SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended January 31, 1997
Commission File Number 1-4925
HARCOURT GENERAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1619609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, MA 02167
(Address of principal executive offices) (Zip Code)
(617)232-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
As of March 10, 1997, the number of outstanding shares of each of the issuer's
classes of common stock was:
Class Shares Outstanding
Common Stock, $1.00 Par Value 50,717,022
Class B Stock, $1.00 Par Value 20,023,955
<PAGE>
HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of
January 31, 1997 and October 31, l996 1
Condensed Consolidated Statements of Earnings
for the Three Months Ended January 31, l997
and l996 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended January 31, l997
and l996 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 11.1 11
Exhibit 27.1 12
<PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands)
January 31, October 31,
1997 l996
Assets
Current assets:
<S> <C> <C>
Cash and equivalents $ 543,336 $ 532,862
Short-term investments 299,355 242,054
Accounts receivable, net 378,717 409,110
Inventories 688,590 592,141
Deferred income taxes 77,491 77,491
Other current assets 80,204 79,607
Total current assets 2,067,693 1,933,265
Property and equipment, net 569,155 574,926
Other assets:
Prepublication costs, net 206,151 209,519
Intangible assets, net 451,452 456,494
Other 160,477 152,034
Total other assets 818,080 818,047
Total assets $3,454,928 $3,326,238
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities of
long-term liabilities $ 162,213 $ 163,717
Accounts payable 318,921 315,108
Accrued liabilities 332,021 333,205
Taxes payable 55,550 77,548
Other current liabilities 123,318 58,769
Total current liabilities 992,023 948,347
Long-term liabilities:
Notes and debentures 812,312 714,282
Other long-term liabilities 230,339 224,792
Total long-term liabilities 1,042,651 939,074
Deferred income taxes 187,632 187,632
Minority interest 217,653 217,653
Shareholders' equity:
Preferred stock 1,147 1,152
Common stock 70,731 71,119
Paid-in capital 744,174 743,947
Cumulative translation adjustments (5,191) (4,493)
Retained earnings 204,108 221,807
Total shareholders' equity 1,014,969 1,033,532
Total liabilities and shareholders' equity $3,454,928 $3,326,238
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
1 <PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
(In thousands except
for per share amounts)
For the three months
ended January 31,
1997 1996
<S> <C> <C>
Revenues $768,698 $698,441
Costs applicable to revenues 454,836 418,240
Selling, general and administrative expenses 270,873 235,279
Corporate expenses 10,703 7,403
Operating earnings 32,286 37,519
Investment income 10,594 8,174
Interest expense (20,650) (20,455)
Earnings before income taxes 22,230 25,238
Income taxes (7,558) (8,581)
Net earnings $ 14,672 $ 16,657
Weighted average number of common and common
equivalent shares outstanding 72,380 73,360
Earnings per common share:
Net earnings $ .20 $ .23
Dividends per share:
Common Stock $ .18 $ .17
Class B Stock $ .162 $ .153
Series A Stock $ .2055 $ .1945
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2 <PAGE>
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands)
For the three months
ended January 31,
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 14,672 $ 16,657
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 50,912 40,641 Other items
248 4,070
Changes in assets and liabilities:
Accounts receivable 36,350 34,834
Inventories (95,079) (121,801)
Other current assets (413) (22,325)
Current liabilities 43,140 73,539
Net cash provided by operating activities 49,830 25,615
Cash flows from investing activities:
Capital expenditures (33,893) (56,917)
Purchase of short-term investments (154,547) (65,741)
Maturities of short-term investments 97,246 22,604
Acquisitions (5,443) (15,560)
Other investing activities (6,503) (25,589)
Net cash used for investing activities (103,140) (141,203)
Cash flows from financing activities:
Proceeds from borrowings 148,506 124,400
Repayment of debt (52,000) (340)
Cash dividends paid (12,629) (12,083)
Repurchase of Common Stock (20,139) (66,806)
Equity transactions 46 (133)
Net cash provided by financing activities 63,784 45,038
Cash and equivalents
Increase (decrease) during the period 10,474 (70,550)
Beginning balance 532,862 363,750
Ending balance $543,336 $293,200
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3 <PAGE>
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of presentation
The Condensed Consolidated Financial Statements of Harcourt General,
Inc. (the Company) are submitted in response to the requirements of Form
10-Q and should be read in conjunction with the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K. In the opinion
of management, these statements contain all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
results for the interim periods presented. The January 31, 1997
Condensed Consolidated Financial Statements include the November 2, l996
Condensed Consolidated Financial Statements of The Neiman Marcus Group,
Inc. (NMG). NMG is a separate public company which is listed on the New
York Stock Exchange and is subject to the reporting requirements of the
Securities Exchange Act of 1934. The Company owns approximately 53% of
the common stock of NMG.
The Company's businesses are seasonal in nature, and historically the
results of operations for these periods have not been indicative of the
results for the full year.
