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, 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 (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>
The aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $2,367,314,577 on January 16,
1997.
There were 50,827,141 shares of Common Stock, 20,024,090 shares of
Class B Stock and 1,146,061 shares of Series A Cumulative Convertible Stock
outstanding as of January 16, 1997.
______________________
Documents Incorporated by Reference
Portions of the Company's 1996 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
14, 1997 are incorporated by reference in Part III of this Report.
<PAGE>
HARCOURT GENERAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
TABLE OF CONTENTS
PART I Page No.
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security 7
Holders
PART II
Item 5. Market for the Registrant's Common Equity 7
and Related Stockholder Matters
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes in and Disagreements with Accountants 8
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 8
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 11
and Reports on Form 8-K
Signatures 13
<PAGE>
PART I
ITEM 1. BUSINESS
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.
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.
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 kindergarten
through grade 8. 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, 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, and, through its International Medical
News Group division, which was acquired in January 1996, publishes
advertising-based newspapers for physicians. 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 under the BAR/BRI name for individuals
preparing for bar examinations, as well as review courses for CPA
accreditation and graduate school entrance examinations.
International Publishing. Most of the operations of Harcourt Brace
are in the United States, but Harcourt Brace also has international publishing
operations headquartered in London with offices in Europe, Canada, Mexico,
Latin America, Asia, Australia and New Zealand. The international business of
Harcourt Brace consists both of distributing English language products and
adaptations in international markets as well as publishing translations and
indigenous materials in those markets.
<PAGE>
In September 1996, Harcourt Brace acquired the exclusive rights to
market and sell the professional medical publications of Mosby-Year Book
("Mosby") and certain of its affiliates in most parts of the world outside of
the United States. Harcourt Brace also publishes original Spanish language
health science publications and Spanish translations of English language
health science publications through a subsidiary acquired in November 1996.
In addition, in November 1996 Harcourt Brace acquired the rights to translate
the professional health care related publications of Mosby and its United
Kingdom affiliate into Spanish and to sell such translations worldwide.
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 in connection with the sales of the publications and
services of these businesses are the quality of such publications and services
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 53% of the outstanding equity of The
Neiman Marcus Group, Inc. ("NMG"), which operates Neiman Marcus Stores,
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 September 20, 1996,
NMG filed an Annual Report on Form 10-K with respect to its fiscal year ended
August 3, 1996. 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").
2<PAGE>
Neiman Marcus Stores
Neiman Marcus Stores is a high fashion specialty retailer which
offers women's and men's apparel, fashion accessories, shoes, cosmetics, furs,
precious jewelry, decorative home accessories, fine china, crystal and silver,
gourmet food products and children's apparel and gift items. As of October
31, 1996, Neiman Marcus operated 30 stores in 27 cities. The average Neiman
Marcus store size is 142,000 gross square feet and the stores range in size
from 90,000 gross square feet to 269,000 gross square feet.
Neiman Marcus opened new stores in Short Hills, New Jersey in August
1995, King of Prussia, Pennsylvania in February 1996 and Paramus, New Jersey
in August 1996. Neiman Marcus plans to open a new store in Honolulu, Hawaii,
in August 1998. In addition, in January 1996, Neiman Marcus Stores commenced
operations at its new 465,000 square foot National Service Center located in
Longview, Texas, which consolidated the distribution operations for those
Neiman Marcus stores which previously had been handled by several separate
facilities in the Dallas area.
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, gifts and gourmet foods. It operates two leased
stores on Fifth Avenue and 58th Street in New York City. The main store,
consisting of 250,000 gross square feet, is dedicated to women's apparel and
accessories, home furnishings and gifts. Bergdorf Goodman Men 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 an upscale direct marketing business, which
primarily offers apparel under the Neiman Marcus name and, through its Horchow
catalog, offers hard goods such as home furnishings and decorative accessories
to its domestic and international customers. NM Direct also offers a broad
range of more moderately priced items through its Trifles and Grand Finale
catalogues and publishes annually the world famous Neiman Marcus Christmas
Catalogue.
3<PAGE>
Competition
The specialty retail industry is highly competitive and fragmented.
Moreover, NMG's apparel business is especially dependent upon its designer
resources. NMG competes with large specialty retailers, traditional and
better department stores, national apparel chains, designer boutiques,
individual specialty apparel stores and direct marketing firms.
NMG competes for customers principally on the basis of quality,
assortment and presentation of merchandise, customer service, sales and
marketing programs and value. In addition, NMG competes for quality
merchandise principally based on relationships with designer resources and
purchasing power. Neiman Marcus Stores and Bergdorf Goodman also compete for
customers on the basis of store ambiance, and for real estate opportunities
principally on the basis of their ability to attract customers. NM Direct
competes principally on the basis of quality, assortment and presentation of
merchandise, customer service, price and speed of delivery.
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.
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.
4<PAGE>
E. Certain Additional Information
1. Employees
<TABLE>
<CAPTION>
Percentage of Employees
Number of of Each Operating Unit
Number of Employees Who Covered by Collective
Employees Are Part-Time Bargaining Agreements
<S> <C> <C> <C>
Harcourt Brace 4,900 80 None
& Company
The Neiman
Marcus Group 15,000 4,700 1.0%
Drake Beam Morin 890 390 None
Corporate 100 None None
</TABLE>
The figures in the above table are approximate as of October 31,
1996. 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 1996,
including information on capital expenditures, seasonality, liquidity, capital
resources and other financial information, reference is made to the
"Management's Discussion and 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, 1996 (the "1996 Annual
Report"), which information is incorporated herein.
3. Financial Information About Industry Segments
The information set forth under the heading "Additional Financial
Information" in Note 2 of the Notes to Consolidated Financial Statements on
page 34 of the 1996 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.
5<PAGE>
At October 31, 1996, the office, warehouse and other facilities owned
or leased by Harcourt Brace and its publishing affiliates were located in 36
states, the District of Columbia, Puerto Rico and 13 foreign countries.
NMG's operating divisions are headquartered in leased or owned
facilities in Dallas (Neiman Marcus Stores), Irving, Texas (NM Direct) and New
York City (Bergdorf Goodman). At October 31, 1996, 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 1,931,000 2,297,000 4,576,000
Distribution, support
and office facilities and
clearance centers .. 1,170,000 0 634,000 1,804,000
</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, and a
majority of leases provide for additional rentals based on sales in excess of
predetermined levels.
NMG also owns approximately 50 acres of land in Las Colinas, Texas,
where its NM Direct operations are located in a 705,000 square foot facility,
and also owns approximately 34 acres of land in Longview, Texas where its
National Service Center is located in a 465,000 square foot facility.
NMG also operates several small clearance centers which provide an
outlet for the sale of marked down merchandise from Neiman Marcus Stores,
Bergdorf Goodman and NM Direct.
At October 31, 1996, Drake Beam Morin conducted its business from 83
leased offices in the United States and 82 offices in 24 countries around the
world.
For additional information about the properties of the Company, see
Item 1 above and the information contained in Note 11 of the Notes to
Consolidated Financial Statements under the heading "Leases" on page 39 of the
1996 Annual Report, which is incorporated herein.
6<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various suits and claims incidental to the
ordinary course of its 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 1996 Annual Report is
incorporated herein:
(i) the last paragraph of Note 6 of the Notes to Consolidated
Financial Statements on page 36 of the 1996 Annual Report relating to
restrictions on the Company's ability to pay dividends;
(ii) "Dividends per share" in Note 15 of the Notes to Consolidated
Financial Statements on page 42 of the 1996 Annual Report; and
(iii) "Stock Information" on page 46 of the 1996 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 16, 1997, there were 1,875 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 and Chief Executive
Officer of the Company), reference is made to the information
contained in the Company's Proxy Statement for the 1997
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 1996 Annual Report
under the caption "Five Year Summary" on page 44 and is incorporated herein.
7<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The response to this Item is contained in the 1996 Annual
Report under the caption "Management's Discussion and 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 1997 Annual Meeting of Stockholders under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" and
is incorporated herein.
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 - 72
Chairman of the Company and of The Neiman Marcus Group, Inc.; Chief
Executive Officer of the Company and of The Neiman Marcus Group,
Inc. since January 15, 1997 and prior to December 1991; Chairman,
President (until November 1, 1995) and Chief Executive
Officer of GC Companies, Inc. since December 1993; Director of The
Neiman Marcus Group, Inc., GC Companies, Inc., 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 and the father-in-law of Brian J.
Knez, who are Presidents and Co-Chief Operating Officers and
directors of the Company. Mr. Smith is the uncle of Jeffrey R.
Lurie, a director of the Company.
8<PAGE>
Robert A. Smith - 37
President and Co-Chief Operating Officer of the Company and
President and Chief Operating Officer of The Neiman Marcus Group,
Inc. since January 15, 1997; Group Vice President of the Company and
The Neiman Marcus Group, Inc. prior thereto; President and Chief
Operating Officer of GC Companies, Inc. since November 1995. Mr.
Smith is the son of Richard A. Smith, Chairman and Chief Executive
Officer of the Company, the brother-in-law of Brian J. Knez, who is
also President and Co-Chief Operating Officer and a director of the
Company, and the cousin of Jeffrey R. Lurie, a director of the
Company.
Brian J. Knez - 39
President and Co-Chief Operating Officer of the Company since
January 15, 1997; 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; Mr. Knez is
the son-in-law of Richard A. Smith, Chairman and Chief Executive
Officer of the Company, and the brother-in-law of Robert A. Smith,
who is also President and Co-Chief Operating Officer and a director
of the Company.
John R. Cook - 55
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 to September 1992.
Eric P. Geller - 49
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 to May 1992; Secretary of the Company and of The
Neiman Marcus Group, Inc.
9<PAGE>
Peter Farwell - 53
Vice President - Corporate Relations of the Company and of The
Neiman Marcus Group, Inc.
Paul F. Gibbons - 45
Vice President and Treasurer of the Company and of The Neiman Marcus
Group, Inc. since August 1992; Vice President - Taxation of the
Company and of The Neiman Marcus Group, Inc. prior thereto.
Gerald T. Hughes - 40
Vice President-Human Resources of the Company and of The Neiman
Marcus Group, Inc. since June 1994; Associate General Counsel of the
Company and of 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.
