SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended April 30, 1998
Commission File Number 1-4925
HARCOURT GENERAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1619609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
27 Boylston Street, Chestnut Hill, MA 02167
(Address of principal executive offices) (Zip Code)
(617) 232-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
As of June 10, 1998, 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 50,843,778
Class B Stock, $1.00 Par Value 20,021,212
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HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of
April 30, 1998 and October 31, l997 1
Condensed Consolidated Statements of Operations
for the Three and Six Months Ended
April 30, l998 and l997 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended April 30, l998
and l997 3
Notes to Condensed Consolidated Financial
Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit 10.1 13-30
Exhibit 27.1 31
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[PAGE]
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands) April 30, October 31,
1998 l997
---------- -----------
Assets
Current assets:
<S> <C> <C>
Cash and equivalents $ 73,263 $ 82,644
Undivided interests in NMG Credit
Card Master Trust 200,159 128,341
Accounts receivable, net 294,884 397,675
Inventories 680,230 676,357
Deferred income taxes 120,546 120,546
Other current assets 97,468 79,353
---------- ----------
Total current assets 1,466,550 1,484,916
Property and equipment, net 604,336 593,892
Other assets:
Prepublication costs, net 210,564 201,953
Intangible assets, net 1,322,284 1,299,227
Other 186,392 201,405
---------- ----------
Total other assets 1,719,240 1,702,585
---------- ----------
Total assets $3,790,126 $3,781,393
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 10,685 $ 14,439
Accounts payable 294,479 346,386
Taxes payable 31,886 19,433
Other current liabilities 685,872 613,011
---------- ----------
Total current liabilities 1,022,922 993,269
Long-term liabilities:
Notes and debentures 1,297,105 1,289,889
Other long-term liabilities 289,438 274,840
---------- ----------
Total long-term liabilities 1,586,543 1,564,729
Deferred income taxes 143,435 143,435
Minority interest 251,250 234,422
Shareholders' equity:
Preferred stock 1,060 1,125
Common stock 70,859 70,755
Paid-in capital 745,139 744,932
Cumulative translation adjustments (8,602) (7,113)
Retained earnings (deficit) (22,480) 35,839
---------- ----------
Total shareholders' equity 785,976 845,538
---------- ----------
Total liabilities and shareholders' equity $3,790,126 $3,781,393
========== ==========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
1<PAGE>
[PAGE]
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
(In thousands except for per share amounts)
Six Months Three Months
Ended April 30, Ended April 30,
1998 1997 1998 1997
--------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Revenues $1,937,389 $1,648,725 $1,036,765 $ 880,027
Costs applicable to
revenues 1,119,127 1,019,652 616,583 564,816
Selling, general and
administrative expenses 751,461 562,869 388,845 291,996
Corporate expenses 17,209 18,939 8,329 8,236
--------- --------- --------- --------
Operating earnings 49,592 47,265 23,008 14,979
Investment income 3,361 21,375 1,945 10,781
Interest expense (54,070) (41,753) (27,419) (21,103)
--------- --------- -------- --------
Earnings (loss) before income
taxes and minority interest (1,117) 26,887 (2,466) 4,657
Income tax benefit(expense) 424 (9,141) 937 (1,583)
--------- --------- -------- --------
Earnings (loss) before
minority interest (693) 17,746 (1,529) 3,074
Minority interest in
earnings of subsidiaries,
net of income taxes (31,003) - (15,721) -
--------- --------- -------- --------
Net earnings (loss) ($31,696) $ 17,746 ($17,250) $ 3,074
========= ========= ======== ========
Weighted average number
of common and common
equivalent shares
outstanding:
Basic 70,808 70,874 70,837 70,740
========= ========= ======== ========
Diluted 70,808 72,232 70,837 72,081
========= ========= ======== ========
Earnings (loss) per
common share:
Basic ($ .45) $ .24 ($ .25) $ .04
========= ========= ======== ========
Diluted ($ .45) $ .24 ($ .25) $ .04
========= ========= ======== ========
Dividends per share:
Common Stock $ .38 $ .36 $ .19 $ .18
========= ========= ========= ========
Class B Stock $ .342 $ .324 $ .171 $ .162
========= ========= ========= ========
Series A Stock $ .433 $ .411 $ .2165 $ .2055
========= ========= ========= ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2<PAGE>
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<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands) Six Months
Ended April 30,
----------------------
1998 1997
-------- --------
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss) ($31,696) $ 17,746
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation and amortization 150,818 102,611
Minority interest 31,003 -
Other items 923 4,991
Changes in assets and liabilities:
Accounts receivable 107,207 108,867
Inventories 4,280 (2,112)
Other current assets (15,228) (2,356)
Accounts payable and current liabilities 32,312 (53,484)
------- -------
Net cash provided by operating activities 279,619 176,263
------- -------
Cash flows from investing activities:
Capital expenditures (114,241) (76,969)
Purchases of available-for-sale securities - (271,915)
Maturities of available-for-sale securities - 173,200
Purchases of held-to-maturity securities (272,094) (342,971)
Maturities of held-to-maturity securities 200,276 276,935
Acquisition of Chef's Catalog (31,000) -
Acquisition of Steck-Vaughn minority interest (40,512) -
Other acquisitions and investing activities (11,057) (13,651)
------- -------
Net cash used for investing activities (268,628) (255,371)
------- -------
Cash flows from financing activities:
Proceeds from borrowings 11,000 183,500
Repayment of debt (3,467) (132,000)
Cash dividends paid (26,623) (25,237)
Repurchase of Common Stock - (20,139)
Other equity transactions (1,282) (489)
------- -------
Net cash provided by (used for)
financing activities (20,372) 5,635
------- -------
Cash and equivalents
Decrease during the period (9,381) (73,473)
Beginning balance 82,644 532,862
-------- --------
Ending balance $ 73,263 $459,389
======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3<PAGE>
[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 consolidated financial
statements of The Neiman Marcus Group, Inc. (NMG) are consolidated with a
lag of one fiscal quarter. 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 does not
include in its earnings that portion of NMG earnings (currently 47%)
attributable to the minority shareholders.