2. Stock purchase program
The Company's Board of Directors has authorized the purchase of up to
3.5 million shares of the Company s Common Stock pursuant to its open
market stock purchase program. During the quarter ended January 31,
1997, the Company repurchased approximately .4 million shares at an
average price of $45.56 per share.
3. New accounting standard
On January 1, 1997, the Company adopted Statement of Financial
Accounting Standard No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (SFAS 125). This
statement provides consistent guidance for distinguishing transfers of
financial assets (e.g. securitizations) that are sales from transfers
that are secured borrowings. The effect of adopting SFAS 125 was not
material to the Company's financial position or results of operations.
4<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended January 31, 1997 versus Three Months Ended January 31, 1996
<TABLE>
The following table illustrates revenues and operating earnings (loss) by business
segment for the three months ended January 31.
<CAPTION>
(In thousands) 1997 1996
Revenues:
<S> <C> <C>
Publishing $198,382 $177,028
Specialty retailing 544,103 489,898
Professional services 26,213 31,515
Total revenues $768,698 $698,441
Operating earnings (loss):
Publishing ($ 19,527) ($ 11,334)
Specialty retailing 62,312 52,742
Professional services 204 3,514
Corporate expenses (10,703) (7,403)
Total operating earnings $ 32,286 $ 37,519
</TABLE>
Publishing
Publishing revenues increased $21.4 million or 12.1% compared to the same
period last year. The Company's international group, its scientific,
technical, medical and professional (STMP) publishing group and its
educational group each contributed to the increase in revenues. The
international publishing group revenues increased primarily due to the
acquisition during this quarter of both a Spanish language medical and health
sciences publisher and international distribution rights to Mosby-Year Book
health sciences publications. Higher journal revenues at Academic Press and
incremental revenues at International Medical News Group (IMNG), acquired by
W.B. Saunders at the end of the first quarter of fiscal 1996, were primarily
responsible for the increased revenues at the STMP publishing group.
Increased revenues at the educational publishing group were primarily due to
higher testing program revenues.
The publishing operating loss increased to $19.5 million compared to $11.3
million in the same period last year. The seasonal loss by the educational
group reflects the higher levels of selling costs and plate amortization
incurred for the elementary and secondary businesses in preparation for
significant textbook adoptions expected later in the year. This loss was
offset in part by the STMP publishing group's earnings, which rose in
comparison to the prior year quarter primarily as a result of the higher sales
volume by Academic Press.
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter. The
operating results of The Neiman Marcus Group, Inc. (NMG) for the quarter ended
November 2, 1996 therefore were consolidated with the operating results of the
Company for the quarter ended January 31, 1997.
5 <PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Specialty Retailing (continued)
Specialty retailing revenues in the thirteen weeks ended November 2, 1996
increased $54.2 million or 11.1% over revenues in the thirteen weeks ended
October 28, 1995. The revenue growth was primarily attributable to a 6.8%
increase in comparable sales and the opening of two new Neiman Marcus stores
in King of Prussia, Pennsylvania in February 1996 and Paramus, New Jersey in
August 1996. Comparable sales at Neiman Marcus Stores increased 7.7%, while
NM Direct revenues increased 8.0% over the prior year and revenues at Bergdorf
Goodman increased only slightly.
The 18.1% increase in specialty retailing operating earnings was principally
due to higher revenues at each of NMG s divisions. The increase also
reflected, to a lesser extent, improved gross margins at both NM Direct and
Bergdorf Goodman, and a reduction in selling, general and administrative
expenses as a percentage of revenues.
Professional Services
Professional services revenues decreased 16.8% to $26.2 million in the fiscal
1997 first quarter from $31.5 million in fiscal 1996. The decrease is
attributed to lower volume and lower prices due to competitive conditions,
particularly in the group outplacement programs.
Professional services operating earnings decreased $3.3 million to $.2 million
compared to the same period in the prior year. The decrease resulted
primarily from lower revenues.
Corporate Expenses
Corporate expenses increased $3.3 million to $10.7 million in the first
quarter of 1997. The increase is primarily due to higher compensation expense
recognized in connection with the resignation of the Company's former chief
executive officer during the quarter.
Investment Income
Investment income increased 29.6% to $10.6 million from the previous year,
primarily due to a higher average portfolio balance in fiscal 1997, which
included $268.8 million in cash proceeds from NMG's issuance of its common
stock to the public.
Interest Expense
Interest expense increased slightly to $20.7 million from $20.5 million in the
same period last year. NMG average debt outstanding was higher in fiscal
1997; however, its effective interest rate decreased in comparison to the
prior year period as fixed rate senior notes were repaid upon maturity with
borrowings under NMG's revolving credit agreement.
6<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income Tax Expense
The Company's effective tax rate is expected to be 34% in fiscal 1997,
unchanged from fiscal 1996.
