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, 1999
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 02467
(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 7, 1999, 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 51,111,052
Class B Stock, $1.00 Par Value 20,020,484
HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of
April 30, 1999 and October 31, l998 1
Condensed Consolidated Statements of Operations
for the Three and Six Months Ended
April 30, l999 and l998 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended April 30, l999
and l998 3
Notes to Condensed Consolidated Financial
Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 27.1 14
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands) April 30, October 31,
1999 l998
___________ __________
Assets
<S> <C> <C>
Current assets:
Cash and equivalents $ 107,737 $ 115,200
Undivided interests in NMG Credit
Card Master Trust 203,282 138,867
Accounts receivable, net 295,453 479,569
Inventories 732,219 706,586
Deferred income taxes 114,794 114,794
Other current assets 93,405 94,024
___________ __________
Total current assets 1,546,890 1,649,040
Property and equipment, net 670,843 645,213
Other assets:
Prepublication costs, net 302,252 281,068
Goodwill, net 1,607,934 1,614,369
Other intangible assets, net 134,379 155,194
Other 107,986 104,215
___________ __________
Total other assets 2,152,551 2,154,846
___________ __________
Total assets $4,370,284 $4,449,099
___________ __________
___________ __________
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 138,956 $ 10,013
Accounts payable 347,596 392,417
Other current liabilities 744,019 722,140
___________ __________
Total current liabilities 1,230,571 1,124,570
Long-term liabilities:
Notes and debentures 1,598,926 1,729,459
Other long-term liabilities 257,238 258,621
Deferred income taxes 118,162 118,162
___________ __________
Total long-term liabilities 1,974,326 2,106,242
Minority interest 303,474 292,565
Shareholders' equity:
Preferred stock 902 914
Common stock 71,104 71,029
Paid-in capital 747,352 745,679
Accumulated other comprehensive loss (9,830) (15,407)
Retained earnings 52,385 123,507
___________ __________
Total shareholders' equity 861,913 925,722
___________ __________
Total liabilities and shareholders' equity $4,370,284 $4,449,099
___________ __________
___________ __________
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<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,
---------------------- ---------------------
1999 1998 1999 1998
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $2,142,305 $1,937,389 $1,167,555 $1,036,765
Costs applicable to
revenues 1,219,794 1,119,127 690,881 616,583
Selling, general and
administrative expenses 876,203 751,461 456,986 388,845
Corporate expenses 18,783 17,209 9,827 8,329
__________ __________ ___________ _________
Operating earnings 27,525 49,592 9,861 23,008
Investment income 4,504 3,361 3,627 1,945
Interest expense (65,184) (54,070) (32,580) (27,419)
__________ __________ ___________ _________
Loss before income taxes
and minority interest (33,155) (1,117) (19,092) (2,466)
Income tax benefit 12,599 424 7,255 937
__________ __________ ___________ _________
Loss before minority
interest (20,556) (693) (11,837) (1,529)
Minority interest in net
earnings of subsidiaries (22,519) (31,003) (11,735) (15,721)
__________ __________ ___________ _________
Net loss ($43,075) ($31,696) ($23,572) ($17,250)
__________ __________ ___________ _________
__________ __________ ___________ _________
Weighted average number
of common and common
equivalent shares
outstanding:
Basic 71,080 70,808 71,115 70,837
__________ __________ ___________ _________
__________ __________ ___________ _________
Diluted 71,080 70,808 71,115 70,837
__________ __________ ___________ _________
__________ __________ ___________ _________
Loss per common share:
Basic ($ .61) ($ .45) ($ .33) ($ .25)
__________ __________ ___________ _________
__________ __________ ___________ _________
Diluted ($ .61) ($ .45) ($ .33) ($ .25)
__________ __________ ___________ _________
__________ __________ ___________ _________
Dividends per share:
Common Stock $ .40 $ .38 $ .20 $ .19
__________ __________ ___________ _________
__________ __________ ___________ _________
Class B Stock $ .36 $ .342 $ .18 $ .171
__________ __________ ___________ _________
__________ __________ ___________ _________
Series A Stock $ .455 $ .433 $ .2275 $ .2165
__________ __________ ___________ _________
__________ __________ ___________ _________
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands) Six Months