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. Acquisition of minority interest in Steck-Vaughn Publishing Corporation
On January 30, 1998, the Company completed its acquisition of the
minority interest in Steck-Vaughn Publishing Corporation for $14.75 per
share, or approximately $40.5 million. The consideration due to the
former shareholders of Steck-Vaughn was paid in full in February 1998.
The transaction had the effect of increasing goodwill by $29.7 million
and decreasing the Company's minority interest by $10.9 million on its
balance sheet.
3. Earnings per share
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings per Share," the net earnings (loss) and the number of
weighted average shares used in computing basic and diluted earnings per
share (EPS) are as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
--------------------- ----------------------
April 30, April 30, April 30, April 30,
(in thousands) 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net earnings (loss) ($31,696) $17,746 (17,250) $3,074
Less: dividends on Series
A Cumulative Convertible
Stock (472) (468) (229) (232)
Net earnings (loss) for ------- ------- ------- -----
computation of basic EPS (32,168) 17,278 (17,479) 2,842
Add: dividends on assumed
conversion of Series A
Cumulative Convertible
Stock - 468 - 232
------- ------- ------- -----
Net earnings (loss) for
computation of diluted EPS ($32,168) $17,746 ($17,479) $ 3,074
======== ======= ======= =======
</TABLE>
4<PAGE>
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Earnings per share (continued)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------------- --------------------
April 30, April 30, April 30, April 30,
(in thousands of shares) 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares for computation of
basic EPS 70,808 70,874 70,837 70,740
Add: assumed conversion of
Series A Cumulative
Convertible Stock - 1,255 - 1,252
Add: effect of assumed
option exercises - 103 - 89
--------- -------- -------- --------
Shares for computation
of diluted EPS 70,808 72,232 70,837 72,081
========= ======== ======== ========
</TABLE>
Options to purchase 733,589 shares of common stock and the assumed
conversion of 1,060,000 shares of Series A Cumulative Convertible Stock
were not included in the computation of diluted EPS because of the net
loss in the first three and six months of 1998.
4. Subsequent events
In May 1998, the Company signed a definitive merger agreement to acquire
Mosby, Inc. from Times Mirror for approximately $415 million in cash.
Mosby is a publisher of books and periodicals in professional health
sciences, including nursing, allied health and medicine. Completion of
the transaction is subject to normal terms and conditions, including
approval by Federal antitrust authorities. After the closing, Mosby will
become part of the Company's Worldwide Scientific, Technical and Medical
Group.
In May 1998, NMG issued $250 million of senior notes and debentures to
the public. NMG will use the proceeds of this debt offering to repay
borrowings outstanding on its revolving credit agreement. The debt is
comprised of $125 million 6.65% senior notes due 2008 and $125 million
7.125% senior debentures due 2028.
5<PAGE>
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<TABLE>
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table presents revenues and operating earnings (loss) from operations
by business segment.
<CAPTION>
Six Months Three Months
-------------------------------------------------
Ended April 30, Ended April 30,
----------------------- -----------------
(In thousands) 1998 1997 1998 1997
---------- ---------- --------- ----------
Revenues:
<S> <C> <C> <C> <C>
Publishing and
educational services $ 648,503 $ 442,675 $ 328,378 $ 218,080
Specialty retailing 1,288,886 1,206,050 708,387 661,947
---------- ---------- ---------- ----------
Total revenues $1,937,389 $1,648,725 $1,036,765 $ 880,027
========== ========== ========== ==========
Operating earnings (loss):
Publishing and
educational services ($ 61,599) ($ 50,420) ($ 34,032)($ 31,097)
Specialty retailing 128,400 116,624 65,369 54,312
Corporate expenses (17,209) (18,939) (8,329) (8,236)
Total operating ---------- ---------- ---------- ----------
earnings $ 49,592 $ 47,265 $ 23,008 $ 14,979
========== ========== ========== ==========
</TABLE>
Six Months Ended April 30, l998 Compared to Six Months Ended April 30, l997
Publishing and Educational Services
Revenues from the Harcourt Brace publishing and educational services
businesses increased $205.8 million, or 46.5%, compared to the same period
last year, primarily as a result of revenues generated by the NEC entities
acquired in June 1997. The Education Group's revenues rose 49.9% to $165.4
million, reflecting primarily the addition of the Steck-Vaughn supplemental
educational publishing business. Revenues of the Lifelong Learning and
Assessment Group increased to $264.2 million in the first six months of fiscal
1998 from $138.2 million in the first six months of fiscal 1997. The increase
in this group's revenues resulted from the newly-acquired operations of ICS
Learning Systems and NETg and to a lesser extent from the higher sales of
testing and assessment products. The operations of Drake Beam Morin, the
Company's professional services and outplacement business, are now included in
this group. The Worldwide Scientific, Technical and Medical (STM) Group
revenues increased 12.7% in the first six months of fiscal 1998 to $218.9
million, primarily due to the acquisition of Churchill Livingstone in
September 1997.
The publishing and educational services businesses incurred an operating loss
of $61.6 million in the first six months of fiscal 1998, increasing by $11.2
million from a loss of $50.4 million in the first six months of fiscal 1997.
The higher loss resulted primarily from the incremental amortization of
intangible assets associated with the acquisition of ICS and NETg, which
offset higher earnings in the testing and assessment operations of the
Lifelong Learning and Assessment Group. Worldwide STM Group earnings
increased slightly, primarily as a result of incremental earnings from the
acquisition of Churchill Livingstone and improved operating margins at
Academic Press, offset in part by higher amortization costs of intangible
assets. The Education Group's loss decreased due to smaller losses in its
elementary and secondary school businesses and higher earnings in its college
business.
6<PAGE>
[PAGE]
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter.
Accordingly, the operating results of The Neiman Marcus Group, Inc. (NMG) for
the twenty-six weeks ended January 31, 1998 are consolidated with the
operating results of the Company for the six months ended April 30, 1998.