Michael F. Panutich - 48
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 - 41
Vice President and Controller of the Company and of The Neiman
Marcus Group, Inc. since June 1993; Partner, Deloitte & Touche LLP,
prior thereto.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Proxy Statement for the
1997 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
1997 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
1997 Annual Meeting of Stockholders under the captions "Executive
Compensation" and "Transactions Involving Management" and is incorporated
herein.
10<PAGE>
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 1996 Annual Report to Shareholders and are
incorporated herein by reference to Item 8 hereof:
Consolidated Balance Sheets - October 31, 1996 and 1995.
Consolidated Statements of Earnings for the fiscal years
ended October 31, 1996, 1995, and 1994.
Consolidated Statements of Cash Flows for the fiscal years
ended October 31, 1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity for the
fiscal years ended October 31, 1996, 1995 and 1994.
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.
11<PAGE>
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, 1996.
The Company filed a report on Form 8-K on November 25, 1996
describing in Item 2 (Acquisition or Disposition of Assets) the repurchase
from the Company by NMG of all NMG's issued and outstanding preferred stocks
and including pro forma financial information.
12<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/ Richard A. Smith
Richard A. Smith, Chairman of the
Board and Chief Executive Officer
Dated: January 28, 1997
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/Richard A. Smith Chairman of the Board and January 28, 1997
Richard A. Smith Chief Executive Officer
Principal Financial
Officer:
s/John R. Cook Senior Vice President and January 28, 1997
John R. Cook Chief Financial Officer
Principal Accounting
Officer:
s/Stephen C. Richards Vice President and January 28, 1997
Stephen C. Richards Controller
13<PAGE>
Directors:
s/William F. Connell January 15, 1997
William F. Connell
s/Gary L. Countryman January 28, 1997
Gary L. Countryman
s/Jack M. Greenberg January 28, 1997
Jack M. Greenberg
s/Herbert W. Jarvis January 28, 1997
Herbert W. Jarvis
s/Brian J. Knez January 28, 1997
Brian J. Knez
s/Jeffrey R. Lurie January 21, 1997
Jeffrey R. Lurie
s/Lynn Morley Martin January 24, 1997
Lynn Morley Martin
s/Maurice Segall January 28, 1997
Maurice Segall
s/Robert A. Smith January 28, 1997
Robert A. Smith
s/Paula Stern January 15, 1997
Paula Stern
s/Hugo Uyterhoeven January 14, 1997
Hugo Uyterhoeven
s/Clifton R. Wharton, Jr. January 28, 1997
Clifton R. Wharton, Jr.
14<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.
15<PAGE>
*10.2 1981 Stock Option Plan, as amended and restated,
incorporated 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.
*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.
16<PAGE>
*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,
incorporated herein by reference to Exhibit 10.9(b) of
the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1995.
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 Amended and Restated Intercompany Services Agreement
dated as of November 1, 1995, between the Company and
GC Companies, Inc., incorporated herein by reference to
Exhibit 10.11(b) of the Company s Annual Report on Form
10-K for the fiscal year ended October 31, 1995.
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)
17<PAGE>
to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1992.
*10.15(c)Resignation Agreement dated as of December 17, 1996 by
and between the Company and Robert J. Tarr, Jr.
10.16 Exchange and Repurchase Agreement, incorporated herein
by reference to Exhibit 10.1 to Registration Statement on
Form S-3 of The Neiman Marcus Group, Inc. dated
October 10, 1996, File No. 333-11721.
11.1 Computation of Average Number of Shares Outstanding
Used In Determining Primary and Fully Diluted Earnings
Per Share.
13.1 The following sections of the 1996 Annual Report to
Stockholders ("1996 Annual Report") which are
expressly incorporated by reference in this Annual
Report on Form 10-K:
Management's Discussion and Analysis of Financial
Conditions and Results of Operations at pages 23
through 26 of the 1996 Annual Report
Consolidated Financial Statements and the Notes
thereto at pages 27 through 42 of the 1996 Annual Report
Independent Auditors' Report at page 43 of the 1996
Annual Report
The information appearing under caption "Five Year
Summary" on page 44 of the 1996 Annual Report
The information appearing under the caption "Stock
Information" on page 46 of the 1996 Annual Report.
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.
18<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, 1996 and 1995, and
for each of the three years in the period ended October 31, 1996, and have
issued our report thereon dated December 9, 1996. Such consolidated financial
statements and report are included in the Company's 1996 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, presents fairly in all material respects the information set forth
therein.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 9, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
HARCOURT GENERAL, INC. AND SUBSIDIARIES. SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED OCTOBER 31, 1996
(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, 1996
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $22,486 23,027 220 26,363(B) $19,370
(deducted from accounts receivable)
Allowance for book returns (A) $49,403 94,182 (94) 90,302(C) $53,189
(deducted from accounts receivable)
YEAR ENDED OCTOBER 31, 1995
Allowance for doubtful accounts $26,439 32,077 2,335 38,365(B) $22,486
(deducted from accounts receivable)
Allowance for book returns (A) $49,091 82,548 437 82,673(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)
(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>
F-2
<PAGE>
EXHIBIT 10.15(C)
HARCOURT GENERAL, INC.
27 BOYLSTON STREET
CHESTNUT HILL, MASSACHUSETTS 02167
December 17, 1996
Mr. Robert J. Tarr, Jr.
President and Chief Executive Officer
Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02167
Dear Bob:
This letter agreement sets forth the understandings you and Harcourt
General, Inc. (the "Company") have reached in connection with your separation
from employment by the Company. For good and valuable consideration, receipt
of which is hereby acknowledged, you and the Company agree as follows:
1. Reference is made to the Employment Agreement dated as of
November 15, 1991 between you and the Company, as the same was extended
pursuant to Paragraph 1.01 thereof (such Agreement, as extended, being
referred to herein as the "Employment Agreement"). You hereby resign as an
employee, officer and director of the Company and each subsidiary of the
Company (including NMG), effective as of the close of business on January 15,
1997 (the "Separation Date"), and the Company hereby accepts your resignation.
2. The Company shall make the following cash payments to you (or, in
the event of your death, to your beneficiary or beneficiaries determined under
paragraph 18 below):
a. the sum of $2,830,769.16, payable in 46 bi-weekly installments
of $61,538.46 each, commencing on January 23, 1997, subject to the deferral of
a portion thereof as provided in paragraph 3 below;
b. the sum of $3,200,000, of which $1,600,000 shall be paid in the
first week of January 1998, and $1,600,000 shall be paid in the first week of
January 1999, subject to the deferral of a portion thereof as provided in
paragraph 3 below; and
c. the sum of $800,000, payable in 12 monthly installments of
$66,666.67 each, commencing on November 30, 1998.
<PAGE>
3. Fifteen percent of each amount otherwise payable to you under
paragraphs 2.a. and 2.b. above shall be deferred and credited to an account
maintained for your benefit on the books of the Company (your "deferral
account"), and the Company will credit matching deferrals to your deferral
account in an amount equal to 3 percent of each amount otherwise payable to
you under paragraph 2.a. or 2.b. above, as of the last day of the month in
which such amount would otherwise have been payable. As of the last day of
each calendar quarter, your deferral account will be credited with interest on
the balance of the account from time to time during the quarter at an annual
rate equal to the average prime interest rate published in the Eastern Edition
of the Wall Street Journal on the last business day of the calendar quarter
(or, if two or more such rates are published, the mean of such rates),
increased by 2 percentage points. The amount of your deferral account will be
paid to you on or about January 15, 1999 in the form of a single lump sum
payment. In the event of your death prior to the complete distribution of
your deferral account, the balance of such account will be paid as soon as
practicable to your beneficiary or beneficiaries determined under paragraph 18
below in the form of a single lump sum payment. The Account established for
your benefit under the Company's Key Employee Deferred Compensation Plan shall
continue to be maintained, and bear interest, in accordance with such Plan
until January 15, 1999, whereupon the amount of such Account shall be paid to
you (or your beneficiary) in a lump sum.
4. Commencing on November 1, 1998, and continuing for the rest of
your life, you will be entitled to receive retirement payments in the amount
of $118,958.33 per month. If you die after this letter agreement takes effect
and are survived by your spouse, she will be entitled to receive retirement
payments commencing on the later of November 1, 1998 or the first day of the
month following your death and continuing for the rest of her life, in the
amount of $59,479.17 per month. Any payment for a month to you or your spouse
under the Harcourt General, Inc. Retirement Plan ("HGRP") will be counted
toward the applicable monthly amount under the preceding sentences, and the
balance of such amount will be paid by the Company. In the event you elect to
receive (and do receive) benefits under the HGRP in the form of a single lump
sum payment, the monthly payments to you and your spouse under the HGRP shall
be assumed to be those that would have been paid commencing on the first day
of the month after the date of such lump sum payment either (x) in the form of
a joint and 50% survivor annuity if you are married on such date or (y) in the
form of a straight life annuity if you are not married on such date. Upon
the later of your death or that of your surviving spouse, your beneficiary or
beneficiaries, determined under paragraph 18 below, will be entitled to
receive the benefit, if any, described in Paragraph 4.03(c) of the Employment
Agreement. In addition, the benefits provided by this paragraph 4 will be
offset against (and reduce to zero) any benefits payable to you or your
surviving spouse, or to any other beneficiary, under the Company's
Supplemental Executive Retirement Plan.
5. Commencing on the Separation Date, you will be entitled to
participate in the plans and programs and to enjoy the benefits set forth in
Paragraph 4.02 (a) of the Employment Agreement, except that until October 31,
-2- <PAGE>
1998 you will be entitled to participate in the Company's Matching Gift
Program as though you were still President and Chief Executive Officer of the
Company. Upon your death, your surviving spouse and each of your children
(until he or she attains the age of 22) shall be entitled to enjoy the
benefits set forth in Paragraph 4.02(b) of the Employment Agreement.
6. All of your stock options and related stock appreciation rights
shall remain exercisable in accordance with their terms until November 26,
2001.