Ended April 30,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 43,075) ($ 31,696)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 157,879 150,818
Minority interest 22,519 31,003
Other items - 923
Changes in assets and liabilities:
Accounts receivable 185,220 107,207
Inventories (24,765) 4,280
Other current assets 639 (15,228)
Accounts payable and current liabilities (34,396) 32,312
_________ __________
Net cash provided by operating activities 264,021 279,619
_________ __________
Cash flows from investing activities:
Capital expenditures (165,339) (114,241)
Purchases of held-to-maturity securities (397,009) (272,094)
Maturities of held-to-maturity securities 332,594 200,276
Acquisition of Chef's Catalog - (31,000)
Acquisition of Steck-Vaughn minority interest - (40,512)
Other acquisitions and investing activities (20,233) (11,057)
_________ __________
Net cash used for investing activities (249,987) (268,628)
_________ __________
Cash flows from financing activities:
Proceeds from borrowings 2,100 11,000
Repayment of debt - (3,467)
Cash dividends paid (28,047) (26,623)
Other equity transactions 4,450 (1,282)
_________ __________
Net cash used for financing activities (21,497) (20,372)
_________ __________
Cash and equivalents
Decrease during the period (7,463) (9,381)
_________ __________
Beginning balance 115,200 82,644
Ending balance $ 107,737 $ 73,263
_________ __________
_________ __________
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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 54% of the common stock of NMG. The Company does not
include in its earnings that portion of NMG earnings (currently 46%)
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.
Certain reclassifications have been made to the 1998 financial statements
to conform to the 1999 presentation.
2. Loss per share
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings per Share," the net loss and the number of weighted
average shares used in computing basic and diluted loss per share are as
presented in the table below.
Options to purchase 1,047,983 shares of common stock and the assumed
conversion of 902,000 shares of Series A Cumulative Convertible Stock
were not included in the computation of diluted loss per share because of
the net loss in the six months and three months ended April 30, 1999.
Options to purchase 733,110 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 loss per share because of
the net loss in the six months and three months ended April 30, 1998.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
--------------------- ----------------------
April 30, April 30, April 30, April 30,
(in thousands) 1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net loss ($43,075) ($31,696) ($23,572) ($17,250)
Less: dividends on Series
A Cumulative Convertible
Stock (409) (472) (203) (229)
Net loss for computation ________ ________ ________ ________
of basic loss per share (43,484) (32,168) (23,775) (17,479)
Add: dividends on assumed
conversion of Series A
Cumulative Convertible
Stock - - - -
________ ________ ________ ________
Net loss for computation
of diluted loss per share ($43,484) ($32,168) ($23,775) ($17,479)
________ ________ ________ _________
________ ________ ________ _________
</TABLE>
4
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Loss per share (continued)
The shares for the computation of basic and diluted loss per share are
71,080,000 and 71,115,000 for the six months and three months ended April
30, 1999, respectively. The shares for the computation of basic and
diluted loss per share are 70,808,000 and 70,837,000 for the six months and
three months ended April 30, 1998, respectively.
3. NMG stock repurchase
During the first twenty-six weeks of NMG's fiscal 1999, NMG repurchased
827,000 shares at an average price of $18.57 per share, and 512,900 shares
were remaining under this program.
4. NMG acquisitions
On November 2, 1998, NMG acquired a 51 percent interest in Gurwitch Bristow
Products for approximately $6.7 million in cash. Gurwitch Bristow Products
manufactures and markets Laura Mercier cosmetic lines. The acquisition has
been accounted for by the purchase method of accounting and, accordingly,
the results of operations of Gurwitch Bristow Products for the period from
November 2, 1998 are included in the accompanying consolidated financial
statements. The $5.3 million excess of cost over the estimated fair value
of net assets acquired was allocated to goodwill, which will be amortized
on a straight-line basis over 25 years. Assets acquired and liabilities
assumed have been recorded at their estimated fair values.
