SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended January 31, 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 March 8, 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 50,243,321
Class B Stock, $1.00 Par Value 20,801,956
[Page]
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HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of
January 31, 1996 and October 31, 1995 1
Condensed Consolidated Statements of Earnings for the
Three Months Ended January 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended January 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 11.1 11
Exhibit 27.1 12
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<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands)
January 31, October 31,
1996 l995
Assets
<S> <C> <C>
Current assets:
Cash and equivalents $ 293,200 $ 363,750
Short-term investments 300,823 243,073
Accounts receivable, net 337,133 372,700
Inventories 616,042 495,222
Deferred income taxes 79,083 79,083
Other current assets 63,632 55,970
Total current assets 1,689,913 1,609,798
Property and equipment, net 552,301 540,347
Other assets:
Prepublication costs, net 171,284 164,449
Intangible assets, net 466,520 442,566
Other 141,107 127,176
Total other assets 778,911 734,191
Total assets $3,021,125 $2,884,336
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities of
long-term liabilities $ 109,428 $ 55,484
Accounts payable 314,136 284,481
Accrued liabilities 322,340 334,479
Taxes payable 41,754 58,104
Other current liabilities 123,073 52,423
Total current liabilities 910,731 784,971
Long-term liabilities:
Notes and debentures 822,061 749,008
Other long-term liabilities 212,143 210,846
Total long-term liabilities 1,034,204 959,854
Deferred income taxes 198,398 198,398
Shareholders' equity:
Preferred stock 1,181 1,210
Common stock 71,045 72,699
Paid-in capital 728,010 727,285
Cumulative translation adjustments (7,002) (5,166)
Retained earnings 84,558 145,085
Total shareholders' equity 877,792 941,113
Total liabilities and shareholders' equity $3,021,125 $2,884,336
See Notes to Condensed Consolidated Financial Statements
</TABLE>
[Page] 1<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
(In thousands except
for per share amounts)
For the three months
ended January 31,
1996 1995
<S> <C> <C>
Revenues $698,441 $663,309
Costs applicable to revenues 418,240 398,697
Selling, general and administrative expenses 235,279 222,933
Corporate expenses 7,403 9,018
Operating earnings 37,519 32,661
Investment income 8,174 11,124
Interest expense (20,455) (22,802)
Earnings from continuing operations before
income taxes 25,238 20,983
Income taxes (8,581) (7,383)
Earnings from continuing operations 16,657 13,600
Loss from discontinued operations, net - (1,804)
Net earnings $ 16,657 $ 11,796
Weighted average number of common and common
equivalent shares outstanding 73,360 79,802
Earnings per common share:
Earnings from continuing operations $ .23 $ .17
Loss from discontinued operations - (.02)
Net earnings $ .23 $ .15
Dividends per share:
Common Stock $ .17 $ .16
Class B Stock $ .153 $ .144
Series A Stock $ .1945 $ .1835
See Notes to Condensed Consolidated Financial Statements
</TABLE>
[Page] 2<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands)
For the three months
ended January 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations $ 16,657 $ 13,600
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 40,641 41,991
Other items 4,070 (83)
Changes in assets and liabilities:
Accounts receivable 34,834 20,161
Inventories (121,801) (92,124)
Other current assets (7,712) 4,540
Current liabilities 73,539 28,020
40,228 16,105
Discontinued operating activities - 527
Net cash provided by operating activities 40,228 16,632
Cash flows from investing activities:
Capital expenditures (56,917) (43,726)
Purchase of short-term investments (57,750) (266,984)
Acquisitions (15,560) -
Other investing activities (25,589) -
Net cash used by investing activities (155,816) (310,710)
Cash flows from financing activities:
Proceeds from borrowings, net 124,400 81,500
Repayment of debt (340) (300)
Cash dividends paid (12,083) (12,392)
Repurchase of Common Stock (66,806) -
Other financing activities (133) (1,447)
Net cash provided by financing activities 45,038 67,361
Cash and equivalents
Decrease during the period (70,550) (226,717)
Beginning balance 363,750 819,659
Ending balance $293,200 $592,942
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of presentation
The condensed consolidated financial statements of Harcourt General, Inc.