Revenues in the twenty-six weeks ended January 31, 1998 increased $82.8
million or 6.9% over revenues in the twenty-six weeks ended February 1, l997.
Neiman Marcus Stores and Bergdorf Goodman revenues rose, reflecting comparable
sales increases of 7.2% and 9.9%, respectively, in the first half of fiscal
1998. Revenues at NM Direct increased slightly, due to sales from Chef's
Catalog, a direct marketer of gourmet cookware and high-end kitchenware, which
was acquired by NMG on January 5, 1998.
Operating earnings increased 10.1% to $128.4 million primarily as a result of
the higher sales volume. The increase also included improved gross margins,
resulting from lower markdowns as a percentage of revenues during the fiscal
1998 holiday season.
Investment Income
Investment income decreased to $3.4 million compared to $21.4 million in the
same six month period in 1997. The Company liquidated its investment
portfolio in June 1997 to partially fund the acquisition of NEC.
Interest Expense
Interest expense increased to $54.1 million from $41.8 million in the same
period last year. The increase in interest expense is primarily due to the
interest incurred on fixed-rate debt issued by the Company in August 1997, the
proceeds from which were used to partially fund the acquisitions of NEC and
Churchill Livingstone. The interest expense in the first six months of fiscal
1998 includes a lower amount of interest incurred by NMG in comparison to the
1997 period, resulting from both a lower effective interest rate and lower
average borrowings by NMG.
Minority interest
The Company recorded minority interest in the earnings of its specialty
retailing operations of $31.0 million in the first six months of fiscal 1998.
The Company began recognizing the minority interest in NMG (currently 47%) in
its statement of operations in the fourth quarter of fiscal 1997. In the
first six months of fiscal 1997, the Company recorded 100% of the earnings of
NMG to the extent that the Company had previously absorbed losses of NMG
applicable to the minority interest. The Company fully recovered previously
absorbed losses in the fourth quarter of 1997.
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30,
1997
Publishing and Educational Services
Revenues from Harcourt Brace publishing and educational services businesses
increased $110.3 million, or 50.6%, compared to the same period last year,
primarily as a result of revenues generated by the recently acquired NEC
companies acquired in June 1997. The Education Group revenues rose 69.1% to
$72.3 million, reflecting primarily the addition of the Steck-Vaughn
supplemental educational publishing business and higher elementary program
sales. Revenues of the Lifelong Learning and Assessment Group increased to
$142.3 million from $76.1 million in the same period last year.
7<PAGE>
[PAGE]
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Publishing and Educational Services (continued)
The increase in this group's revenues resulted from the newly-acquired
operations of ICS Learning Systems and NETg and from substantially higher
sales of testing and assessment products.
The Worldwide Scientific, Technical and Medical (STM) Group revenues increased
14.7% to $113.8 million, primarily due to the acquisition of Churchill
Livingstone in September 1997 and increased sales volume at Academic Press.
The publishing and educational services businesses incurred an operating loss
of $34.0 million in the second quarter of fiscal 1998, an increase of $2.9
million compared to a loss of $31.1 million in the fiscal 1997 second quarter.
The higher loss resulted primarily from the incremental amortization of
intangible assets associated with the acquisition of ICS and NETg, which
offset higher earnings in the testing and assessment operations of the
Lifelong Learning and Assessment Group. Worldwide STM earnings increased
significantly primarily due to higher operating margins at Academic Press and
incremental earnings from the acquisition of Churchill Livingstone. The
Education Group's loss decreased primarily due to smaller losses in its
elementary school business.
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter. The
operating results of NMG for the thirteen weeks ended January 31, 1998 are
consolidated with the operating results of the Company for the three months
ended April 30, 1998.
Revenues in the thirteen weeks ended January 31, l998 increased $46.4 million
or 7.0% over revenues in the thirteen weeks ended February 1, l997. The
increase in revenues reflected an overall comparable sales increase of 6.3%.
Each of NMG's operating units reported higher comparable revenues. Revenues
of Chef's Catalog were included for the month of January 1998.
Operating earnings increased 20.4% to $65.4 million compared to $54.3 million
in the prior year period. The increase was primarily due to higher revenues
and to improved gross margins which resulted from a lower markdown rate during
the fiscal 1998 holiday season as compared to fiscal 1997.
Investment Income
Investment income decreased $8.8 million to $1.9 million in 1998 compared to
the same 1997 quarter. The Company liquidated its investment portfolio in
June 1997 to partially fund the acquisition of NEC.
Interest Expense
Interest expense increased $6.3 million or 29.9% compared to the same period
last year. The increase is primarily due to interest incurred on fixed-rate
debt issued by the Company in August 1997, the proceeds of which were used to
partially fund the acquisitions of NEC and Churchill Livingstone.
Minority Interest
The Company recorded minority interest in the earnings of its specialty
retailing operations of $15.7 million in the second quarter of fiscal 1998.
The Company began recognizing the minority interest in NMG (currently 47%) in
its statement of operations in the fourth quarter of fiscal 1997.
8<PAGE>
[PAGE]
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The following discussion analyzes liquidity and capital resources by
operating, investing and financing activities as presented in the Company's
condensed consolidated statement of cash flows.
Cash provided by operating activities for the six months ended April 30, l998
was $279.6 million. The publishing and educational services businesses
provided $154.4 million of cash from operations while NMG's operations
provided $125.2 million. The cash provided by the publishing and educational
services businesses was sufficient to fund their working capital and capital
expenditure requirements as well as the Company's dividend requirements. NMG
used cash provided by operations and borrowings under its revolving credit
agreement to fund working capital for the holiday season and capital
expenditures. The primary items affecting working capital were a decrease in
accounts receivable ($107.2 million) and an increase in current liabilities
($32.3 million).
Cash flows used by investing activities were $268.6 million for the six months
ended April 30, 1998. The Company's investing activities included capital
expenditures totaling $114.2 million. Publishing and educational services
capital expenditures in the six month period ended April 30, 1998 totaled
$77.6 million and were related principally to expenditures for prepublication
costs. Capital expenditures in the publishing and educational service
business are expected to approximate $180.0 million in fiscal 1998. Specialty
retailing capital expenditures in the 1998 period totaled $36.6 million and
were primarily related to the construction of a new Neiman Marcus store in
Hawaii, expected to open in September 1998, and existing store renovations.