On February 1, 1999, the Company acquired a 56 percent interest in Kate
Spade LLC for approximately $33.6 million in cash. Kate Spade is a
manufacturer and marketer of high-end fabric and leather handbags and
accessories.
5. Comprehensive loss
As of November 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130)
and has reclassified certain amounts to conform to the requirements of SFAS
130. The adoption of SFAS 130 had no impact on the Company's net loss or
shareholders' equity. Total comprehensive loss amounted to $39.4 million
and $33.2 million for the six months ended April 30, 1999 and 1998,
respectively. Comprehensive loss differs from net loss primarily due to
foreign currency translation adjustments, unrealized gains or losses on the
Company's available-for-sale securities, less reclassification for realized
gains or losses included in net loss.
6. Subsequent event
On May 14, 1999, the Boards of Directors of the Company and of The Neiman
Marcus Group, Inc. ("NMG"), and a committee of independent directors of
NMG, approved a series of transactions (the "Transactions") relating to a
plan by the Company to spin-off to the holders of its common stock
approximately 21.4 million of the approximately 26.4 million shares of NMG
common stock held by the Company in a distribution to be tax-free to the
Company and its stockholders. The Transactions are expected to be
completed late in the third quarter or early in the fourth quarter of the
1999 calendar year, subject to, among other things, approval of the tax-
free status of the spin-off by the Internal Revenue Service, approval by
the stockholders of the Company of a new class of stock, "Class C Stock,"
which would have one-tenth (1/10) of one vote per share on all matters and
which would receive a dividend equal to the dividend received by the Common
Stock, if any, and approval by the stockholders of NMG of a plan of
recapitalization.
5
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Subsequent event (continued)
On May 27, 1999, the Company filed a Form 8-K with the Securities and
Exchange Commission (the "Commission") in which the Transactions are
described in greater detail. For further information regarding the
Transactions, reference may be made to the Form 8-K and to such other
reports filed by the Company and NMG from time to time with the Commission.
6
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)
by business segment.
<TABLE>
<CAPTION>
Six Months Three Months
Ended April 30, Ended April 30,
--------------------- ---------------------
(In thousands) 1999 1998 1999 1998
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenues:
Publishing and
educational services $ 766,038 $ 648,503 $ 378,401 $ 328,378
Specialty retailing 1,376,267 1,288,886 789,154 708,387
__________ __________ __________ __________
Total revenues $2,142,305 $1,937,389 $1,167,555 $1,036,765
__________ __________ __________ __________
__________ __________ __________ __________
Operating earnings (loss):
Publishing and
educational services ($ 64,019) ($ 61,599) ($ 40,459) ($ 34,032)
Specialty retailing 110,327 128,400 60,147 65,369
Corporate expenses (18,783) (17,209) (9,827) (8,329)
__________ __________ __________ __________
Total operating
earnings $ 27,525 $ 49,592 $ 9,861 $ 23,008
__________ ___________ __________ ___________
__________ ___________ __________ ___________
</TABLE>
Six Months Ended April 30, l999 Compared to Six Months Ended April 30, l998
Publishing and Educational Services
Revenues from the Harcourt Inc. publishing and educational services businesses
increased $117.5 million, or 18.1%, compared to the same period last year,
primarily as a result of revenues generated by Mosby, Inc., acquired in
October 1998. The Education Group's revenues fell 1.8% to $162.5 million, due
to lower revenues at the elementary educational publishing business and Steck-
Vaughn, offset in part by higher sales from the trade publishing business.
Revenues of the Lifelong Learning & Assessment Group increased 10.6% to $292.3
million in the first six months of fiscal 1999 from $264.2 million in the
first six months of fiscal 1998, primarily from higher sales at Drake Beam
Morin and NETg, and to a lesser extent from higher sales of testing and
assessment products. The Worldwide Scientific, Technical and Medical (STM)
Group revenues increased 42.2% in the first six months of fiscal 1999 to
$311.2 million, primarily due to the acquisition of Mosby in October 1998.
The publishing and educational services businesses incurred an operating loss
of $64.0 million in the first six months of fiscal 1999, increasing by $2.4
million from a loss of $61.6 million in the first six months of fiscal 1998.