7. You agree to repay all loans made to you by the Company on or
before the Separation Date, except that the loan in the original principal
amount of $1,018,980 shall be paid in accordance with its payment schedule of
$63,286.25 on each of January 15, 1997 and April 15, 1997. You and the
Company hereby agree you shall no longer be deemed eligible to borrow from the
Company, whether pursuant to the Company's Key Executive Stock Purchase Loan
Plan, the Employment Agreement, or otherwise.
8. The Company shall provide you with the basic life insurance
referred to in Paragraph 4.02(a)(ii) of the Employment Agreement and the
Company agrees to make all required premium payments with respect thereto upon
receiving advice of the results of any required physical exam and the premium
payment required. You may assign your interest in such policy (including the
right to designate the beneficiary) to an irrevocable trust. In addition, the
Company will make the final premium payment with respect to the Supplemental
Life Insurance referred to in paragraph 4.04 of the Employment Agreement upon
receipt of advice from the insurer of the premium payment required whereupon
such policy shall be fully paid-up.
9. Through October 31, 1998, the Company will continue to provide you
with the automobile currently maintained for you by the Company and will pay
for all expenses associated with your use of such automobile. On or before
October 31, 1998, you may purchase the automobile currently provided to you by
the Company at its then depreciated book value.
10. All payments provided for in this letter agreement shall be
reduced by any taxes or other amounts required to be withheld by the Company
under applicable laws, including any taxes required to be withheld with
respect to other benefits provided to you hereunder.
11. Except with respect to its obligations under the HGRP, (i) 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; (ii) all of the Company's
obligations hereunder shall be reflected by book entries only, and neither you
nor your spouse nor any other beneficiary shall have any rights on account of
this letter agreement to any specific assets of the Company; and (iii) any
rights that you, your spouse or any other beneficiary may have on account of
this letter agreement shall be those of an unsecured general creditor. No
benefit payable under this letter agreement, and no interest or rights
hereunder belonging to yourself, your spouse or any other beneficiary, shall
be subject to the claims of any creditor or to attachment, garnishment or
other legal process, nor shall you, your spouse or any other beneficiary have
-3- <PAGE>
any right to alienate, anticipate, commute, pledge, encumber or assign any
interest or rights under this letter agreement.
12. You agree that, until December 31, 1997, you shall not serve as an
officer, director, employee or consultant (with or without compensation) to,
any national specialty apparel chain, designer boutique, or any other
companies as to which you and the Company have agreed in writing. In the
event that any provision of this paragraph 12 shall be determined by any court
of competent jurisdiction to be unenforceable by reason of its being extended
over too great a time, too large a geographic area or too great a range of
activities, it shall be interpreted to extend only over the maximum period of
time, geographic area or range of activities as to which it may be
enforceable.
13. You acknowledge that in the course of your duties you have been
entrusted with confidential information of a proprietary nature, including but
not limited to financial and statistical information regarding affairs of the
Company and its subsidiaries, supplier and subcontractor lists, price and cost
information, business plans and programs, merchandising opportunities,
expansion plans, methods, techniques, marketing and other data, designs and
knowhow, developed or obtained by the Company or its subsidiaries
(collectively, "Proprietary Information"), and agree that you shall not,
directly or indirectly, use or disclose Proprietary Information to any third
party (except, prior to the Separation Date, as required for the proper
performance of your duties on behalf of the Company). Proprietary
Information also includes all information received by the Company or any of
its subsidiaries from others with any understanding that such information will
not be disclosed. For this purpose, Proprietary Information shall not
include (i) information which is part of the public domain (other than by your
act), or (ii) any information required to be disclosed by law.
14. You agree that, until December 31, 1997, you will not solicit or
induce any Employee to discontinue employment with the Company or any of its
subsidiaries (including NMG). The term "Employee" means any person who is an
employee of the Company or any of its subsidiaries (including NMG) between the
date this letter agreement takes effect and December 31, 1997.
15. The Company may not assign all or any part of its obligations
under this letter agreement, and will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to assume
and agree to perform this letter agreement to the same extent that the Company
would be required to perform it if no such succession had taken place. This
letter agreement shall inure to the benefit of and be enforceable by and
binding upon (i) any such successors and (ii) your personal and legal
representatives, executors, administrators, heirs and beneficiaries.
16. The Company shall indemnify you for all losses, damages, costs,
expenses, liabilities, judgments and amounts paid in settlement in connection
with any claim, action, suit, proceeding or investigation in which you are a
party or threatened to be made a party by reason of the fact that you were an
officer, director or employee of the Company or any of its subsidiaries at
-4- <PAGE>
least to the same extent that the Company indemnifies its current officers and
directors for such matters under its By-Laws.
17. (a) For valuable consideration you agree that this letter
agreement shall be in complete and final settlement of any and all causes of
action, rights or claims that you have had in the past, now have, or might now
have, in any way related to, connected with or arising out of your employment
or its termination or the Employment Agreement or pursuant to Title VII of the
Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination
in Employment Act, the Massachusetts fair employment practices statute or any
other federal, state or local employment law, regulation or other requirement,
and you hereby release and forever discharge the Company and all of its
subsidiaries (including without limitation NMG and its subsidiaries) and all
of their respective past and present directors, officers, shareholders,
employees, agents, successors, assigns and all others connected with any of
them, both individually and in their official capacities, from any and all
such causes of action, rights or claims. Excluded from the scope of this
release of claims is any claim arising hereafter under the terms of this
letter agreement or under any plan or option agreement referred to herein.
(b) The Company hereby releases and forever discharges you from
any and all causes of action, rights or claims which it now has or may now
have against you; provided, however, that this release and discharge shall not
constitute a release or discharge of any of your obligations under this letter
agreement.
18. You may designate in a writing filed with the Company one or more
persons (including your estate) as the beneficiary or beneficiaries of the
benefits provided for under this letter agreement after your death. You may
change such designation from time to time (other than the designation of an
irrevocable insurance trust as a beneficiary of life insurance policies
insuring your life), and the last such designation in writing filed with the
Company will control. If you have failed to file a designation of
beneficiary by the time of your death, or if all designated beneficiaries have
predeceased you, the amounts payable under this agreement shall be paid to
your estate. Different beneficiaries may be designated to receive different
benefits hereunder.
19. In consideration of the payments to be made in accordance with
paragraph 2.c. above, you agree to provide consulting services to the Company,
if, as and when requested by the person succeeding you as the chief executive
officer of the Company, for a maximum of one business day a month at mutually
convenient times, for a period of one year commencing on the Separation Date.
Such consulting shall not require that you have access to material non-public
information of the Company. The Company shall reimburse all reasonable out-
of-pocket expenses incurred by you in connection with such services. If you
agree to render such services for a period exceeding one day in any month, the
Company shall pay you $4,000 for each excess day. If during such period you
become employed by a governmental agency or body and applicable governmental
regulations preclude you from continuing to render such services to the
Company, you shall be relieved of your obligations under this paragraph 19.
-5- <PAGE>
20. The Company shall reimburse you for your reasonable legal fees
incurred in connection with the preparation and execution of this letter
agreement.
21. You shall not be required to mitigate the amount of any payment or
benefit under this letter agreement by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this letter
agreement be reduced by any compensation or other fees earned by you as a
result of employment by another employer, by services to a third party or
(except for the amounts due under paragraph 7 hereof) by offset against any
amount claimed to be owed by you to the Company.
22. This letter agreement contains the entire agreement between you
and the Company, and, except as expressly provided for herein (including the
plans, programs, options and benefits referred to herein), supersedes all
prior oral and written agreements and understandings and commitments between
you and the Company (including without limitation the Employment Agreement)
relating to this letter agreement or your employment with the Company. No
amendment to this letter agreement shall be made except by a written
instrument signed by you and by a duly authorized officer of the Company.
The Company encourages you to seek the advice of an attorney before signing
this letter agreement. In signing this letter agreement, you represent and
warrant that you have signed it voluntarily and with a full understanding of
its terms and that you have had a full and sufficient opportunity of at least
21 days to consider this letter agreement and to consult with an attorney
before signing it.
23. All notices required by this letter agreement shall be in writing
and delivered by hand, overnight courier against receipt, or by registered or
certified mail, postage prepaid, in your case, addressed to 40 White Oak Road,
Wellesley, Massachusetts 02181, and in the Company's case, addressed to its
Chairman of the Board of Directors, at 27 Boylston Street, Chestnut Hill,
Massachusetts 02167 and shall be effective upon actual receipt. Either you
or the Company may from time to time designate a new address by notice given
to and actually received by the other.
24. You may revoke this letter agreement at any time during the seven-
day period immediately following the date of your signing it by so notifying
the Secretary of the Company in writing during that period. If you do not
revoke it, then, at the expiration of the seven-day revocation period, this
letter agreement shall take effect as a legally-binding agreement between you
and the Company on the basis set forth above.
-6- <PAGE>
25. This letter agreement shall be governed by the law of the
Commonwealth of Massachusetts without regard to its law regarding choice of
law.
HARCOURT GENERAL, INC.
By /s/ Richard A. Smith
Richard A. Smith
AGREED:
/s/ Robert J. Tarr, Jr.
Robert J. Tarr, Jr.
Dated: December 17, 1996
The Neiman Marcus Group, Inc. hereby agrees to the continuation as
provided above of the benefits referred to in Paragraph 4.02(a)(iv) of the
Employment Agreement.
The Neiman Marcus Group, Inc.