Capital expenditures for NMG in fiscal 1998 are expected to approximate $100.0
million.
Financing activities reflect additional borrowings by NMG of $25.0 million
under its revolving credit agreement, as well as the repayment and termination
of Steck-Vaughn's revolving credit agreement in the amount of $14.0 million.
At April 30, 1998, the Company had available the entire $750.0 million under
its revolving credit facility with 18 banks. The agreement expires in July
2002. NMG had $325.0 million available at January 31, 1998 under its $650
million revolving credit facility, which expires in October 2002. In May
1998, NMG issued $250 million of senior notes and debentures, the proceeds of
which will be used to repay borrowings under its revolving credit facility.
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, operating and dividend requirements, and the acquisition of
Mosby, Inc.
Year 2000
The Company has evaluated the effect of the year 2000 date on its computer
systems and is implementing plans to ensure its systems and applications will
efficiently process information necessary to support ongoing operations in the
year 2000 and beyond. The Company is engaging both internal and external
resources to reprogram and test its systems for year 2000 compliance. The
Company currently anticipates substantially completing the year 2000 project
in June 1999. Based on management's current estimates, the costs of system
modifications and enhancements, which have been and will be expensed as
incurred, are not expected to be material to the results of operations or the
financial position of the Company. Additionally, the Company continues to
invest in new technology in connection with its ongoing systems development
plans.
9<PAGE>
[PAGE]
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Year 2000 (continued)
The Company has initiated communications with its significant suppliers and
customers to determine the extent to which the Company's interface systems and
operations are vulnerable to failure of those parties to rectify their own
year 2000 issues. There can be no assurance that the systems of other
companies on which the Company's systems rely will be converted on a timely
basis and will not have an adverse effect on the Company's operations.
Forward-Looking Statements
Statements in this report referring to the expected future plans and
performance of the Company are forward-looking statements. Actual future
results may differ materially from such statements. Factors that could affect
future performance in the Company's publishing and educational services
businesses include, but are not limited to: the Company's ability to develop
and market its products and services; the relative success of the products and
services offered by competitors; integration of acquired businesses; the
seasonal and cyclical nature of the markets for the Company's products and
services; changes in economic conditions; changes in public funding for the
Company's educational products and services; and changes in purchasing
patterns in the Company's markets.
Important factors that could affect future performance in the Company's
specialty retailing businesses include, but are not limited to: changes in
economic conditions or consumer confidence, changes in consumer preferences or
fashion trends; delays in anticipated store openings; adverse weather
conditions, particularly during peak selling seasons; changes in demographic
or retail environments; competitive influences; significant increases in
paper, printing and postage costs; and changes in NMG's relationships with
designers and other resources. For more information, see the NMG's filings
with the Securities and Exchange Commission.
10<PAGE>
[PAGE]
HARCOURT GENERAL, INC.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on March 13, 1998.
The following matters were voted upon at the meeting:
1. Election of the following individuals as Class B Directors
for a term of three years:
William F. Connell Robert A. Smith
For 60,299,011 For 60,270,347
Withheld 487,008 Withheld 515,672
Maurice Segall Hugo Uyterhoeven
For 60,263,362 For 60,292,720
Withheld 522,657 Withheld 493,299
2. Ratification of the appointment of Deloitte & Touche LLP as
the Company's independent auditors for the 1998 fiscal year.
For 60,683,785
Against 34,493
Abstain 67,740
Non-Voting 0
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Harcourt General, Inc. Deferred Compensation Plan for Non-
Employee Directors
27.1 Financial data schedule
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on March 30, 1998
restating prior period Financial Data Schedules in order to
reflect changes in earnings per share resulting from the adoption
of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share".
11<PAGE>
[PAGE]
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARCOURT GENERAL, INC.
Date: June 15, 1998 /S/ John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: June 15, 1998 /S/ Catherine N. Janowski
Catherine N. Janowski
Vice President and Controller
12<PAGE>
EXHIBIT 10.1
HARCOURT GENERAL, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
Effective as of March 13, 1998
<PAGE>
[PAGE]
HARCOURT GENERAL, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
Table of Contents
ARTICLE PAGE
ARTICLE 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.1. Amendment and restatement . . . . . . . . . . . . . . . . . . -1-
1.2. Status of Plan . . . . . . . . . . . . . . . . . . . . . . . -1-
ARTICLE 2Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.1. "Account" . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.2. "Board" . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.3. "Committee" . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.4. "Common Stock" . . . . . . . . . . . . . . . . . . . . . . . -2-
2.5. "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.6. "Compensation" . . . . . . . . . . . . . . . . . . . . . . . -2-
2.7. "Effective Date" . . . . . . . . . . . . . . . . . . . . . . -2-
2.8. "Market Price" . . . . . . . . . . . . . . . . . . . . . . . -2-
2.9. "Non-Employee Director" . . . . . . . . . . . . . . . . . . . -3-
2.10. "Participant" . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.11. "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.12. "Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.13. "Prior Plan" . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.14. "Replacement Value" . . . . . . . . . . . . . . . . . . . . . -3-
2.15. "Three-Month Period of Service" . . . . . . . . . . . . . . . -3-
2.16. "Unforeseen Emergency" . . . . . . . . . . . . . . . . . . . -3-
ARTICLE 3Participation . . . . . . . . . . . . . . . . . . . . . . . . . -4-
3.1. Commencement of participation . . . . . . . . . . . . . . . . -4-
3.2. Continuation of participation . . . . . . . . . . . . . . . . -4-
