<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended January 31, 2000
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Commission File Number 1-4925
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HARCOURT GENERAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-1619609
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, MA 02467
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(Address of principal executive offices) (Zip Code)
(617) 232-8200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of March 6, 2000, the number of outstanding shares of each of the issuer's
classes of common stock was:
Class Outstanding Shares
- ------------------------------ ------------------
Common Stock, $1.00 Par Value 51,717,928
Class B Stock, $1.00 Par Value 20,020,227
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HARCOURT GENERAL, INC.
I N D E X
Part I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Condensed Consolidated Balance Sheets as of
January 31, 2000 and October 31, 1999 1
Condensed Consolidated Statements of Operations
for the Three Months Ended January 31, 2000
and 1999 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended January 31, 2000
and 1999 3
Notes to Condensed Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit 27.1 12
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HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 31, October 31,
2000 1999
----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents $ 52,493 $ 24,144
Accounts receivable, net 336,124 473,577
Inventories 227,187 212,771
Deferred income taxes 80,716 80,716
Other current assets 35,833 39,549
---------- ----------
Total current assets 732,353 830,757
---------- ----------
Property and equipment, net 128,676 128,804
Other assets:
Prepublication costs, net 326,073 322,346
Investment in The Neiman Marcus Group, Inc. 121,908 119,414
Goodwill, net 1,394,709 1,409,485
Other intangible assets, net 49,123 52,538
Other 91,190 86,761
---------- ----------
Total other assets 1,983,003 1,990,544
---------- ----------
Total assets $2,844,032 $2,950,105
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of
long-term liabilities $ 51,304 $ 6,868
Accounts payable 222,566 203,521
Other current liabilities 494,415 483,168
---------- ----------
Total current liabilities 768,285 693,557
---------- ----------
Long-term liabilities:
Notes and debentures 1,222,331 1,356,804
Other long-term liabilities 183,975 182,842
Deferred income taxes 55,946 55,946
---------- ----------
Total long-term liabilities 1,462,252 1,595,592
---------- ----------
Minority interest 18,856 19,093
Shareholders' equity:
Preferred stock 813 863
Common stock 71,707 71,167
Paid-in capital 318,976 317,037
Accumulated other comprehensive income 843 2,269
Retained earnings 202,300 250,527
---------- ----------
Total shareholders' equity 594,639 641,863
---------- ----------
Total liabilities and shareholders' equity $2,844,032 $2,950,105
========== ==========
See Notes to Condensed Consolidated Financial Statements.
1
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HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except
for per share amounts) FOR THE THREE MONTHS
ENDED JANUARY 31,
-------------------------
2000 1999
--------- ---------
Revenues $ 402,947 $ 387,637
Costs applicable to revenues 154,897 143,642
Selling, general and administrative expenses 278,347 267,555
Corporate expenses 5,676 5,148
--------- ---------
Operating loss (35,973) (28,708)
Investment and other income 8,521 877
Interest expense (25,870) (26,468)
--------- ---------
Loss from continuing operations
before income taxes and minority interest (53,322) (54,299)
Income tax benefit 19,729 21,303
--------- ---------
Loss from continuing operations
before minority interest (33,593) (32,996)
Minority interest in net losses
of subsidiaries 237 715
--------- ---------
Loss from continuing operations (33,356) (32,281)
Earnings from discontinued specialty retail
operations, net -- 12,778
--------- ---------
Net loss $ (33,356) $ (19,503)
========= =========
Weighted average number of common and
common equivalent shares outstanding:
Basic and diluted shares 71,186 71,060
========= =========
Basic and diluted amounts per common share:
Continuing operations $ (.47) $ (.46)
Discontinued specialty retail operations -- .18
--------- ---------
Basic and diluted net loss $ (.47) $ (.28)
========= =========
Dividends per share:
Common Stock $ .21 $ .20
========= =========
Class B Stock $ .189 $ .18
========= =========
Series A Stock $ .2826 $ .2275
========= =========
See Notes to Condensed Consolidated Financial Statements.
