by higher administrative and editorial expenses, related in part to the
operations of ASI.
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter.
Accordingly, the operating results of The Neiman Marcus Group, Inc. (NMG) for
the twenty-six weeks ended January 27, 1996 are consolidated with the
operating results of the Company for the six months ended April 30, 1996.
In June 1995, NMG sold its Contempo Casuals subsidiary to The Wet Seal, Inc.
NMG's fiscal 1995 results have been restated to present Contempo Casuals as a
discontinued operation.
5<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Specialty Retailing (Continued)
Revenues in the twenty-six weeks ended January 27, 1996 increased $63.5
million or 6.0% over revenues in the twenty-six weeks ended January 28, l995.
The increase in revenues was primarily due both to a 3.8% comparative sales
increase and the opening of a new Neiman Marcus store in Short Hills, New
Jersey in August 1995.
Operating earnings decreased 3.9% to $101.3 million as a result of a $9.6
million reduction in finance charge income related to the securitization of
NMG's credit card receivables in March 1995 and higher markdowns during the
holiday selling season, partially offset by higher sales volume.
Professional Services
Professional services revenues increased 1.4% to $64.8 million compared to the
same period last year. The increase was primarily due to higher volume in
executive outplacement programs.
Professional services operating earnings increased 11.4% in 1996 compared to
the same six month period last year, primarily due to higher revenues and
essentially unchanged operating expenses.
Investment Income
Investment income decreased $8.3 million to $15.4 million compared to the same
six month period in 1995. The decrease was due to a reduction in the
portfolio balance as a result of the Company's common stock purchase program
which commenced in April 1995 and, to a lesser extent, a lower rate of return
on portfolio assets.
Interest Expense
Interest expense decreased $5.4 million to $41.4 million from the same period
last year. The decrease was primarily due to the use of NMG securitization
proceeds to pay down outstanding NMG bank debt.
Income Tax Expense
The Company's effective tax rate is estimated to be 34.0% in fiscal l996,
unchanged from fiscal 1995.
6<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended April 30, 1996 Compared to Three Months Ended April 30, 1995
Publishing
Publishing revenues increased 20.9% to $185.6 million compared to the same
period last year. The increase was primarily due to higher sales volume at
both the educational and STMP publishing groups. The educational publishing
group increase was primarily a result of higher testing program revenues
primarily due to the acquisition of ASI and early sales of elementary reading,
science and math programs. STMP revenues increased primarily as a result of
the IMNG acquisition and higher sales volume of books and journals at W. B.
Saunders.
The publishing operating loss decreased by $5.3 million or 26.3% compared to
the same period last year. The operating loss was reduced primarily because
of significantly improved earnings at the STMP publishing group, resulting
from higher sales volume, reduced plate amortization costs, and reduced
operating expenses as a percentage of revenues.
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter. The
operating results of NMG for the thirteen weeks ended January 27, 1996 are
consolidated with the operating results of the Company for the three months
ended April 30, 1996.
Revenues in the thirteen weeks ended January 27, l996 increased 6.1% over
revenues in the thirteen weeks ended January 28, l995. A 3.8% comparable
sales increase and the opening of a new Neiman Marcus store in Short Hills,
New Jersey in August 1995 contributed to the improvement.
Operating earnings decreased 13.3%, resulting principally from a reduction in
finance charge income and higher markdowns. The reduction in finance charge
income resulted from the securitization of the credit card receivables of NMG
in March 1995.
Professional Services
Professional services revenues increased $1.9 million to $33.3 million in the
1996 second quarter from $31.4 million in 1995. The increase resulted
primarily from higher volume in executive outplacement programs.
Professional services operating earnings increased $1.4 million or 48.8%
compared to the same period in the prior year, principally due to higher
revenues and proportionately lower operating expenses.
Investment Income
Investment income decreased $5.4 million to $7.2 million in 1996 compared to
the same 1995 quarter. The decrease was due to a reduction in the portfolio
balance as a result of the Company s common stock purchase program and a lower
rate of return on portfolio assets.
7<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended April 30, 1996 Compared to Three Months Ended April 30,1995
Interest Expense
Interest expense decreased $3.0 million compared to the same period last year
primarily due to lower NMG debt balances as a result of the securitization of
NMG's credit card receivables in March 1995.
8<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The following discussion analyzes liquidity and capital resources by
operating, investing and financing activities as presented in the Company's
condensed consolidated statement of cash flows.
During the period the Company had sufficient cash flows to fund its working
capital, capital expenditures and dividend requirements. Cash provided by
operating activities for the six months ended April 30, l996 was $93.8
million. The publishing and professional services business segments provided
$109.9 million of cash from operations while NMG's operations used $16.1
million.
Net earnings from continuing operations before depreciation and amortization
provided cash of $111.5 million while changes in working capital and other
items used cash of $17.7 million. The primary items affecting working capital
were decreases in accounts receivable ($29.7 million) and current liabilities
($24.9 million) and an increase in inventories ($14.7 million).
Cash flows used by investing activities were $112.4 million. The Company's
investing activities included capital expenditures totaling $131.5 million.