ARTICLE 4Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . -4-
4.1. Elective deferrals. . . . . . . . . . . . . . . . . . . . . . -4-
4.2. Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
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[PAGE]
4.3. Investment equivalent alternatives . . . . . . . . . . . . . -5-
4.4. Time of payment. . . . . . . . . . . . . . . . . . . . . . . -7-
4.5. Form of payment . . . . . . . . . . . . . . . . . . . . . . . -7-
4.6. Death prior to payment . . . . . . . . . . . . . . . . . . . -8-
ARTICLE 5Discontinuation of Retirement Income Benefits; Non-Elective
Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
5.1. Termination of retirement income benefits . . . . . . . . . . -8-
5.2. Crediting of Replacement Values. . . . . . . . . . . . . . . -9-
5.3. Use of Accounts for Non-Elective Deferrals. . . . . . . . . . -9-
5.4. Crediting of Common Stock equivalent units. . . . . . . . . . -10-
5.5. Modification of form or time of payment. . . . . . . . . . . -10-
ARTICLE 6Administration . . . . . . . . . . . . . . . . . . . . . . . . . -11-
6.1. Plan administration and interpretation . . . . . . . . . . . -11-
6.2. Powers, duties, procedures, etc. . . . . . . . . . . . . . . -11-
6.3. Information . . . . . . . . . . . . . . . . . . . . . . . . . -11-
ARTICLE 7Amendment and Termination . . . . . . . . . . . . . . . . . . . -12-
7.1. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . -12-
7.2. Termination of Plan . . . . . . . . . . . . . . . . . . . . . -12-
7.3. Existing rights. . . . . . . . . . . . . . . . . . . . . . . -12-
ARTICLE 8Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . -13-
8.1. No funding . . . . . . . . . . . . . . . . . . . . . . . . . -13-
8.2. Grantor trust . . . . . . . . . . . . . . . . . . . . . . . . -13-
8.3. Nonassignability . . . . . . . . . . . . . . . . . . . . . . -13-
8.4. Limitation of Participants' rights . . . . . . . . . . . . . -14-
8.5. Participants bound . . . . . . . . . . . . . . . . . . . . . -14-
8.6. Receipt and release . . . . . . . . . . . . . . . . . . . . . -14-
8.7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
8.8. Unforeseen Emergency . . . . . . . . . . . . . . . . . . . . -14-
8.9. Governing law . . . . . . . . . . . . . . . . . . . . . . . . -15-
8.10. Headings and subheadings . . . . . . . . . . . . . . . . . . -15-
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[PAGE]
HARCOURT GENERAL, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
ARTICLE 1
Introduction
1.1. Amendment and restatement. The Company originally adopted the
General Cinema Corporation Deferred Compensation Plan for Non-Employee
Directors, effective April 20, 1990, to provide a means by which members of
the Board who are not employees of the Company may elect to defer receipt of
designated amounts of Compensation earned in that capacity. The Company
amended and restated that Plan to make certain clarifications, to provide an
additional benefit in the form of retirement income to Non-Employee Directors
who satisfied the requirements for such benefits as set forth therein and,
coincident with the change in the name of the Company, to rename such Plan the
"Harcourt General, Inc. Deferred Compensation and Retirement Income Plan for
Non-Employee Directors," effective as of January 1, 1993, except that the
amendment and restatement of Article 4 was made effective as of May 1, 1991.
The Company hereby further amends and restates such amended and restated Plan,
effective as of March 13, 1998, to terminate the provisions of Article 5
thereof, to provide for non-elective deferred compensation as set forth in new
Article 5, and to rename such Plan the "Harcourt General, Inc. Deferred
Compensation Plan for Non-Employee Directors."
1.2. Status of Plan. The Plan is intended neither to be a qualified
plan within the meaning of & 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), nor to constitute a "pension benefit plan" or a "welfare
benefit plan" subject to the
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requirements of the Employee Retirement Income Security Act of 1974. The Plan
shall be administered and interpreted to the extent possible in a manner
consistent with that intent.
ARTICLE 2
Definitions
Whenever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:
2.1. "Account" means, for each Participant, the account maintained for
his or her benefit under Section 4.2, 5.3 or 5.4.
2.2. "Board" means the Board of Directors of the Company.
2.3. "Committee" means the Compensation Committee of the Board.
2.4. "Common Stock" means the Common Stock, $1.00 par value, of the
Company.
2.5. "Company" means Harcourt General, Inc., formerly General Cinema
Corporation, a Delaware corporation, and any successor to all or substantially
all of the Company's assets or business which assumes the obligations of the
Company.
2.6. "Compensation" means the amount of retainer payable for service on
the Board, plus any fees payable for attendance at or participation in a
meeting, for service as Chair or Vice Chair of the Board, or for service on or
as a chair of any committee of the Board, determined without reduction for any
elective deferrals under Article 4. Notwithstanding the foregoing,
Compensation does not include the Replacement Value of a Participant's
retirement income benefits or any Common Stock equivalent units credited
pursuant to Section 5.4, which amounts are not subject to the elective
deferral provisions of Section 4.1.
2.7. "Effective Date" means March 13, 1998.
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[PAGE]
2.8. "Market Price" means, as of any date, the mean of the highest and
lowest sales prices of the Common Stock on such date (or, if no trading shall
have occurred on such date, on the next previous date on which trading shall
have occurred), as reported on the New York Stock Exchange Composite Tape.
2.9. "Non-Employee Director" means a member of the Board who is not an
officer or employee of the Company or any of its subsidiaries.
2.10. "Participant" means any Non-Employee Director who participates in
the Plan as set forth in Article 3.
2.11. "Plan" means the Harcourt General, Inc. Deferred Compensation
Plan for Non-Employee Directors as set forth herein and all subsequent
amendments hereto.
2.12. "Plan Year" means the calendar year.
2.13. "Prior Plan" means the Harcourt General, Inc. Deferred
Compensation and Retirement Income Plan for Non-Employee Directors referred to
in Section 1.1.
2.14. "Replacement Value", as it relates to the retirement income
benefits of a Participant, means the number of Common Stock equivalent units
calculated in accordance with the provisions of Section 5.2.
2.15. "Three-Month Period of Service" means a 3-month period of service
as a Non-Employee Director, including periods of service before the Effective
Date of the Plan.