(the Company) are submitted in response to the requirements of Form 10-Q
and should be read in conjunction with the consolidated financial
statements in the Company's Annual Report on Form 10-K. In the opinion
of management, these statements contain all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
results for the interim periods presented. The January 31, 1996
condensed consolidated financial statements include the October 28, l995
condensed consolidated financial statements of The Neiman Marcus Group,
Inc. (NMG), which were filed with the Securities and Exchange Commission
on Form 10-Q. The Company owns approximately 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 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. The loss from discontinued
operations recorded in the quarter ended October 29, 1994 is net of
applicable income tax benefits of $1.3 million. Revenues related to
discontinued Contempo Casuals operations for the thirteen week period
ended October 29, 1994 were $57.3 million.
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. During the quarter ended January 31, 1996, the Company purchased
approximately 1.7 million shares at an average price of $39.18 per share
under this buyback program.
In March 1996, the Company's Board of Directors authorized an increase in
the existing open market stock purchase program from 2.5 million to 3.5
million shares of the Company's Common Stock.
[Page] 4<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended January 31, 1996 versus Three Months Ended January 31, 1995
The following table illustrates revenues and operating earnings (loss) by
business segment for the three months ended January 31.
(In thousands) 1996 1995
Revenues:
Publishing $177,028 $168,490
Specialty retailing 489,898 462,322
Professional services 31,515 32,497
Total revenues $698,441 $663,309
Operating earnings (loss):
Publishing ($ 11,334) ($ 11,901)
Specialty retailing 52,742 49,442
Professional services 3,514 4,138
Corporate expenses (7,403) (9,018)
Total operating earnings $ 37,519 $ 32,661
Publishing
Publishing revenues increased $8.5 million or 5.1% compared to the same period
last year. The increase was primarily due to higher college and testing
program sales at the educational publishing group. College sales increased
across substantially all of its disciplines, while testing program revenues
were higher because of the Assessment Systems, Inc. acquisition, which was
completed in the third quarter of fiscal 1995.
The publishing operating loss decreased slightly to $11.3 million compared to
$11.9 million in the same period last year. The operating loss was less than
anticipated in the quarter due to improved earnings in the college business
and a smaller than expected loss in the elementary business. The scientific,
technical, medical and professional (STMP) publishing group reported operating
earnings that were slightly lower than the 1995 quarter.
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter. The
operating results of The Neiman Marcus Group, Inc. (NMG) for the quarter ended
October 28, 1995 were consolidated with the operating results of the Company
for the quarter ended January 31, 1996.
In June 1995, NMG sold its Contempo Casuals subsidiary to The Wet Seal, Inc.
NMG's fiscal 1995 results have been restated to reflect Contempo Casuals as a
discontinued operation.
Specialty retailing revenues in the thirteen weeks ended October 28, 1995
increased $27.6 million or 6.0% over revenues in the thirteen weeks ended
October 29, 1994. Higher revenues at Neiman Marcus Stores more than offset
slightly lower revenues at Bergdorf Goodman and NM Direct. The increase in
revenues at Neiman Marcus Stores was due to both comparable store sales
increases of 6.1% and the opening of a new store in Short Hills, New Jersey in
August 1995.
[Page] 5<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Specialty Retailing Continued
The 6.7% increase in specialty retailing operating earnings was principally
due to higher revenues and lower sales promotion costs, partially offset by
lower finance charge income. The reduction in finance charge income during
the quarter resulted from the securitization of the Company's credit card
receivables, which was completed in March 1995. The securitization had the
effect of reducing finance charge income by approximately $4.8 million during
the quarter ended October 28, 1995.
Professional Services
Professional services revenues decreased 3.0% to $31.5 million in the 1996
first quarter from $32.5 million in 1995. The decrease was principally due to
lower pricing as a result of increased competition.
Professional services operating earnings decreased $0.6 million compared to
the same period in the prior year. The decrease was primarily attributable to
lower revenues and slightly higher general and administrative expenses.
Investment Income
Investment income decreased $3.0 million to $8.2 million from the previous
year. The decrease was primarily 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
compared to the first quarter of 1995.
Interest Expense
Interest expense decreased $2.3 million to $20.5 million compared to the same
period last year. The decrease was mainly due to the use of the NMG
securitization proceeds to pay down outstanding NMG bank debt.
Income Tax Expense
The Company's effective tax rate is expected to be 34% in fiscal 1996,
unchanged from fiscal 1995.
[Page] 6<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The following discussion analyzes liquidity and capital resources by
operating, investing and financing activities as presented in the Company's
condensed consolidated statement of cash flows.