The Education Group's loss increased primarily due to higher selling and
marketing expenses. The loss at the Lifelong Learning & Assessment Group
decreased primarily due to lower amortization of intangible assets associated
with the acquisition of ICS and NETg and higher sales at Drake Beam Morin.
The Worldwide STM Group's earnings decreased in comparison to the first six
months of fiscal 1998 primarily as a result of weakened performance by the
international operations and lower sales at WB Saunders.
7
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 30, 1999 are consolidated with the
operating results of the Company for the six months ended April 30, 1999.
Revenues in the twenty-six weeks ended January 30, 1999 increased $87.4
million or 6.8% over revenues in the twenty-six weeks ended January 31, l998.
Total comparable sales for NMG increased 1.9%. The increase was primarily
attributable to sales from Chef's Catalog, acquired in January 1998, and the
new Neiman Marcus store in Hawaii, which opened in September 1998. Comparable
sales increased 2.8% at Neiman Marcus Stores, decreased 2.1% at Bergdorf
Goodman, and decreased 0.3% at NM Direct.
Operating earnings decreased 14.1% to $110.3 million primarily due to lower
gross margins, resulting from higher markdowns across all divisions during the
fiscal 1999 holiday season. Selling, general and administrative expenses
increased as a percentage of revenues as a result of higher selling and sales
promotion expenses and pre-opening costs.
Investment Income
Investment income increased to $4.5 million compared to $3.4 million in the
same six month period in 1998. The increase included a gain of $3.0 million
from the sale of securities in the second quarter of 1999.
Interest Expense
Interest expense increased to $65.2 million from $54.1 million in the same
period last year. The increase in interest expense is primarily due to
interest on borrowings under the Company's revolving credit facility to fund
the Mosby acquisition. The interest expense in the first six months of fiscal
1999 includes a higher amount of interest incurred by NMG in comparison to the
1998 period, resulting from both a higher effective interest rate and higher
average borrowings by NMG.
Minority Interest
The Company recorded minority interest in net earnings of its subsidiaries of
$22.5 million in the first six months of fiscal 1999 compared to $31.0 million
in fiscal 1998. In the first six months of fiscal 1999, minority interest
includes $25.3 million relating to the minority interest in net earnings of
its specialty retailing business, offset in part by minority interest in net
losses of various publishing and educational services businesses. In the
first six months of fiscal 1998, the entire $31.0 million consisted of
minority interest in net earnings of its specialty retailing business.
Three Months Ended April 30, 1999 Compared to Three Months Ended April 30,
1998
Publishing and Educational Services
Revenues from the Harcourt Inc. publishing and educational services businesses
increased $50.0 million, or 15.2%, compared to the same period last year,
primarily as a result of revenues generated by Mosby, Inc., acquired in
October 1998. The Education Group revenues increased 2.8% to $74.3 million
primarily due to higher sales at Harcourt Trade Publishers and the Steck-
Vaughn supplemental publishing business. Revenues of the Lifelong Learning &
Assessment Group increased 7.2% to $152.5 million from $142.3 million in the
same period last year. The increase in this group's revenues resulted
primarily from higher sales at Drake Beam Morin and to a lesser extent from
the higher sales of testing and assessment products. The Worldwide
Scientific, Technical and Medical (STM) Group revenues increased 33.2% to
$151.6 million, primarily due to the acquisition of Mosby in October 1998.
8
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The publishing and educational services businesses incurred an operating loss
of $40.5 million in the second quarter of fiscal 1999, increasing by $6.5
million from a loss of $34.0 million in the fiscal 1998 second quarter. The
Education Group's loss increased primarily due to higher selling and marketing
expenses. The loss at the Lifelong Learning & Assessment Group decreased
primarily due to lower amortization of intangible assets associated with the
acquisition of ICS and NETg and higher sales at Drake Beam Morin. The
Worldwide STM Group's earnings decreased in comparison to the 1998 quarter as
a result of lower revenues at WB Saunders and weakened performance by the
international operations.