2.16. "Unforeseen Emergency" means a severe financial hardship to a
Participant resulting from illness or accident of the Participant or of a
dependent (as defined in & 152(a) of the Code) of the Participant, loss of
property due to casualty, or other
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[PAGE]
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant.
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[PAGE]
ARTICLE 3
Participation
3.1. Commencement of participation. Each Non-Employee Director who was
a Participant in the Prior Plan shall be a Participant in this Plan, and each
person who becomes a Non-Employee Director after the Effective Date shall
become a Participant in this Plan upon the day on which he or she becomes a
Non-Employee Director.
3.2. Continuation of participation. An individual who has become a
Participant in the Plan shall continue to be a Participant so long as he or
she remains a Non-Employee Director, and so long thereafter as any amount is
payable to him or her in accordance with Article 4
or 5.
ARTICLE 4
Elective Deferrals
4.1. Elective deferrals. An individual who is a Non-Employee Director
on any November 1 may elect to defer all or a specified portion of his or her
Compensation for services to be performed on or after that date by filing a
written election with the Committee before such November 1. An individual who
has been nominated or elected to serve as a Non-Employee Director, and who was
not a Non-Employee Director immediately prior to such nomination or election,
may elect before or within thirty (30) days after becoming a Non-Employee
Director to defer all or a specified portion of his or her Compensation for
services to be performed after such deferral election.
Each deferral election under this Section 4.1 shall be made on a form
approved or prescribed by the Committee and shall also specify the time and
form of distribution of
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[PAGE]
the amounts deferred and the investment equivalent alternative described in
Section 4.3 to be applied to such amounts. An election to defer Compensation
and to specify the time and form of distribution may be revoked or modified,
effective for amounts earned on and after any November 1, by an election filed
before that November 1, but may not otherwise be revoked or modified except as
provided in Section 8.8 in the event of an Unforeseen Emergency.
4.2. Accounts. The Committee shall maintain a bookkeeping account (the
"Account") for each Participant reflecting elective deferrals made for the
Participant's benefit under Section 4.1, or under the Prior Plan or under the
General Cinema Corporation Deferred Compensation Plan for Non-Employee
Directors referred to in Section 1.1, and the value of such elective deferrals
determined in accordance with Section 4.3, together with any adjustments
hereunder. Elective deferrals shall be credited to the Account as of the day
such amounts become payable to the Participant. As of each February 15th, the
Committee shall provide the Participant with a statement of his or her Account
as of the end of the preceding Plan Year.
4.3. Investment equivalent alternatives. When a Participant elects to
make elective deferrals in accordance with Section 4.1, he or she shall also
elect whether the value of such elective deferrals shall be determined under
the cash-based option or the stock-based option described below.
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[PAGE]
(a) Cash-based option:
Under the cash-based option, elective deferrals shall accrue
interest, to be compounded at the end of each fiscal quarter of
the Company, at a rate equal to the average of the top rates paid
by major New York banks on primary new issues of three-month
negotiable certificates of deposit (usually on amounts of
$1,000,000 or more) as quoted in the Wall Street Journal on the
last business day of the fiscal quarter.
(b) Stock-based option:
Under the stock-based option, elective deferrals will be
converted hypothetically into Common Stock equivalent units. The
number of such units shall be determined by dividing the amount of
elective deferrals in each fiscal quarter by the average of the
Market Prices of the Common Stock during the last five (5) trading
days of such fiscal quarter. Units will be calculated to the
nearest thousandth. On each dividend payment date, if any, for
the Common Stock, dividend equivalents in the form of additional
units representing Common Stock will be credited to the
Participant's Account equal to (i) the per-share cash dividend
divided by the Market Price of Common Stock on the dividend
payment date, multiplied by (ii) the number of such units
reflected in such Account on the day before the dividend payment
date.
At the end of the period of deferral elected by the
Participant, the Common Stock equivalent units will be valued for
payment by multiplying the applicable number of units by the
average of the Market Prices of the
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[PAGE]
Common Stock during the last ten (10) trading days before the date on
which the value of the elective deferrals is to be paid or begin to be
paid.
If the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of shares or
other securities, or if additional shares or new or different
shares or other securities are distributed with respect to such
shares of Common Stock or other securities through merger,
consolidation, sale of all or substantially all the property of
the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of Common Stock or other
securities, appropriate adjustments will be made by the Company in
the number of Common Stock equivalent units credited to a
Participant's Account.
4.4. Time of payment. When a Participant elects to make elective
deferrals in accordance with Section 4.1, the Participant shall also elect
whether the value of the elective deferrals shall be paid, or begin to be
paid, (a) at a specified date at least twenty-four months in the future (which
date shall be the last day of a fiscal quarter) or (b) upon termination of his
or her service as a member of the Board. If alternative (a) under this
Section 4.4 is elected, payment will be made or will commence on the date
specified. If alternative (b) under this Section 4.4 is elected, payment will
be made or will commence at the end of the fiscal quarter in which the
Participant's service as a member of the Board terminates. The foregoing
election shall be made on a form approved or prescribed by the Committee.
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[PAGE]
Payment of a Participant's Account shall be made in accordance with the
Participant's elections under this Section 4.4 and Section 4.5. Each
Participant's Account shall be reduced by the amount of any payment made to or
on behalf of the Participant (including interest paid with respect to such
payment) as of the date such payment is made.
4.5. Form of payment. When a Participant elects to make elective
deferrals in accordance with Section 4.1, the Participant shall also elect
whether the value of such elective deferrals shall be paid in (a) a lump sum,
or (b) a specified number of annual installments (not to exceed 10). Each
installment (other than the first) shall accrue interest from the date of the
first installment to the date on which such installment is paid, compounded
quarterly at a rate equal to the average of the top rates paid by major New
York banks on primary new issues of three-month negotiable certificates of
deposit (usually on amounts of $1,000,000 or more) as quoted in the Wall
Street Journal on the last business day of the fiscal quarter. The foregoing
election shall be made on a form approved or prescribed by the Committee.