By: /s/ Richard A. Smith
Richard A. Smith
-7-
<TABLE>
<CAPTION>
EXHIBIT 11.1
HARCOURT GENERAL, INC. AND SUBSIDIARIES
OCTOBER 31, 1996
EXHIBIT TO FORM 10-K
COMPUTATION OF AVERAGE NUMBER OF SHARES OUTSTANDING USED IN DETERMINING PRIMARY AND FULLY
DILUTED EARNINGS PER SHARE
(In thousands) 1996 1995 1994
PRIMARY
<S> <C> <C> <C>
1. Weighted average number of
Common shares outstanding 71,277 75,006 77,802
2. Assumed conversion of Series A
Cumulative Convertible Preferred Stock 1,292 1,480 1,677
3. Assumed exercise of certain stock
options based on average market value
during the year 201 278 330
4. Weighted average number of shares used
in primary per share computations 72,770 76,764 79,809
FULLY DILUTED (A)
1. Weighted average number of
Common shares outstanding 71,277 75,006 77,802
2. Assumed exercise of Series A
Cumulative Convertible Preferred Stock 1,292 1,480 1,677
3. Assumed exercise of certain stock
options based on market value
at October 31 202 291 340
4. Weighted average number of shares used
in primary per share computations 72,771 76,777 79,819
(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>
[START PAGE 23]
Management's Discussion and Analysis of Financial Condition and Results of
Operations
[Segment Operating Results]
The following table presents revenues and operating earnings by business
segment:
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1996 1995 1994
====================================================================================
<S> <C> <C> <C>
Revenues
Publishing $1,092,631 $1,017,637 $919,498
Specialty retailing 2,075,003 1,888,249 1,789,461
Professional services 122,285 128,850 141,818
-----------------------------------
Total revenues $3,289,919 $3,034,736 $2,850,777
===================================
Operating earnings
Publishing $196,997 $177,531 $165,436
Specialty retailing 172,354 161,698 157,713
Professional services 9,753 13,062 22,072
Corporate expenses (34,382) (34,395) (35,081)
-----------------------------------
Total operating earnings $344,722 $317,896 $310,140
====================================
</TABLE>
[Operating Results 1996 vs. 1995]
Publishing
Publishing revenues increased 7.4% to $1.09 billion in 1996 from $1.02 billion
in 1995. The Company's educational publishing group and its scientific,
technical, medical and professional (STMP) publishing group both contributed
significantly to the revenue increase. A substantial portion of the
educational publishing group's revenue increase resulted from higher testing
program revenues, primarily due to the acquisition of Assessment Systems, Inc.
in the third quarter of 1995. The educational group revenues were also
increased by strong testing program and secondary publishing revenues, offset
in part by an anticipated decline in elementary program revenues resulting
from fewer adoption opportunities in comparison to 1995. STMP revenue growth
reflected 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), a medical newspaper publisher, in the first quarter of 1996.
Publishing operating earnings increased 11.0% to $197.0 million in 1996
from $177.5 million in 1995. STMP operating earnings, specifically at W.B.
Saunders and Academic Press, were significantly higher than those of the prior
year due to higher sales volume of W.B. Saunders books, W.B. Saunders and
Academic Press journals, and lower operating expenses as a percentage of
revenues. Operating earnings at Holt, Rinehart and Winston and Harcourt Brace
College were also higher than in 1995, although in aggregate earnings for the
educational publishing group decreased slightly in comparison to the prior<PAGE>
year primarily as a result of the decline in elementary program revenues and
higher administrative and fulfillment expenses.
Specialty retailing
Specialty retailing revenues in 1996 increased 9.9% to $2.08 billion from
$1.89 billion in 1995. The revenue growth was primarily attributable to a 5.4%
increase in comparable sales and, to a lesser extent, the opening of two new
Neiman Marcus stores during the year. Strong sales were achieved across most
major merchandise categories and geographic regions. Additionally, fiscal 1996
included 53 weeks, while fiscal 1995 consisted of 52 weeks. The 53rd week is
not included in comparable sales.
Operating earnings from specialty retailing increased 6.6% to $172.4
million from $161.7 million in 1995. The increase is attributable to higher
sales volume, partially offset by the full year impact of NMG's credit card
receivables securitization. Gross margins were approximately 31.7% in 1996
compared to 32.4% in 1995, the lower percentage resulting primarily from
higher markdowns during the calendar 1995 holiday season. Selling, general and
administrative expenses increased primarily due to new store openings, higher
selling costs and lower finance charge income. The Company utilizes the
last-in, first-out (LIFO) method of accounting for valuing its inventories,
which provides a better matching of revenues with expenses than the first-in,
first-out (FIFO) method which is used by some specialty retail companies. The
most important factors contributing to differences between the LIFO and FIFO
methods include the rate of inflation, inventory levels and markdowns. As a
result of these factors, operating earnings were $.7 million higher in 1996
and $10.4 million higher in 1995 than they would have been using the FIFO
method. Operating earnings at NM Direct improved significantly in comparison
to 1995, due to increased revenues and lower paper and postage expenses.
[END PAGE 23]
[START PAGE 24]
The securitization of NMG's credit card receivables, which was completed in
March 1995, had the effect of reducing finance charge income by $19.0 million
in 1996 and $7.1 million in 1995. Finance charge income in 1997 is expected to
be reduced by an amount comparable to 1996. Interest expense was also reduced,
as the proceeds from the securitization were used to repay outstanding debt.
Professional services
Professional services revenues decreased 5.1% to $122.3 million from $128.9
million in 1995. The decrease was a result of lower volume in both group and
individual outplacement programs, reflecting fewer outplacement opportunities
and increased competition.
Operating earnings for the professional services segment decreased 25.3% to
$9.8 million from $13.1 million in 1995. The decrease was primarily due to the
revenue shortfall in comparison to the prior year.
Corporate expenses
Corporate expenses remained essentially flat in 1996 at $34.4 million.
Investment income
Investment income decreased 31.6% to $27.3 million in 1996 from $39.9 million
in 1995. The decrease was primarily due to a lower average short-term
investment portfolio balance resulting primarily from the Company's stock
repurchase program and acquisitions of NMG common stock and publishing<PAGE>
businesses made during the year.
Interest expense
Interest expense decreased 6.6% to $82.9 million in 1996 from $88.7 million in
1995. The decrease was primarily due to lower debt levels at NMG resulting
from the use of proceeds from NMG's credit card securitization in March 1995
to pay down outstanding debt.
Income taxes
The Company's effective income tax rate was 34% in 1996, unchanged from 1995.
Minority interest
Beginning in 1997, upon achievement by NMG of net earnings available to common
shareholders of approximately $70.0 million, Harcourt General will no longer
include in its earnings statement the proportionate share (currently 47%) of
NMG earnings to which the minority shareholders of NMG will become entitled.
[Operating Results 1995 vs. 1994]
Publishing
Publishing revenues increased 10.7% to $1.02 billion in 1995 from $919.5
million in 1994. Significant increases were achieved at the Company's
educational and scientific, technical, medical and professional publishing
groups. 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 W.B. 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
cost 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 flat
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. The impact of the LIFO method of accounting increased gross profit by
$10.4 million in 1995 and reduced gross profit by $2.4 million in 1994.
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.
[END PAGE 24]<PAGE>
[START PAGE 25]
Professional services
Professional services revenues 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% in 1995, compared to 38% 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.
[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 generated by earnings from continuing operations before depreciation
and amortization in 1996 was $371.2 million compared to $353.3 million in
1995. The cash provided by the Company's operations was sufficient to fund
working capital, capital expenditures and dividend requirements. NMG uses its
cash and revolving credit agreement to fund its own working capital and
capital expenditures.
The most significant changes in working capital were increases in
inventories of $96.3 million and accounts receivable of $36.3 million, which
were partially offset by a $38.2 million increase in accounts payable and<PAGE>
accrued liabilities. Increases in inventories and accounts receivable were due
in large part to the opening of two new Neiman Marcus stores in fiscal 1996,
as well as to increased sales volume in both specialty retailing and
publishing.
During the second half of fiscal 1995, the Company used a portion of its
cash to purchase short term investments with maturities greater than three
months but with similar risk profiles to cash equivalent investments with
maturities less than three months. This investment practice was continued in
1996, and the related activity is reflected as purchases and maturities of
short-term investments in the consolidated statements of cash flows. These
short-term investments are highly liquid and consist of high quality
commercial paper, certificates of deposit, corporate debt securities and U.S.
Government and agency securities. The Company acquired approximately 1.1
million shares of NMG common stock in privately negotiated transactions at an
average price of $20.18 per share for a total of approximately $22.8 million.
The publishing business completed several acquisitions in 1996 for a total
cost of $20.6 million.
Publishing capital expenditures in 1996 totaled $152.0 million and were
principally related to prepublication costs. Capital expenditures for the
publishing business are expected to approximate $150.0 million in fiscal 1997.
Specialty retailing capital expenditures of $85.7 million in 1996 consisted
principally of construction of new stores and a new distribution center, and
renovations of existing stores. NMG opened new Neiman Marcus stores in Short
Hills, New Jersey in August 1995, King of Prussia, Pennsylvania in February
1996 and Paramus, New Jersey in August 1996. Specialty retailing capital
expenditures are expected to approximate $75.0 million in fiscal 1997 and will
include the remodeling of certain Neiman Marcus stores and both Bergdorf
Goodman stores.
[END PAGE 25]
[START PAGE 26]
In October 1996, NMG sold 8 million shares of its common stock to the
public at $35.00 per share. The net proceeds were used, together with an
additional 3.9 million shares of NMG common stock and bank borrowings, to
repurchase all of NMG's outstanding preferred stock from the Company. The
Company will no longer receive the annual dividends of approximately $27.1
million from such preferred stocks.
Financing activities during the year include the payment of $48.7 million
in dividends and the purchase of approximately 1.7 million shares of the
Company's common stock for $67.2 million in the open market at an average
price of $39.18 per share. NMG increased its bank borrowings by $109.9 million
during the year which included borrowings used to repay $40.0 million of
senior notes at maturity in May 1996. In August 1996 an additional $52.0
million of senior notes were paid on maturity through borrowings under NMG's
revolving credit facility.
At October 31, 1996, the Company's consolidated long-term liabilities
totaled $939.1 million. That amount included $361.9 million of NMG
obligations, which are not guaranteed by Harcourt General. It is expected that
the Company's debentures that mature in July 1997 will be paid out of the
Company's cash balances.
In addition to funding its debt, the Company has significant lease
commitments which require cash outflows. Lease payments from continuing
operations totaled $87.9 million in 1996, and minimum lease payments in 1997
are expected to be at comparable levels.
The Company believes its financial resources are more than sufficient to<PAGE>
meet its foreseeable cash requirements.
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 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.
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 strong in the
Company's second quarter which includes NMG's holiday selling season.
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 1996, the Board of Directors voted to increase the quarterly cash
dividend on the Common Stock to 18 cents per share. The Board also increased
the quarterly cash dividend on the Series A Stock to 20.55 cents per share and
on the Class B Stock to 16.20 cents per share.