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter. The
operating results of NMG for the thirteen weeks ended January 30, 1999 are
consolidated with the operating results of the Company for the three months
ended April 30, 1999.
Revenues in the thirteen weeks ended January 30, l999 increased $80.8 million
or 11.4% over revenues in the thirteen weeks ended January 31, 1998. The
increase in revenues was primarily attributable to a comparable sales increase
of 6.4% at Neiman Marcus Stores, the new Neiman Marcus store in Hawaii and
sales from Chef's Catalog, acquired in January 1998. The increase in revenues
reflected an overall comparable sales increase of 5.3%.
Operating earnings decreased 8.0% to $60.1 million compared to $65.4 million
in the prior year period. The decrease was primarily attributable to lower
gross margins, resulting from higher markdowns as a percentage of revenues
during the fiscal 1999 holiday season, as well as higher sales promotion
costs.
Interest Expense
Interest expense increased $5.2 million or 18.8% compared to the same period
last year. The increase is primarily due to interest on borrowings under the
Company's revolving credit facility to fund the Mosby acquisition. The
interest expense includes a higher amount of interest incurred by NMG in
comparison to the 1998 period, resulting from both a higher effective rate and
higher average borrowings by NMG.
Minority Interest
The Company recorded minority interest in net earnings of its subsidiaries of
$11.7 million in the second quarter of fiscal 1999 compared to $15.7 million
in fiscal 1998. In the second quarter of fiscal 1999, minority interest
includes $13.8 million relating to the minority interest in net earnings of
its specialty retailing business, offset in part by minority interest in net
losses of various publishing and educational services businesses. In the
first six months of fiscal 1998, the entire $15.7 million consisted of
minority interest in net earnings of its specialty retailing business.
9
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, l999
was $264.0 million. The publishing and educational services businesses
provided $162.1 million of cash from operations while NMG's operations
provided $101.9 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
facility to fund working capital for the holiday season and capital
expenditures. The primary items affecting working capital were a decrease in
accounts receivable of $185.2 million, a decrease in current liabilities of
$34.4 million and an increase in inventories of $24.8 million.
Cash flows used by investing activities were $250.0 million for the six months
ended April 30, 1999. The Company's investing activities included capital
expenditures totaling $165.3 million. Publishing and educational services
capital expenditures in the six month period ended April 30, 1999 totaled
$109.4 million and were related principally to expenditures for prepublication
costs. Capital expenditures in the publishing and educational service business
are expected to approximate $230.0 million in fiscal 1999. NMG purchased a
building adjacent to its Neiman Marcus store in Union Square in San Francisco
for a future expansion of this store. Specialty retailing capital
expenditures also include existing store renovations and completion of
construction of the new Neiman Marcus store in Honolulu, Hawaii. Capital
expenditures for NMG in fiscal 1999 are expected to approximate $110.0
million.
During the first thirteen weeks of NMG's fiscal 1999, NMG repurchased 827,000
shares at an average price of $18.57 per share. In November 1998, NMG
acquired a 51 percent interest in Gurwitch Bristow Products for approximately
$6.7 million in cash. In February 1999, NMG acquired a 56 percent interest in
Kate Spade LLC for approximately $33.6 million in cash. The acquisitions were
funded primarily through borrowings under NMG's revolving credit facility.
At April 30, 1999, the Company had $340.0 available under its $750.0 million
revolving credit facility with 18 banks. The agreement expires in July 2002.
NMG had $555.0 million available at January 30, 1999 under its $650 million
revolving credit facility, which expires in October 2002.
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.
Year 2000
The Company has substantially completed its assessment of its hardware and
software systems, including the embedded systems in the Company's buildings,
property and equipment, and is implementing plans to ensure that the
operations of such systems will not be adversely affected by the Year 2000
date change.
The Company is presently in the process of renovating non-compliant systems
and implementing converted and replaced systems for substantially all of its
non-compliant hardware and software systems. The Company estimates that its
efforts to make these systems Year 2000 compliant are approximately 75%
complete, with substantial completion of the Year 2000 project currently
anticipated for July 1999.