4.6. Death prior to payment. In the event that a Participant dies
prior to complete distribution of his or her Account, the balance of his or
her Account shall be paid in a single lump sum to the beneficiary or
beneficiaries designated by the Participant. If no such beneficiary has been
designated or if no designated beneficiary survives the Participant, the
balance of such Account shall be paid to the Participant's estate. Payment of
such amount shall be made within sixty (60) days from the date of receipt by
the office of the Secretary of the Company of notice of the Participant's
death. Such designation or designations of beneficiary must be in writing,
dated and signed by the Participant, and no such designation shall require
Company consent. No beneficiary designation shall be deemed effective unless
the same
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is on file in the office of the Secretary of the Company prior to the death of
the Participant. The Company may rely in all cases on the genuineness,
accuracy and date of any such beneficiary designation and shall be fully
protected in making payment in accordance therewith. Any beneficiary
designation filed in the office of the Secretary of the Company prior to the
death of the Participant shall be deemed to have revoked all earlier
designations, and no beneficiary designation filed after the date of a
Participant's death shall be deemed effective.
ARTICLE 5
Discontinuation of Retirement Income Benefits; Non-Elective Deferrals
5.1. Termination of retirement income benefits. As of the Effective
Date, the provisions of Article 5 of the Prior Plan shall be terminated,
provided that any former Non-Employee Director who was a Participant in the
Prior Plan, and who on the Effective Date is receiving retirement income
benefits pursuant to Article 5 thereof, shall continue to receive such
benefits in accordance with said Article 5, and the provisions of this Article
5 shall not apply to such former Non-Employee Director.
5.2. Crediting of Replacement Values. The Replacement Value of the
retirement benefits accrued through the Effective Date for the benefit of each
Participant in the Prior Plan, whether vested or unvested, shall be credited
to the Account of such Participant in the manner provided in this Article 5.
For this purpose, the Replacement Value of each Non-Employee Director's
accrued retirement benefits shall take the form of a number of Common Stock
equivalent units equal to the product of (a) the number of Three-Month Periods
of Service completed by such Non-Employee Director prior to the Effective Date
and (b) 50.
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5.3. Use of Accounts for Non-Elective Deferrals. Each Participant's
Account shall be credited with the Replacement Value of his or her accrued
retirement income benefits, calculated as provided in Section 5.2, the value
of which shall be determined under the stock-based option described in Section
4.3(b). For this purpose, for each Participant in the Prior Plan who has not
elected to defer Compensation pursuant to Section 4.1 thereof, an Account
shall be established. The Replacement Value for each Participant shall
remain in the Participant's Account, and the value thereof shall be determined
under the stock-based option, until termination of the Participant's service
as a member of the Board. Payment of any amount credited to each
Participant's Account pursuant to Section 5.2 or Section 5.4 will be made or
will commence at the end of the fiscal quarter in which the Participant's
service as a member of the Board terminates. At the Participant's election,
made within 120 days of the Effective Date, on a form approved or prescribed
by the Committee, such amount shall be paid in a lump sum or in annual
installments (not to exceed 10), and, if the latter, installments (other than
the first) shall accrue interest as described in Section 4.5.
5.4 Crediting of Common Stock equivalent units. It is contemplated
that Board compensation after the Effective Date may, in the Board's sole
discretion, include credits to the Accounts of Participants consisting of
Common Stock equivalent units, and that the value thereof shall be determined
under the stock-based option described in Section 4.3(b). For this purpose,
for each Participant who has not elected to defer Compensation pursuant to
Section 4.1 and who was not a Participant in the Prior Plan, an Account shall
be established. Any amounts so credited shall remain in each Participant's
Account until termination of his or her service as a member of the Board,
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[PAGE]
and payment from such Account shall be made in the time and manner prescribed
by Section 5.3. In the event that a Participant dies prior to the complete
distribution of the amounts credited to his or her Account pursuant to this
Article 5, the balance of such amounts shall be paid in the manner prescribed
and to the persons specified in Section 4.6.
5.5 Modification of form or time of payment. Each election under
Section 5.3 as to form of payment may be modified, effective for any amounts
credited under Section 5.4 for service on or after any November 1, by an
election filed before that November 1. Moreover, a majority of the
disinterested members of the Committee may, at their discretion, at the
request or with the consent of a Participant, change the form (or, in the case
of elective deferrals, the time) of payment elected by such Participant with
respect to amounts previously credited to his or her Account pursuant to
Article 4 or this Article 5, provided that (a) the revised form of payment be
one of the forms permitted by Sections 4.5 and 5.3, and (b) no such change
shall be effective unless made at least 24 months prior to the date such
amounts would otherwise have been paid.
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ARTICLE 6
Administration
6.1. Plan administration and interpretation. The Plan shall be
administered by the Committee which may appoint persons to assist in the
administration of the Plan. The Committee shall have complete control and
authority to determine the rights and benefits and all claims, demands and
actions arising out of the provisions of the Plan of any Participant or other
person having or claiming to have any interest under the Plan. The Committee
shall have the exclusive power to interpret the Plan and to decide all matters
under the Plan. Such interpretation and decision shall be final, conclusive
and binding on all Participants and any person claiming under or through any
Participant, in the absence of clear and convincing evidence that the
Committee acted arbitrarily and capriciously. Any individual serving on the
Committee who is a Participant will not vote or act on any matter relating
solely to himself or herself. When making a determination or calculation, the
Committee shall be entitled to rely on information furnished by a Participant
or the Company.
6.2. Powers, duties, procedures, etc. The Committee shall have such
powers and duties, may adopt such rules and tables, may act in accordance with
such procedures, may appoint such officers or agents, and may delegate such
powers and duties as it deems necessary or advisable for the administration of
the Plan.
6.3. Information. To enable the Committee to perform its functions,
the Company shall supply full and timely information to the Committee on all
matters relating to the service of Participants as members of the Board and
such other pertinent facts as the Committee may require.
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ARTICLE 7
Amendment and Termination
7.1. Amendments. The Board shall have the right to amend the Plan from
time to time, subject to Section 7.3, by an instrument in writing approved by
the Board and executed on the Company's behalf by a duly authorized officer.