Liquidity and Capital Resources
The following discussion analyzes liquidity and capital resources by
operating, investing and financing activities as presented in the Company's
condensed consolidated statement of cash flows.
Cash provided by operating activities for the quarter ended January 31, l997
was $49.8 million. The publishing and professional services business segments
provided $131.5 million of cash from operations while NMG's operations used
$81.7 million of cash. The cash provided by the publishing and professional
services business segments was sufficient to fund their working capital,
capital expenditures and the Company's dividend requirements. NMG increased
its borrowings in order to fund working capital for the holiday season,
capital expenditures and the repurchase of all of its redeemable preferred
stocks from the Company.
The most significant items affecting working capital were an increase in
inventories of $95.1 million, which was partially offset by a $43.1 million
increase in current liabilities and a $36.4 million decrease in accounts
receivable. The increase in inventory was primarily attributable to NMG's
holiday season. Other current liabilities were higher due to the seasonal
increase in unearned subscriptions at the STMP group. A decrease in
publishing accounts receivable was partially offset by an increase at NMG.
Cash flows used by investing activities were $103.1 million for the quarter
ended January 31, 1997. The Company's investing activities included capital
expenditures totaling $33.9 million. Publishing capital expenditures in the
1997 quarter totaled $20.0 million and were principally related to
expenditures for prepublication costs. Capital expenditures in the publishing
business are expected to approximate $150.0 million in fiscal 1997. Specialty
retailing capital expenditures in the 1997 quarter totaled $12.6 million and
consisted principally of existing store renovations. NMG opened a new Neiman
Marcus store in Paramus, New Jersey in August 1996. Capital expenditures for
NMG in fiscal 1997 are expected to approximate $65.0 million.
In October 1996, NMG sold 8.0 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 stock.
Financing activities reflect additional borrowings by NMG of $148.5 million
under its revolving credit agreement, which included borrowings made to repay
$52.0 million of senior notes at maturity. Financing activities also include
the repurchase of approximately .4 million shares of the Company's Common
7<PAGE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Stock in the open market at an average price of $45.56 per share and the
payment of $12.6 million of dividends.
At January 31, 1997, the Company had the entire $400.0 million available under
its revolving credit agreement with thirteen banks. The agreement expires in
December 1999. NMG had $190.0 million available at November 2, 1996 under its
revolving credit facility, which expires in April 2000.
The Company believes its cash on hand, cash generated from operations and its
current and future debt capacity will be sufficient to fund its planned
capital growth as well as its operating and dividend requirements.
8<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1 Computation of weighted average number of shares outstanding used in
determining primary and fully diluted earnings per share.
27.1 Financial data schedule
(b) Reports on Form 8-K.
The Company 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, together with pro forma financial
information.
9<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARCOURT GENERAL, INC.
Date: March 17, 1997 /s/ John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: March 17, 1997 /s/ Stephen C. Richards
Stephen C. Richards
Vice President and
Controller
Principal Accounting Officer
10<PAGE>
<TABLE>
EXHIBIT 11.1
HARCOURT GENERAL, INC.
Computation of weighted average number of shares outstanding used in determining
primary and fully diluted earnings per share:
<CAPTION>
(In thousands) For the three months
ended January 31,
1997 1996
PRIMARY
<S> <C> <C>
1. Weighted average number of common
shares outstanding 71,000 71,827
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,263 1,317
3. Assumed exercise of certain stock
options based on average
market value 117 216
4. Weighted average number of shares
used in primary per share
computations 72,380 73,360
FULLY DILUTED (A)
1. Weighted average number of common
shares outstanding 71,000 71,827
2. Assumed conversion of Series A
Cumulative Convertible Stock 1,263 1,317
3. Assumed exercise of all dilutive
options based on higher of
average or closing market value 117 216
4. Weighted average number of shares
used in fully diluted per share
computations 72,380 73,360
(A)This calculation is submitted in accordance with Securities Exchange Act of 1934
Release No. 9083 although not required by Footnote 2 to Paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Earnings and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JAN-31-1997
<CASH> 543,336
<SECURITIES> 299,355
<RECEIVABLES> 399,670
<ALLOWANCES> 20,953
<INVENTORY> 688,590
<CURRENT-ASSETS> 2,067,693
<PP&E> 942,974
<DEPRECIATION> 373,819
<TOTAL-ASSETS> 3,454,928
<CURRENT-LIABILITIES> 992,023
<BONDS> 812,312
0
1,147
<COMMON> 70,731
<OTHER-SE> 943,091
<TOTAL-LIABILITY-AND-EQUITY> 3,454,928
<SALES> 768,698
<TOTAL-REVENUES> 768,698
<CGS> 454,836
<TOTAL-COSTS> 736,412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 28,063
<INTEREST-EXPENSE> 20,650
<INCOME-PRETAX> 22,230
<INCOME-TAX> 7,558
<INCOME-CONTINUING> 14,672
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,672
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