Cash provided by operating activities for the quarter ended January 31, 1996
was $40.2 million. The publishing and professional services business segments
provided $133.8 million of cash from operations while NMG's operations used
$93.6 million of cash. The cash provided by the publishing and professional
services business segments was sufficient to fund their working capital,
capital expenditures and the Company's dividend requirements. NMG increased
its borrowings in order to fund working capital for the holiday season,
capital expenditures and its preferred dividend requirements.
The most significant items affecting working capital were an increase in
inventories of $121.8 million, which was partially offset by a $73.5 million
increase in other current liabilities and a $34.8 million decrease in accounts
receivable. The increase in inventory was primarily attributable to NMG's
holiday season. Other current liabilities were higher due to the seasonal
increase in unearned subscriptions at the STMP group. A decrease in
publishing accounts receivable was partially offset by an increase at NMG.
Cash flows used by investing activities were $155.8 million for the quarter
ended January 31, 1996. The Company's investing activities included capital
expenditures totaling $56.9 million. Publishing capital expenditures in the
1996 quarter totaled $31.2 million and were principally related to
expenditures for prepublication costs. Capital expenditures in the publishing
business are expected to approximate $150.0 million in fiscal 1996. Specialty
retailing capital expenditures in the 1996 quarter totaled $24.8 million and
were principally related to the construction of new stores in King of Prussia,
Pennsylvania and Paramus, New Jersey and a new national distribution center.
Capital expenditures for NMG in fiscal 1996 are expected to approximate $100.0
million.
During the quarter, the Company purchased $57.8 million of short-term
investments. These securities are highly liquid and consist of commercial
paper, certificates of deposit, corporate securities and U.S. Government
securities. In November 1995, the Company also acquired an additional 831,400
shares of NMG common stock in a privately negotiated transaction at $18.75 per
share.
Financing activities reflect additional borrowings of $124.4 million under
NMG's revolving credit agreements, the repurchase of approximately 1.7 million
shares of the Company s Common Stock on the open market at an average price of
$39.18 per share and the payment of $12.1 million of dividends.
At January 31, 1996, the Company had available the entire $400.0 million under
its revolving credit agreement with thirteen banks. This agreement expires in
December 1999. NMG had $305.0 million available at October 28, 1995 under its
revolving credit facility, which expires in April 2000.
[Page] 7<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources, continued
The Company believes its cash on hand, cash generated from operations and its
current and future debt capacity will be sufficient to fund its planned
capital growth as well as its operating and dividend requirements.
[Page] 8<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1 Computation of weighted average number of shares
outstanding used in determining primary and fully diluted
earnings per share.
27.1 Financial data schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
quarter ended January 31, 1996
[Page] 9<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARCOURT GENERAL, INC.
Date: March 13, 1996 s/ John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: March 13, 1996 s/ Stephen C. Richards
Stephen C. Richards
Vice President and Controller
Principal Accounting Officer
[Page] 10<PAGE>
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EXHIBIT 11.1
HARCOURT GENERAL, INC.
<CAPTION>
Computation of weighted average number of shares outstanding used in determining primary and
fully diluted earnings per share:
(In thousands) For the three months
ended January 31,
1996 1995
PRIMARY
<S> <C> <C>
1. Weighted average number of common
shares outstanding 71,827 77,911
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,317 1,596
3. Assumed exercise of certain stock
options based on average
market value 216 295
4. Weighted average number of shares
used in primary per share
computations 73,360 79,802
FULLY DILUTED (A)
1. Weighted average number of common
shares outstanding 71,827 77,911
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,317 1,596
3. Assumed exercise of all dilutive
options based on higher of
average or closing market value 216 295
4. Weighted average number of shares
used in fully diluted per share
computations 73,360 79,802
(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%.
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</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 293200
<SECURITIES> 300823
<RECEIVABLES> 361017
<ALLOWANCES> 23884
<INVENTORY> 616042
<CURRENT-ASSETS> 1689913
<PP&E> 853244
<DEPRECIATION> 300943
<TOTAL-ASSETS> 3021125
<CURRENT-LIABILITIES> 910731
<BONDS> 822061
0
1181
<COMMON> 71045
<OTHER-SE> 805566
<TOTAL-LIABILITY-AND-EQUITY> 3021125
<SALES> 698441
<TOTAL-REVENUES> 698441
<CGS> 418240
<TOTAL-COSTS> 660922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29853
<INTEREST-EXPENSE> 20455
<INCOME-PRETAX> 25238
<INCOME-TAX> 8581
<INCOME-CONTINUING> 16657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16657
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