7.2. Termination of Plan. The Plan is strictly a voluntary undertaking
on the part of the Company and shall not be deemed to constitute a contract
between the Company and any Participant or a consideration for, or an
inducement or condition of, the performance of services by any Participant as
a member of the Board. The Board reserves the right to terminate the Plan at
any time, subject to Section 7.3, by an instrument in writing approved by the
Board and executed on the Company's behalf by a duly authorized officer. Upon
termination of the Plan, no further benefits shall accrue on behalf of any
individual then a Participant, nor shall any individual not a Participant as
of the date of termination be eligible to become a Participant thereafter.
7.3. Existing rights. No amendment or termination of the Plan shall
reduce:
(a) any benefits payable to (or in respect of) a
Participant who has ceased to be a member of the Board, or
(b) any benefits to which a current Board member would have
been entitled, currently or in the future, in the event his or her
service as a Board member had terminated on the date of such
amendment or termination.
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[PAGE]
ARTICLE 8
Miscellaneous
8.1. No funding. Nothing in the Plan will be construed to create a
trust or to obligate the Company or any other person to segregate a fund,
purchase an insurance contract, or in any other way currently to fund the
future payment of any benefits hereunder, nor will anything herein be
construed to give any Participant or any other person rights to any specific
assets of the Company or of any other person. The Plan constitutes a mere
promise by the Company to make benefit payments in the future, and is intended
to be unfunded for tax purposes. Any benefits which become payable hereunder
shall be paid from the general assets of the Company, and the rights of any
Participant or of his or her estate or beneficiary shall be those of an
unsecured general creditor.
8.2. Grantor trust. The Company in its sole discretion may establish a
trust (a "grantor trust") of which it is treated as the owner under Subpart E
of Subchapter J, Chapter 1 of the Code to provide for the payment of benefits
hereunder, subject to the claims of the Company's general creditors in the
event of insolvency, and subject to such other terms and conditions as the
Company may deem necessary or advisable to ensure that benefits are not
includable, by reason of the trust, in the income of trust beneficiaries prior
to their actual distribution.
8.3. Nonassignability. None of the benefits, payments, proceeds or
claims of any Participant shall be subject to any claim of any creditor and,
in particular, the same shall not be subject to attachment or garnishment or
other legal process by any creditor of the Participant or his or her
beneficiary, nor shall any Participant or
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beneficiary have any right to alienate, anticipate, commute, pledge, sell,
transfer, encumber or assign any of the benefits or payments or proceeds which
he or she may expect to receive, contingently or otherwise, under the Plan.
8.4. Limitation of Participants' rights. Participation in the Plan
shall not give any Participant the right to be retained as a member of the
Board or any right or interest in the Plan other than as herein provided.
8.5. Participants bound. Any action with respect to the Plan taken by
the Committee, the Board or the Company or any action authorized by or taken
at the direction of the Committee, the Board or the Company shall be
conclusive upon all Participants entitled to benefits under the Plan.
8.6. Receipt and release. Any payment to any Participant in accordance
with the provisions of the Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Company, the Board and the Committee
under the Plan, and the Committee may require such Participant, as a condition
precedent to such payment, to execute a receipt and release to such effect.
If any Participant is determined by the Committee to be incompetent by reason
of physical or mental disability to give a valid receipt and release, the
Committee may cause the payment or payments becoming due to such person to be
made to another person for his or her benefit without responsibility on the
part of the Committee, the Board or the Company to follow the application of
such funds.
8.7. Notices. All notices and elections to be delivered to the
Committee, the Board or the Company hereunder shall be delivered to the
attention of the Secretary of the Company.
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8.8. Unforeseen Emergency. A Participant who has an Unforeseen
Emergency may, with the consent of a majority of the disinterested members of
the Committee, receive a distribution of that portion of his or her Account
which the Committee determines is necessary to satisfy the emergency need,
including any amounts necessary to pay any federal, state or local income
taxes reasonably anticipated to result from the distribution, but only to the
extent such need is not covered by insurance and cannot reasonably be relieved
by the liquidation of the Participant's assets (to the extent that such
liquidation would not in itself cause a severe financial hardship) or by
cessation of elective deferrals under the Plan. A Participant who has an
Unforeseen Emergency may also cease or reduce future deferrals under the Plan
with the consent of a majority of the disinterested members of the Committee.
A Participant requesting a distribution, or a cessation or reduction of future
deferrals, on account of an Unforeseen Emergency shall apply in writing in a
letter submitted to the Committee and shall provide such information as the
Committee may require.
8.9. Governing law. The Plan shall be construed, administered, and
governed in all respects under and by the laws of the Commonwealth of
Massachusetts. If any provision shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
8.10. Headings and subheadings. Headings and subheadings in the Plan
are inserted for convenience only and are not to be considered in the
construction of the provisions hereof.
-17-<PAGE>
[PAGE]
IN WITNESS WHEREOF, Harcourt General, Inc. has caused this Plan to be
executed by its duly authorized officer this 13th day of March, 1998.
HARCOURT GENERAL, INC.
By: /S/ Eric P. Geller
Eric P. Geller, Senior Vice President,
General Counsel and Secretary
-18-<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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<CASH> 73,263
<SECURITIES> 200,159
<RECEIVABLES> 327,071
<ALLOWANCES> 32,187
<INVENTORY> 680,230
<CURRENT-ASSETS> 1,466,550
<PP&E> 1,051,124
<DEPRECIATION> 446,788
<TOTAL-ASSETS> 3,790,126
<CURRENT-LIABILITIES> 1,022,922
<BONDS> 1,297,105
0
1,060
<COMMON> 70,859
<OTHER-SE> 714,057
<TOTAL-LIABILITY-AND-EQUITY> 3,790,126
<SALES> 1,937,389
<TOTAL-REVENUES> 1,937,389
<CGS> 1,119,127
<TOTAL-COSTS> 1,887,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40,427
<INTEREST-EXPENSE> 54,070
<INCOME-PRETAX> (1,117)
<INCOME-TAX> (424)
<INCOME-CONTINUING> (31,696)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,696)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