10
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Year 2000 (continued)
The Company established an ongoing program to communicate with its significant
suppliers and vendors to determine the extent to which the Company's systems
and operations are vulnerable to those third parties' failure to rectify their
own Year 2000 issues. Based on responses to the Company's inquiries, the
Company is in the process of identifying those suppliers and vendors most at
risk for failing to achieve Year 2000 on a timely basis and is monitoring
their continuing progress. The Company is not presently aware of any
significant exposure arising from potential third party failures. However,
there can be no assurance that the systems of other companies on which the
Company's systems or operations rely will be timely converted or that any
failure of such parties to achieve Year 2000 compliance would not have an
adverse effect on the Company's results of operations.
The Company has engaged both internal and external resources to assess,
reprogram, test and implement its systems for Year 2000 compliance. Based on
management's current estimates, the costs of Year 2000 remediation, including
system renovation, modifications and enhancements, which have been and will be
expensed as incurred, have not been and are not expected to be material to the
results of operations or the financial position of the Company. Additionally,
such expenditures have not adversely affected the Company's ability to
continue its investment in new technology in connection with its ongoing
systems development plan.
Management presently believes the Company's most reasonably likely worst case
Year 2000 scenario could arise from a business interruption caused by
governmental agencies, utility companies, telecommunication service companies,
shipping companies or other service providers outside the Company's control.
There can be no assurance that such providers will not suffer business
interruptions caused by a Year 2000 issue. Such an interruption could have a
material adverse effect on the Company's results of operations.
The Company is in the process of developing a contingency plan for continuing
operations in the event of Year 2000 failures, and the current target for
completing that plan is September 1999.
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; failure of the Company or third parties
to be Year 2000 compliant; 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.
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; failure of the Company or third
parties to be Year 2000 compliant; changes in demographic or retail
environments; competitive influences; significant increases in paper, printing
and postage costs; and changes in the Company's relationships with designers and
other resources. For more information, see the Company's filings with the
Securities and Exchange Commission.
11
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 12, 1999.
The following matters were voted upon at the meeting:
1. Election of the following individuals as Class C Directors
for a term of three years:
Jeffrey R. Lurie Paula Stern
For 64,633,554 For 64,651,828
Withheld 673,703 Withheld 655,429
Lynn Morley Martin Clifton R. Wharton, Jr.
For 64,644,291 For 64,627,498
Withheld 662,966 Withheld 679,759
Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the 1999 fiscal year.
For 65,172,129
Against 34,711
Abstain 100,418
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial data schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
quarter ended April 30, 1999.
The Company filed a report on Form 8-K on May 27, 1999
describing in Item 5 (Other Events) a proposed spin-off to
the holders of its common stock of approximately 21.4
million of the approximately 26.4 million shares of NMG
common stock held by the Company in a distribution to be
tax-free to the Company and its stockholders.
12
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 14, 1999 /S/ John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: June 14, 1999 /S/ Catherine N. Janowski
Catherine N. Janowski
Vice President and
Controller
13
<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-31-1999
<PERIOD-END> APR-30-1999
<CASH> 107,737
<SECURITIES> 203,282
<RECEIVABLES> 337,114
<ALLOWANCES> 41,661
<INVENTORY> 732,219
<CURRENT-ASSETS> 1,546,890
<PP&E> 1,223,077
<DEPRECIATION> 552,234
<TOTAL-ASSETS> 4,370,284
<CURRENT-LIABILITIES> 1,230,571
<BONDS> 1,598,926
0
902
<COMMON> 71,104
<OTHER-SE> 789,907
<TOTAL-LIABILITY-AND-EQUITY> 4,370,284
<SALES> 2,142,305
<TOTAL-REVENUES> 2,142,305
<CGS> 1,219,794
<TOTAL-COSTS> 2,114,780
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 52,319
<INTEREST-EXPENSE> 65,184
<INCOME-PRETAX> (33,155)
<INCOME-TAX> (12,599)
<INCOME-CONTINUING> (43,075)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,075)
<EPS-BASIC> (0.61)
<EPS-DILUTED> (0.61)
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