Recent accounting pronouncements
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). The Statement establishes a fair
value-based method of accounting for stock-based compensation plans, which may
be recognized or disclosed at the Company's option. The Company will adopt the
disclosure approach under SFAS 123 beginning in fiscal 1997.
In June 1996, the FASB issued Statement of Financial Accounting Standard No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS 125), which is effective for
transactions entered into after December 31, 1996. The Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The effect of adopting SFAS 125 is
not expected to be material to the Company's financial position or results of
operations.
[END PAGE 26]
[START PAGE 27]
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Years ended October 31(in thousands except for per share amounts) 1996 1995 1994
===============================================================================================
<S> <C> <C> <C>
Revenues $ 3,289,919 $ 3,034,736 $ 2,850,777
Costs applicable to revenues 1,906,974 1,765,090 1,656,525
Selling, general and administrative expenses 1,003,841 917,355 849,031
Corporate expenses 34,382 34,395 35,081
------------------------------------
Operating earnings 344,722 317,896 310,140
Investment income 27,329 39,945 14,239
Interest expense (82,882) (88,735) (86,219)
Earnings from continuing operations ------------------------------------
before income taxes 289,169 269,106 238,160
Income tax expense (98,318) (91,496) (90,885)
------------------------------------
Earnings from continuing operations 190,851 177,610 147,275
Earnings (loss) from discontinued operations, net -- (11,727) 30,257
------------------------------------
Net earnings $ 190,851 $ 165,883 $ 177,532
====================================
Amounts per share of common stock
Earnings from continuing operations $ 2.62 $ 2.31 $ 1.84
Earnings (loss) from discontinued operations -- (.15) .38
------------------------------------
Net earnings $ 2.62 $ 2.16 $ 2.22
====================================
See notes to consolidated financial statements.
</TABLE>
[END PAGE 27]
[START PAGE 28]
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31 (in thousands) 1996 1995
============================================================================================
Assets
<S> <C> <C>
Current assets
Cash and equivalents $ 532,862 $ 363,750
Short-term investments 242,054 243,073
Accounts receivable, net 409,110 372,700
Inventories 592,141 495,222
Deferred income taxes 77,491 79,083
Other current assets 79,607 55,970
-----------------------
Total current assets 1,933,265 1,609,798
-----------------------
Property and equipment
Land, buildings and improvements 503,050 496,660 <PAGE>
Fixtures and equipment 416,152 330,602
-----------------------
919,202 827,262
Less accumulated depreciation and amortization (344,276) (286,915)
-----------------------
Total property and equipment, net 574,926 540,347
-----------------------
Other assets
Prepublication costs, net 209,519 164,449
Intangible assets, net 456,494 442,566
Other 152,034 127,176
-----------------------
Total other assets 818,047 734,191
-----------------------
Total assets $3,326,238 $2,884,336
=======================
See notes to consolidated financial statements.
</TABLE>
[END PAGE 28]
[START PAGE 29]
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31 (in thousands) 1996 1995
=============================================================================================
Liabilities
<S> <C> <C>
Current liabilities
Notes payable and current maturities of long-term liabilities $ 163,717 $ 15,484
Accounts payable 315,108 284,481
Accrued liabilities 333,205 334,479
Taxes payable 77,548 58,104
Other current liabilities 58,769 52,423
------------------------
Total current liabilities 948,347 744,971
------------------------
Long-term liabilities
Notes and debentures 714,282 789,008
Other long-term liabilities 224,792 210,846
------------------------
Total long-term liabilities 939,074 999,854
------------------------
Deferred income taxes 187,632 198,398
Commitments and contingencies
Minority interest 217,653 --
Shareholders' Equity
Preferred stock
Series A Cumulative Convertible - $l par value
Issued and outstanding - 1,152 and 1,210 shares 1,152 1,210
Common stocks<PAGE>
Class B Stock - $1 par value
Issued and outstanding - 20,051 and 20,802 shares 20,051 20,802
Common Stock - $1 par value
Issued and outstanding - 51,068 and 51,897 shares 51,068 51,897
Paid-in capital 743,947 727,285
Cumulative translation adjustments (4,493) (5,166)
Retained earnings 221,807 145,085
------------------------
Total shareholders' equity 1,033,532 941,113
------------------------
Total liabilities and shareholders' equity $ 3,326,238 $2,884,336
========================
</TABLE>
[END PAGE 29]
[START PAGE 30]
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1996 1995 1994
=============================================================================================
<S> <C> <C> <C>
Cash flows from operating activities
Earnings from continuing operations $190,851 $177,610 $147,275
Adjustments to reconcile earnings from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 180,395 175,737 149,973
Deferred income taxes (9,174) 13,152 (38,909)
Other (401) 4,183 10,932
Changes in assets and liabilities:
Accounts receivable (36,327) (38,259) (86,499)
Inventories (96,332) (54,376) (30,291)
Other current assets (23,654) 4,302 6,870
Accounts payable and accrued liabilities 38,209 25,974 34,187
243,567 308,323 193,538
---------------------------------
Discontinued operating activities -- (3,410) (3,721)
---------------------------------
Net cash provided by operating activities 243,567 304,913 189,817
---------------------------------
Cash flows from investing activities
Capital expenditures (242,655) (220,053) (196,160)
Purchases of short-term investments (280,939) (382,612) --
Maturities of short-term investments 281,958 139,539 --
Purchases of NMG common stock (22,841) -- --
Proceeds from sale of insurance business -- -- 410,432
Acquisitions (20,648) (42,490) (36,215)
Other investing activities (12,888) 1,441 (9,570)
---------------------------------
Net cash provided by (used for) investing activities (298,013) (504,175) 168,487
---------------------------------
Cash flows from financing activities
Proceeds from borrowings 109,917 17,065 73,800 <PAGE>
Repayment of debt (41,571) (247,431) (30,325)
Proceeds from NMG public offering 268,800 -- --
Repurchase of Common Stock (67,150) (224,827) --
Proceeds from receivables securitization -- 245,965 --
Dividends paid (48,693) (47,730) (47,183)
Other transactions 2,255 311 (1,862)
----------------------------------
Net cash provided by (used for) financing activities 223,558 (256,647) (5,570)
----------------------------------
Cash and equivalents
Increase (decrease) during the year 169,112 (455,909) 352,734
Beginning balance 363,750 819,659 466,925
----------------------------------
Ending balance $ 532,862 $ 363,750 $ 819,659
==================================
Supplemental schedule of cash flow information
Cash payments for:
Interest $ 82,185 $ 86,991 $ 82,409
Income taxes $ 104,845 $ 75,222 $ 56,821
See notes to consolidated financial statements.
</TABLE>
[END PAGE 30]
[START PAGE 31]
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Cumulative
Common Series A Paid-in Translation Retained
(in thousands) Stocks Stock Capital Adjustments Earnings
=============================================================================================
<S> <C> <C> <C> <C> <C>
Balance at November 1, 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
Net earnings -- -- -- -- 190,851
Cash dividends paid -- -- -- -- (48,693)<PAGE>
Conversion of Series A Stock 58 (58) -- -- --
Repurchase of Common Stock (1,714) -- -- -- (65,436)
Translation adjustments -- -- -- 673 --
NMG issuance of common stock -- -- 15,153 -- --
Other equity transactions, net 76 -- 1,509 -- --
---------------------------------------------------------
Balance at October 31, 1996 $ 71,119 $ 1,152 $ 743,947 $ (4,493) $ 221,807
=========================================================
See notes to consolidated financial statements.
</TABLE>
[END PAGE 31]
[START PAGE 32]
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, and the
minority shareholders' interest in NMG is reflected as minority interest.
NMG's fiscal year ends on the Saturday closest to July 31. In fiscal 1996,
NMG's reporting period included 53 weeks as compared to 52 weeks in each of
fiscal years 1995 and 1994. All significant intercompany accounts and
transactions have been eliminated.
Cash and equivalents
Cash and equivalents consist 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
In 1995 the Company began purchasing short-term investments as part of its
investment practice. Short-term investments have maturities greater than three
months, consist of commercial paper, certificates of deposit, corporate debt
securities and U.S. Government and agency securities, and are carried at cost
plus accrued interest, which approximates fair value. Short-term investments
have risk profiles similar to cash equivalent investments.
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 $53.2 million in 1996 and $49.4 million in 1995 and an allowance for
doubtful accounts of $19.4 million in 1996 and $22.5 million in 1995. <PAGE>
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 first-in, first-out (FIFO) method of inventory valuation
had been used to value inventory, the inventories would have been $13.5
million and $14.2 million higher than reported at October 31, 1996 and October
31, 1995, 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 consist primarily of goodwill and trademarks. Amortization
is provided on a straight-line method over the estimated useful lives of these
assets, not exceeding forty years.
In 1996 the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and determined that no impairment
[END PAGE 32]
[START PAGE 33]
loss need be recognized. On an annual basis the Company compares the carrying
value of its long-lived assets against projected undiscounted cash flows to
determine any impairment and to evaluate the reasonableness of the
depreciation or amortization periods.
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 $47.7 million in
1996, $55.9 million in 1995 and $54.3 million in l994. The securitization of
NMG's credit card receivables, which was completed in March 1995, had the
effect of reducing finance charge income by $19.0 million in 1996 and $7.1
million in 1995 (see Note 14).
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<PAGE>
potential credit losses.
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 72.8 million shares in 1996,
76.8 million shares in 1995 and 79.8 million shares in l994.
Earnings per common and common equivalent share, assuming full dilution,
have not been presented because the dilutive effect is not material.
Significant estimates
In the process of preparing its consolidated financial statements, the Company
estimates the appropriate carrying values of certain assets and liabilities
which are not readily apparent from other sources. The primary estimates
underlying the Company's consolidated financial statements include allowances
for book returns, doubtful accounts, valuation of inventories and
prepublication costs, and accruals for pension and postretirement benefits.
Actual results could differ from these estimates. Management bases its
estimates on historical experience and on various assumptions which are
believed to be reasonable under the circumstances.
Changes in presentation
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
[ 2. 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 30 stores in 16
states and the District of Columbia; Bergdorf Goodman operates two stores in
New York City; and NM Direct operates NMG's direct marketing business,
providing both apparel and home items through its various direct marketing
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.