Publishing capital expenditures in the six month period ended April 30, 1996
totaled $76.3 million and were related principally to expenditures for
prepublication costs. Capital expenditures in the publishing business are
expected to approximate $170.0 million in fiscal 1996. Specialty retailing
capital expenditures in the 1996 period totaled $53.0 million and were
primarily related to existing store renovations and the construction of new
stores in King of Prussia, Pennsylvania and Paramus, New Jersey and a new
national distribution center for Neiman Marcus Stores in Longview, Texas.
Capital expenditures for NMG in fiscal 1996 are expected to approximate $100.0
million.
During the six months ended April 30, 1996, $188.3 million of short-term
investments matured, and the Company purchased $126.2 million of short-term
investments. These investments are highly liquid and consist primarily of
high quality commercial paper, certificates of deposit, corporate debt
securities and U.S. Government securities. In November 1995, the Company
acquired 831,400 shares of NMG common stock in a privately negotiated
transaction at $18.75 per share. In May 1996, the Company acquired an
additional 300,000 shares of NMG common stock in a privately negotiated
transaction at $24.13 per share.
Financing activities primarily reflect the payment of $24.0 million in
dividends and the purchase of approximately 1.7 million shares of the
Company's common stock for $67.2 million on the open market at an average
price of $39.18 per share. NMG's financing activities primarily reflect
additional borrowings of $107.9 million under its revolving credit agreements.
NMG eliminated its quarterly cash dividend on common stock beginning with its
third quarter of fiscal 1995. Elimination of this dividend conserves
approximately $7.6 million of NMG's cash annually. At April 30, 1996, the
Company's consolidated long-term liabilities totaled $932.9 million. That
amount includes approximately $238.0 million of NMG long-term liabilities,
which are not guaranteed by the Company.
9<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Continued)
At April 30, 1996, the Company had the entire $400 million available under its
revolving credit agreement with thirteen banks. The Company's revolving
credit agreement expires in December 1999. At January 27, 1996, NMG had $330
million available under its revolving credit facility, which expires in April
2000.
The Company believes its cash on hand, cash generated from operations and its
debt capacity will be sufficient to fund its planned capital growth as well as
its operating working capital and dividend requirements.
10<PAGE>
HARCOURT GENERAL, INC.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on March 8, 1996. The
following matters were voted upon at the meeting:
1. Election of the following individuals as Class C Directors for a term
of three years:
Brian J. Knez Jeffrey R. Lurie
For 63,033,235 For 63,037,435
Withheld 464,805 Withheld 460,605
Lynn Morley Martin Paula Stern
For 63,121,249 For 63,119,339
Withheld 376,791 Withheld 378,701
Clifton R. Wharton, Jr.
For 63,094,379
Withheld 403,661
2. Election of the following individual as a Class A Director for a term
of one year to coincide with the terms of the other Class A
directors.
Gary L. Countryman
For 63,121,774
Withheld 376,266
3. Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the 1996 fiscal year.
For 63,364,748
Against 52,609
Abstain 80,683
Non-Voting 0
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1 Computation of weighted average number of shares
outstanding used in determining primary and fully
diluted earnings per share.
27.1 Financial data schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
quarter ended April 30, 1996.
11<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARCOURT GENERAL, INC.
Date: June 12, 1996 s/John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: June 12, 1996 s/Stephen C. Richards
Stephen C. Richards
Vice President and Controller
Principal Accounting Officer
12<PAGE>
EXHIBIT 11.1
<TABLE>
HARCOURT GENERAL, INC.
Computation of the weighted average number of shares outstanding used in determining primary and fully
diluted earnings per share:
<CAPTION>
(In thousands) Six Months Three Months
Ended April 30, Ended April 30,
1996 1995 1996 1995
PRIMARY
<S> <C> <C> <C> <C>
1. Weighted average number of common
shares outstanding 71,636 77,255 71,445 76,598
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,312 1,580 1,307 1,565
3. Assumed exercise of certain stock
options based on average market
value 207 306 197 316
4. Weighted average number of shares
used in primary per share
computations 73,155 79,141 72,949 78,479
FULLY DILUTED (A)
1. Weighted average number of common
shares outstanding 71,636 77,255 71,445 76,598
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,312 1,580 1,307 1,565
3. Assumed exercise of all dilutive
options based on higher of
average or closing market value 208 322 200 350
4. Weighted average number of shares
used in fully diluted per share
computations 73,156 79,157 72,952 78,513
(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>
13<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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 363,612
<SECURITIES> 166,324
<RECEIVABLES> 366,512
<ALLOWANCES> 24,059
<INVENTORY> 509,823
<CURRENT-ASSETS> 1,539,977
<PP&E> 886,611
<DEPRECIATION> 317,299
<TOTAL-ASSETS> 2,909,001
<CURRENT-LIABILITIES> 900,337
<BONDS> 717,114
0
1,171
<COMMON> 71,092
<OTHER-SE> 805,094
<TOTAL-LIABILITY-AND-EQUITY> 2,909,001
<SALES> 1,542,784
<TOTAL-REVENUES> 1,542,784
<CGS> 961,367
<TOTAL-COSTS> 1,475,721
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 46,711
<INTEREST-EXPENSE> 41,445
<INCOME-PRETAX> 41,041
<INCOME-TAX> 13,954
<INCOME-CONTINUING> 27,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,087
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