[END PAGE 33]
[START PAGE 34]
[ Additional Financial Information ]
<TABLE>
<CAPTION> <PAGE>
Years ended October 31 (in thousands) 1996 1995 1994
====================================================================================
<S> <C> <C> <C>
Revenues
Publishing $1,092,631 $1,017,637 $ 919,498
Specialty retailing 2,075,003 1,888,249 1,789,461
Professional services 122,285 128,850 141,818
-----------------------------------
Total revenues $3,289,919 $3,034,736 $2,850,777
===================================
Operating earnings
Publishing $ 196,997 $ 177,531 $ 165,436
Specialty retailing 172,354 161,698 157,713
Professional services 9,753 13,062 22,072
Corporate expenses (34,382) (34,395) (35,081)
-----------------------------------
Total operating earnings $ 344,722 $ 317,896 $ 310,140
===================================
Identifiable assets
Publishing $1,033,951 $ 922,629 $ 842,850
Specialty retailing 1,342,202 1,191,085 1,408,238
Professional services 51,162 58,810 69,562
Corporate 898,923 711,812 921,714
-----------------------------------
Total identifiable assets $3,326,238 $2,884,336 $3,242,364
===================================
Capital expenditures
Publishing $ 151,977 $ 122,669 $ 122,761
Specialty retailing 85,736 93,514 65,074
Professional services 4,457 3,799 6,910
Corporate 485 71 1,415
-----------------------------------
Total capital expenditures $ 242,655 $ 220,053 $ 196,160
===================================
Depreciation and amortization
Publishing $ 113,379 $ 120,331 $ 94,879
Specialty retailing 60,381 49,087 49,269
Professional services 4,564 4,412 4,006
Corporate 2,071 1,907 1,819
-----------------------------------
Total depreciation and amortization $ 180,395 $ 175,737 $ 149,973
===================================
</TABLE>
[ 3. Intangible Assets ]
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
October 31 (in thousands) 1996 1995
====================================================================================
<S> <C> <C>
Goodwill $ 482,217 $ 465,500
Trademarks 73,000 73,000
Other 28,819 15,351
-----------------------
Total 584,036 553,851 <PAGE>
Accumulated amortization (127,542) (111,285)
-----------------------
Total $ 456,494 $ 442,566
=======================
</TABLE>
During the past three 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 $20.6
million in 1996, $42.5 million in 1995 and $36.2 million in 1994. In fiscal
1996, the Company also purchased approximately 1.1 million shares of NMG
common stock in the open market for approximately $22.8 million. Amortization
expense was $17.9 million in 1996, $17.2 million in 1995 and $14.5 million in
1994.
[ 4. The Neiman Marcus Group, Inc. ]
On October 17, 1996, NMG completed a public offering of 8.0 million shares of
its common stock at a price of $35.00 per share. The net proceeds from the
offering ($267.3 million) were used by NMG to partially fund the repurchase of
all of NMG's issued and outstanding preferred stocks from the Company. The
total consideration paid by NMG to the Company in connection with the
repurchase was $416.4 million, plus accrued and unpaid dividends through the
date of the public offering. Of the total consideration, $260.0 million in
cash was advanced to the Company during October 1996. In addition to the
advance, on November 12, 1996 NMG paid the Company
[END PAGE 34]
[START PAGE 35]
$27.2 million in cash and 3.9 million shares of its common stock (valued at
$135.0 million at $35.00 per share) and completed the exchange for all of
NMG's issued and outstanding preferred stocks. The impact of NMG's public
offering and the repurchase of its preferred stocks from the Company is
reflected in the 1996 financial statements. The Company presently owns
approximately 53% of the outstanding common stock of NMG, as compared to 59%
prior to the transaction. The NMG public offering resulted in the
establishment of a minority interest liability of $217.7 million, which
represents the NMG minority shareholders' interest in the shareholders' equity
of NMG, and an increase of $15.2 million in paid-in capital, which represents
the Company's incremental share of NMG's shareholders' equity, both at October
31, 1996.
The cash flows of NMG are not available to the Company, except through NMG
dividend payments. NMG did not pay dividends on its common stock in 1996.
Additionally, the Company's consolidated long-term liabilities at October 31,
1996 include $361.9 million of NMG obligations, which are not guaranteed by
Harcourt General.
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 $6.9
million in 1996, $6.5 million in 1995 and $6.9 million in 1994.
Substantially all of the executive officers of the Company serve in similar<PAGE>
capacities with NMG. During the period covered by these financial statements,
the Company's Chairman of the Board and one other executive officer served as
directors of NMG.
[ 5. Accrued Liabilities ]
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
October 31 (in thousands) 1996 1995
====================================================================================
<S> <C> <C>
Accrued salaries and related charges $ 63,000 $ 62,564
Self-insurance reserves 49,569 45,683
Other 220,636 226,232
--------------------
Total $333,205 $334,479
====================
</TABLE>
[ 6. Long-Term Liabilities ]
Long-term liabilities of Harcourt General and NMG at October 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
(in thousands) Interest Rate Maturity 1996 1995
====================================================================================
<S> <C> <C> <C> <C> <C>
Harcourt General
Revolving credit agreement Variable Dec. 1999 $ -- $ --
Senior debt 8.25% June 2002 149,425 149,358
Senior debt 8.88% June 2022 147,982 147,963
Subordinated notes 9.38% June 1997 124,938 124,844
Subordinated notes 9.50% Mar. 2000 124,905 124,873
Other long-term liabilities Various Various 158,025 145,385
--------------------------------------------
Total Harcourt General 705,275 692,423
--------------------
NMG
Revolving credit agreement Variable Apr. 2000 186,500 77,100
Senior notes 9.89% May 1996 -- 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 79,016 73,815
---------------------------------------------
Total NMG 397,516 322,915
Less current maturities (163,717) (15,484)
---------------------------------------------
Total long-term liabilities $939,074 $999,854
=============================================
</TABLE>
<PAGE>
The Company has a revolving credit agreement with 13 banks, pursuant to which
the Company may borrow up to $400.0 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.
[END PAGE 35]
[START PAGE 36]
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 13).
NMG has a $500 million revolving credit agreement which expires in April
2000. NMG may terminate this agreement at any time on three business days
notice. The rate of interest payable (5.9% at August 3, 1996) varies according
to one of four pricing options selected by NMG.
In addition to its revolving credit facility, NMG borrows from other banks
on an uncommitted basis. Such borrowings are included in notes payable and
current maturities of long-term liabilities and amounted to $26.5 million at
August 3, 1996 and $7.1 million at July 29, 1995.
The NMG senior notes are classified as long-term, since NMG has the
ability and intent to repay them upon maturity through borrowings on its
revolving credit agreement. In August 1996 NMG paid $52.0 million of its
senior notes upon maturity. The variable rate note due in December 1996 bears
interest at LIBOR plus 0.7% (6.0% at August 3, 1996) 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.
The aggregate maturities of all long-term liabilities are as follows:
<TABLE>
<CAPTION>
Harcourt
(in thousands) General NMG Total
====================================================================================
<S> <C> <C> <C>
1997 $128,100 $35,600 $163,700
1998 4,000 5,600 9,600
1999 3,700 5,800 9,500
2000 128,600 297,900 426,500
2001 1,900 6,100 8,000
Thereafter 439,000 46,500 485,500
</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.
[ 7. Shareholders Equity ]
Series A Cumulative Convertible Stock<PAGE>
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, 1996.
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, 1996, 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. Through
the year ended October 31, 1996, the Company repurchased approximately 1.8
million shares at an average price of approximately $39.12 per share. In
December 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.
[END PAGE 36]
[START PAGE 37]
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. 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.
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 1.2 million authorized common shares available
for future awards under the 1988 Stock Incentive Plan at October 31, 1996.
Options outstanding at October 31, 1996 were granted at prices (not less than
100% of the fair market value on the date of grant) varying from $15.67 to
$41.88 per share and expire between 1997 and 2005. There were 90 employees
with options outstanding at October 31, 1996 with a weighted average exercise
price of $28.84. There were 1.7 million shares of Common Stock reserved for
issuance at October 31, 1996 upon the exercise of stock options.
Option activity on the Company's Common Stock was as follows:<PAGE>
<TABLE>
<CAPTION>
Years ended October 31 1996 1995 1994
====================================================================================
<S> <C> <C> <C>
Options outstanding - beginning of year 543,448 755,712 919,911
Granted 80,350 80,150 107,550
Exercised (61,496) (86,643) (33,805)
SAR surrenders (109,081) (197,169) (68,860)
Cancelled (6,035) (8,602) (169,084)
---------------------------------
Options outstanding - end of year 447,186 543,448 755,712
=================================
Exercisable options - end of year 223,182 285,860 422,477
=================================
</TABLE>
[ 8. Income Taxes ]
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION> 1996 1995 1994
Years ended October 31 (in thousands) Amount % Amount % Amount %
============================================================================================
<S> <C> <C> <C> <C> <C> <C>
Statutory tax expense $101,209 35 $ 94,188 35 $ 83,356 35
State income taxes, net of federal tax effect 5,768 2 5,932 2 5,853 2
Tax credits (98) -- (106) -- (193) --
Dividends received exclusion (2,451) (1) (1,893) (1) (2,042) (1)
Foreign tax rate differentials (86) -- (501) -- (265) --
Permanent items 3,656 1 3,563 1 3,069 1
Change in valuation allowance (6,945) (2) (7,187) (2) -- --
Capital gains, settlements and other (2,735) (1) (2,500) (1) 1,107 1
Income tax expense from ------------------------------------------------
continuing operations $ 98,318 34 $ 91,496 34 $ 90,885 38
================================================
</TABLE>
Income tax expense was as follows:
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1996 1995 1994
=====================================================================================
<S> <C> <C> <C>
Current
Federal $ 97,115 $ 70,696 $ 65,681
State 10,377 8,249 9,329
Deferred
Federal (7,671) 11,674 16,199
State (1,503) 877 (324)
----------------------------------
Income tax expense $ 98,318 $ 91,496 $ 90,885 <PAGE>
=================================
</TABLE>
[END PAGE 37]
[START PAGE 38]
Significant components of the net deferred tax liabilities stated on a gross
basis were as follows:
<TABLE>
<CAPTION>
October 31 (in thousands) 1996 1995
====================================================================================
<S> <C> <C>
Gross deferred tax assets
Accrued liabilities and reserves $ 84,702 $ 85,534
Employee benefits 37,190 33,871
Postretirement health care benefits 33,406 37,606
Inventories 22,336 26,387
Difference in basis of assets acquired 28,640 35,585
----------------------
Total gross deferred tax assets 206,274 218,983
Valuation allowance (11,406) (18,351)
----------------------
Net deferred tax assets 194,868 200,632
Gross deferred tax liabilities
Property, equipment, prepublication costs and intangibles 153,445 142,625
Pension and employee benefits accrual 22,295 19,744
Difference in basis of assets acquired 90,945 124,072
Accrued liabilities and reserves 38,324 33,506
----------------------
Total gross deferred tax liabilities 305,009 319,947
----------------------
Net deferred tax liabilities $ 110,141 $ 119,315
======================
</TABLE>
[ 9. Investment and Other Income ]
Investment income consisted of the following:
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1996 1995 1994
====================================================================================
<S> <C> <C> <C>
Interest income $ 16,794 $ 31,492 $ 5,510
Dividend income 10,535 8,453 8,729
--------------------------------
Total investment income $ 27,329 $ 39,945 $ 14,239
================================
</TABLE>
[ 10. Discontinued Operations ]
Discontinued operations consisted of the following:
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1995 1994
====================================================================================
<S> <C> <C>
Loss from Contempo Casuals operations, net of <PAGE>
income tax benefits of $1,300 and $36,000 $ (1,854) $(49,755)
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 -- 37,056
Gain on sale of insurance operations, net of
income taxes of $4,475 -- 7,956
Tax settlements -- 35,000
---------------------
Earnings (loss) from discontinued operations $(11,727) $ 30,257
======================
</TABLE>
Contempo Casuals operations
In June 1995, NMG sold its Contempo Casuals subsidiary to The Wet Seal, Inc.
(Wet Seal) for approximately $1.0 million of Wet Seal Class A Common Stock and
$100,000 in cash. Revenues related to the discontinued Contempo Casuals
operations were $207.2 million in 1995 and $303.4 million in 1994.
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.
Tax settlements
The Company recognized $35.0 million of tax benefits in 1994 for various
federal and state tax settlements relating to the Company's soft drink
bottling business, which was sold in 1989.
[END PAGE 38]
[START PAGE 39]
[ 11. Commitments and Contingencies ]
Leases
The Company and NMG have long-term operating leases primarily for offices,
distribution centers, retail stores, 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.
Rent expense for continuing operations under operating leases for the years
ended October 31 was as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
====================================================================================
<S> <C> <C> <C>
Minimum rent $ 75,800 $ 71,900 $ 72,100
Rent based on revenues 10,700 8,400 9,100
--------------------------------
$ 86,500 $ 80,300 $ 81,200
================================
</TABLE>
Assuming renewal options are not exercised, the future minimum rental payments
will be as follows:
<PAGE>
<TABLE>
<CAPTION>
Harcourt
(in thousands) General NMG Total
====================================================================================
<S> <C> <C> <C>
1997 $27,800 $30,800 $58,600
1998 28,800 29,400 58,200
1999 24,400 28,500 52,900
2000 21,100 28,400 49,500
2001 17,100 27,800 44,900
Thereafter 71,000 520,600 591,600
</TABLE>
Theatre operations
In December 1993, the Company completed the spinoff of its theatre operations
to a company named GC Companies, Inc. (GCC), listed on the New York Stock
Exchange. In connection with the distribution, GCC and Harcourt General
entered into various agreements which govern their ongoing relationship,
including a Reimbursement and Security Agreement and an Intercompany Services
Agreement.
Under the Reimbursement and Security Agreement, GCC granted to Harcourt
General a security interest in the stock of its theatre subsidiaries in order
to secure GCC's obligation to indemnify Harcourt General from any losses which
Harcourt General may incur due to its secondary liability on theatre leases
which were transferred to GCC as part of the spinoff. In addition, GCC has
agreed to certain financial covenants designed to protect Harcourt General
from incurring such liabilities. As of October 31, l996, GCC's aggregate
future rental payments due under such theatre leases amounted to approximately
$650.0 million.
The Intercompany Services Agreement provides for the services of Harcourt
General's Chairman and Chief Executive Officer and one of its Presidents and
Co-Chief Operating Officers, and such additional corporate services as the
Company and GCC may mutually determine from time to time.
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.
[ 12. 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 these plans are based on employees' years of service
and compensation over defined periods of employment. When funding is required,
the policy of Harcourt General and NMG is to contribute amounts that are
deductible for federal income tax purposes.
[END PAGE 39]<PAGE>
[START PAGE 40]
Net pension expense was as follows:
<TABLE>
<CAPTION>
Years ended October 31 (in millions) 1996 1995 1994
====================================================================================
<S> <C> <C> <C>
Service cost - benefits earned $ 13.1 $ 12.8 $ 11.2
Interest cost on projected benefit obligation 11.7 11.0 9.8
Actual return on assets (26.3) (20.5) (2.8)
Net amortization and deferral 12.9 7.6 (8.8)
-------------------------------
Net pension expense $ 11.4 $ 10.9 $ 9.4
===============================
</TABLE>
The following table sets forth the plans' funded status and amounts recognized
in the consolidated balance sheets at October 31:
<TABLE>
<CAPTION>
1996 1995
Funded Unfunded Funded Unfunded
(in millions) Plans Plans Plans Plans
====================================================================================
<S> <C> <C> <C> <C>
Vested benefit obligation $ 122.5 $ 14.9 $ 105.7 $ 13.4
=======================================
Accumulated benefit obligation $ 130.3 $ 18.4 $ 111.4 $ 16.3
=======================================
Projected benefit obligation $ 159.2 $ 30.4 $ 138.4 $ 27.2
Plan assets at fair value 194.0 -- 169.1 --
---------------------------------------
Overfunded (underfunded) projected obligation 34.8 (30.4) 30.7 (27.2)
Unrecognized net obligation at transition .4 .8 .2 .9
Unrecognized net loss 1.7 1.3 6.6 .5
Unrecognized prior service cost (1.6) 3.5 (1.5) 3.8
Prepaid (accrued) pension cost recognized ---------------------------------------
in the consolidated balance sheets $ 35.3 $ (24.8) $ 36.0 $ (22.0)
=======================================
</TABLE>
Pension expense was computed assuming a discount rate of 7.5% and a long-term
rate of return on plan assets of 9% for both Harcourt General and NMG for each
of the years presented. The assumed rate of increases in future compensation
levels for each of the years presented was 6.0% for Harcourt General and 5.0%
for NMG.
In addition to the pension plans, Harcourt General and NMG have defined
contribution plans for certain employees. The savings plan of each company
permits employee contributions and provides for certain matching
contributions. The Company's employee stock ownership plan is
non-contributory.
[ 13. 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
<PAGE>
minimum age requirements.
The actuarial present value of accumulated postretirement health care
benefit obligations and the amounts recognized in the Company's consolidated
balance sheets as of October 31 were as follows:
<TABLE>
<CAPTION>
(in millions) 1996 1995
====================================================================================
<S> <C> <C>
Retirees $ 31.6 $ 38.0
Fully eligible active plan participants 6.9 7.3
Other active plan participants 7.9 7.9
------------------
Accumulated postretirement benefit obligation 46.4 53.2
Unrecognized net gain 34.6 27.7
------------------
Accrued postretirement benefit liability $ 81.0 $ 80.9
==================
</TABLE>
The postretirement health care benefit cost was as follows:
<TABLE>
<CAPTION>
Years ended October 31 (in millions) 1996 1995 1994
====================================================================================
<S> <C> <C> <C>
Service cost $ .6 $ .7 $ 1.3
Interest cost on accumulated
benefit obligation 4.3 3.8 5.0
Net amortization and deferral (1.8) (2.1) (.1)
-------------------------------
Postretirement benefit cost $ 3.1 $ 2.4 $ 6.2
===============================
</TABLE>
[END PAGE 40]
[START PAGE 41]
A health care cost trend rate of 10% was assumed in measuring the accumulated
postretirement benefit obligation at October 31, 1996, 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 1996 and 1995.
An increase of 1% in the health care cost trend rate would increase the
accumulated postretirement obligation as of October 31, 1996 by $3.4 million.
This change would increase the annual expense by $.4 million.
The Company paid $2.9 million in fiscal 1996, $2.8 million during fiscal
1995 and $3.7 million during fiscal 1994 for postretirement health care
benefit claims.
[ 14. Financial Instruments ]
The estimated fair values of the Company's financial instruments are as
reported and disclosed in the consolidated financial statements, and as
discussed below.
Securitization of 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
undivided interests in such receivables. Certificates representing an
undivided interest in $246.0 million of these receivables were sold to third<PAGE>
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 which established a weighted average effective
rate of approximately 8.0% on the certificates issued.
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
interest rate swap matured in September 1996. The incremental pre-tax interest
expense incurred due to the interest rate swap agreement was $1.2 million in
1996, $1.0 million in 1995 and $2.3 million in 1994.
Debt
The fair value of Harcourt General's and NMG's senior debt and subordinated
notes was $741.7 million on October 31, 1996 and was based upon quoted prices
and comparable publicly-traded issues.
[END PAGE 41]
[START PAGE 42]
[ 15. Comparative Quarterly Financial Information (unaudited)]
<TABLE>
<CAPTION>
1996
First Second Third Fourth Full
(in millions except for per share data) Quarter Quarter Quarter Quarter Year
===========================================================================================
<S> <C> <C> <C> <C> <C>
Revenues $ 698.4 $ 844.3 $ 879.2 $ 867.9 $ 3,289.9
================================================
Gross profit $ 280.2 $ 301.2 $ 418.8 $ 382.7 $ 1,382.9
================================================
Net earnings $ 16.7 $ 10.4 $ 105.2 $ 58.5 $ 190.9
================================================
Net earnings per common share $ .23 $ .14 $ 1.45 $ .81 $ 2.62
================================================
Dividends per share
Common Stock $ .17 $ .17 $ .17 $ .18 $ .69
Class B Stock $ .153 $ .153 $ .153 $ .162 $ .621
Series A Stock $ .1945 $ .1945 $ .1945 $ .2055 $ .7890
</TABLE>
<TABLE>
<CAPTION>
1995
First Second Third Fourth Full
(in millions except for per share data) Quarter Quarter Quarter Quarter Year
=============================================================================================
<S> <C> <C> <C> <C> <C>
Revenues $ 663.3 $ 774.5 $ 813.2 $ 783.7 $ 3,034.7 <PAGE>
===================================================
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
</TABLE>
In the fourth quarter, the effect of adjusting the LIFO reserve for
merchandise inventories to actual amounts increased net earnings by $3.9
million in 1996 and by $10.9 million in 1995.
[END PAGE 42]
[START PAGE 43]
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, 1996 and 1995 and the related consolidated
statements of earnings, shareholders' equity and cash flows for each of the
three years in the period ended October 31, 1996. 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, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years
in the period ended October 31, 1996 in conformity with generally accepted
accounting principles.<PAGE>
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
December 9, 1996
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.
/s/ John R. Cook
John R. Cook
Senior Vice President and Chief Financial Officer
/s/ Stephen C. Richards
Stephen C. Richards
Vice President and Controller
[END PAGE 43]
[START PAGE 44]
Five Year Summary (unaudited)
<TABLE>
<CAPTION>
(in thousands except for per share amounts)
1996 1995 1994 1993 1992
==============================================================================================
<S> <C> <C> <C> <C> <C>
Revenues
Publishing $1,092,631 $1,017,637 $ 919,498 $ 944,545 $ 865,336 <PAGE>
Specialty retail 2,075,003 1,888,249 1,789,461 1,667,825 1,484,945
Professional services 122,285 128,850 141,818 146,252 121,391
----------------------------------------------------------
Total $3,289,919 $3,034,736 $2,850,777 $2,758,622 $2,471,672
==========================================================
Operating earnings
Publishing $ 196,997 $ 177,531 $ 165,436 $ 142,177 $ 124,503
Specialty retail 172,354 161,698 157,713 134,302 90,976
Professional services 9,753 13,062 22,072 28,395 23,938
Corporate expenses (34,382) (34,395) (35,081) (46,932) (41,501)
----------------------------------------------------------
Operating earnings 344,722 317,896 310,140 257,942 197,916
Investment income 27,329 39,945 14,239 14,072 23,239
Interest expense (82,882) (88,735) (86,219) (84,585) (85,442)
Other income, net -- -- -- 18,303 8,341
-----------------------------------------------------------
Earnings from continuing operations
before income taxes, extraordinary
item and cumulative effect of
accounting change 289,169 269,106 238,160 205,732 144,054
Income tax expense (98,318) (91,496) (90,885) (77,876) (58,052)
----------------------------------------------------------
Earnings from continuing operations
before extraordinary item
and cumulative effect of
accounting change 190,851 177,610 147,275 127,856 86,002
Discontinued operations, net -- (11,727) 30,257 43,477 21,868
Extraordinary item, net -- -- -- -- 419,557
Accounting change, net -- -- -- -- (32,967)
-----------------------------------------------------------
Net earnings $ 190,851 $ 165,883 $ 177,532 $ 171,333 $ 494,460
===========================================================
Depreciation and amortization $ 180,395 $ 175,737 $ 149,973 $ 154,740 $ 140,522
Capital expenditures $ 242,655 $ 220,053 $ 196,160 $ 159,860 $ 185,997
Total assets $3,326,238 $2,884,336 $3,242,364 $2,805,878 $2,675,962
Total long-term liabilities $ 939,074 $ 999,854 $1,123,341 $1,107,371 $1,086,053
Weighted average number of
common and common equivalent
shares outstanding 72,770 76,764 79,809 79,625 79,139
Amounts applicable to
common shareholders
Earnings from continuing
operations before extraordinary
item and cumulative effect
of accounting change $ 2.62 $ 2.31 $ 1.84 $ 1.60 $ 1.09
Net earnings applicable to
common shareholders $ 2.62 $ 2.16 $ 2.22 $ 2.15 $ 6.25
Dividends paid on common stock $ .69 $ .65 $ .61 $ .57 $ .53
</TABLE>
[END PAGE 44]
[START PAGE 46]
Shareholder Information
Requests for general information or published financial information can be<PAGE>
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 shareholders 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
c/o Boston EquiServe Limited Partnership
Shareholder Services Division
Mail Stop 45-01-05
Post Office Box 644
Boston, MA 02102-0644
(800) 730-4001
Form 10-K
The Company's Form 10-K as filed 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 Shareholders will be held on Friday, March 14, 1997 at
10:00 a.m. at The First National Bank of Boston, 100 Federal Street, Boston,
Massachusetts.
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.
Common Stock
<TABLE>
<CAPTION>
1996 1995
Quarter High Low High Low
====================================================================================
<S> <C> <C> <C> <C>
First $43.00 $38.63 $37.38 $32.13
Second $46.88 $38.88 $40.88 $32.88
Third $52.75 $43.88 $45.75 $40.00
Fourth $57.00 $47.75 $44.75 $38.00
</TABLE> <PAGE>
Series A Stock
<TABLE>
<CAPTION>
1996 1995
Quarter High Low High Low
====================================================================================
<S> <C> <C> <C> <C>
First $46.00 $42.75 $40.00 $36.50
Second $51.00 $46.25 $44.00 $37.38
Third $57.63 $48.38 $49.13 $44.75
Fourth $59.00 $52.63 $48.13 $45.63
</TABLE>
Harcourt General had 8,357 and 8,694 Common shareholders of record at October
31, 1996 and 1995, respectively, and 583 and 627 Series A shareholders of
record at October 31, 1996 and 1995, 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.
[END PAGE 46]<PAGE>
Exhibit 21.1
HARCOURT GENERAL, INC.
SUBSIDIARIES & AFFILIATES
(includes The Neiman Marcus Group, Inc., of which Harcourt General, Inc. is
the majority shareholder, and the direct and indirect subsidiaries of The
Neiman Marcus Group, Inc.)
JURISDICTION
OF
SUBSIDIARY/AFFILIATE INCORPORATION
Academic Press Limited England
Alison Licensing, Inc. Delaware
Assessment Systems, Inc. Delaware
Bailliere Tindall Limited England
Bergdorf Goodman, Inc. New York
Bergdorf Graphics, Inc. New York
Broadcasters, Inc. Texas
C.C. Group Limited Hong Kong
Career Care, Inc. Delaware
DBM Australia Limited Delaware
DBM France, S.A. France
DBM International, Inc. Delaware
DBM Training and Consulting, Inc. Delaware
Drake Beam Morin-Canada, Inc. Ontario
Drake Beam Morin, Inc. Delaware
Drake Beam Morin plc England and Wales
Editorial Doyma Venezuela C.A. Venezuela
Educalivres Group Inc. - Group Educalivres Inc. Quebec
Emcor, Inc. Delaware
Ermine Trading Corporation California
<PAGE>
Executive In Residence, Inc. New York
Foundation for Marine Animal Husbandry, Inc. Florida
GMN, INC. Delaware
Grune & Stratton Limited England
HG Land Co., Inc. Delaware
HGI Investment Trust Massachusetts
HRW and WBS Canada Corporation, Inc. New York
HRW Distributors, Inc. Delaware
Hammond Pond Investments, Inc. Massachusetts
Harcourt Brace & Company Delaware
Harcourt Brace & Company Asia Pte Ltd Singapore
Harcourt Brace & Company Australia Pty. Limited Australia
Harcourt Brace & Company Canada, Ltd. Ontario
Harcourt Brace & Company Limited England
Harcourt Brace & Company New Zealand Australia
Harcourt Brace de Espana S.A. Spain
Harcourt Brace Argentina S.A. Argentina
Harcourt Brace Mexicana S.A. de C.V. Mexico
Harcourt Brace Andina S.A. Columbia
Harcourt Brace FSC, Inc. U.S. Virgin Islands
Harcourt Brace Japan, Inc. Japan
Harcourt Brace Legal and Professional Delaware
Publications, Inc.
Harcourt Brace Publishers International, Inc. Delaware
Harcourt General Charitable Foundation, Inc. Massachusetts
Harcourt General Services, Inc. Delaware
Holt, Rinehart and Winston Limited England
Holt, Rinehart & Winston Publishing Asia Limited Hong Kong
<PAGE>
Human Nature, Inc. Delaware
Innovation Research, Inc. Delaware
KO Corporation Delaware
Lauriate Canada Inc. Ontario
Louisiana CPR Review, Inc. Delaware
Miller Comprehensive CPA Review, Inc. Delaware
NM Direct de Mexico, S.A. de C.V. Mexico
NM Nevada Trust Massachusetts
Neiman Marcus Funding Corporation Delaware
Neiman Marcus Holdings, Inc. California
Neiman Marcus Holiday Express, Inc. Delaware
Pastille By Mail, Inc. Delaware
SIFTCO, Inc. Massachusetts
T & A D Poyser Limited England
The Neiman Marcus Group, Inc. Delaware
The Psychological Corporation New York
The Psychological Corporation Limited England
W. B. Saunders Company Limited England
<PAGE>
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 9, 1996, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Harcourt
General, Inc. for the year ended October 31, 1996.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 27, 1997
<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> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 532,862
<SECURITIES> 242,054
<RECEIVABLES> 428,480
<ALLOWANCES> 19,370
<INVENTORY> 592,141
<CURRENT-ASSETS> 1,933,265
<PP&E> 919,202
<DEPRECIATION> 344,276
<TOTAL-ASSETS> 3,326,238
<CURRENT-LIABILITIES> 948,347
<BONDS> 714,282
0
1,152
<COMMON> 71,119
<OTHER-SE> 961,261
<TOTAL-LIABILITY-AND-EQUITY> 3,326,238
<SALES> 3,289,919
<TOTAL-REVENUES> 3,289,919
<CGS> 1,906,974
<TOTAL-COSTS> 2,945,197
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 117,209
<INTEREST-EXPENSE> 82,882
<INCOME-PRETAX> 289,169
<INCOME-TAX> 98,318
<INCOME-CONTINUING> 190,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 190,851
<EPS-PRIMARY> 2.62
<EPS-DILUTED> 2.62
</TABLE>