2
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HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
FOR THE THREE MONTHS
ENDED JANUARY 31,
-------------------------
2000 1999
--------- ---------
Cash flows from operating activities:
Net loss $ (33,356) $ (19,503)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Discontinued specialty retail operations -- (12,778)
Amortization of prepublication costs 36,160 31,524
Depreciation and other amortization 26,433 32,250
Gain on sale of securities (7,644) --
Minority interest (237) (715)
Other items (2,375) 799
Changes in assets and liabilities:
Accounts receivable 137,453 124,139
Inventories (14,416) (8,749)
Other current assets (4,715) (158)
Accounts payable and other current
liabilities 30,186 35,507
--------- ---------
Net cash provided by operating activities 167,489 182,316
--------- ---------
Cash flows from investing activities:
Capital expenditures (47,605) (40,657)
Proceeds from sale of securities 12,394 --
--------- ---------
Net cash used for investing activities (35,211) (40,657)
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Cash flows from financing activities:
Repayments of revolving credit
facilities, net (90,465) (130,000)
Repayment of debt -- (477)
Cash dividends paid (14,871) (14,018)
Other equity transactions 1,407 1,487
--------- ---------
Net cash used for financing
activities (103,929) (143,008)
--------- ---------
Cash and equivalents
Increase (decrease) during the period 28,349 (1,349)
Beginning balance 24,144 58,556
--------- ---------
Ending balance $ 52,493 $ 57,207
========= =========
See Notes to Condensed Consolidated Financial Statements.
3
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HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements of Harcourt General,
Inc. (the Company) are submitted in response to the requirements of
Form 10-Q and should be read in conjunction with the Consolidated
Financial Statements in the Company's Annual Report on Form 10-K. In
the opinion of management, these statements contain all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the results for the interim periods presented. The
consolidated financial statements include the accounts of Harcourt
General, Inc. (the Company or Harcourt General) and its majority-owned
subsidiaries. The Company's consolidated financial statements have been
restated to reflect the specialty retail operations as a discontinued
operation.
Harcourt General is a leading global multiple-media publisher and
service provider for the educational, assessment, training and
professional information markets. All significant intercompany
accounts and transactions are eliminated. Except as indicated, amounts
reflected in the consolidated financial statements or disclosed in the
notes to the consolidated financial statements relate to the Company's
continuing operations, and prior year amounts have been restated and
reclassified to conform with the current presentation.
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. LOSS PER SHARE
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share," the loss from continuing
operations used in computing basic and diluted loss per share is as
presented in the table below:
THREE MONTHS ENDED
--------------------------------
(In thousands) January 31, January 31,
2000 1999
------------ -----------
Loss from continuing operations $(33,356) $(32,281)
Less: dividends on Series A
Cumulative Convertible Stock (230) (206)
------------ -----------
Loss from continuing operations
for computation of basic and
diluted loss per share $(33,586) $(32,487)
============ ===========
The shares for the computation of basic and diluted loss per share are
71,186,000 and 71,060,000 shares for the three months ended January 31,
2000 and 1999, respectively.
4
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HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. LOSS PER SHARE (CONTINUED)
Options to purchase 3,397,514 and 1,050,086 shares of common stock and
the assumed conversion of 813,000 and 863,000 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 first quarter of
fiscal 2000 and 1999, respectively.
3. COMPREHENSIVE LOSS
Total comprehensive loss amounted to $39.6 million and $13.7 million
for the three months ended January 31, 2000 and 1999, respectively.
Comprehensive loss differs from net loss primarily due to foreign
currency translation adjustments and unrealized gains or losses on the
Company's available-for-sale securities, less reclassification for
realized gains or losses included in net loss.
4. OPERATING SEGMENTS
The Company has four reportable segments: Education Group, Higher
Education Group, Corporate and Professional Services Group and
Worldwide Scientific, Technical and Medical (STM) Group. The Education
Group consists of the Company's K-12 and supplemental and trade
publishing operations. The Higher Education Group includes college,
distance learning and graduate test preparation businesses. The
Corporate and Professional Services Group is comprised of testing and
related services, career counseling and technology-based IT and human
resources training. The Worldwide STM Group includes the Company's
scientific, technical and medical publishing businesses and its
international publishing and distribution operations. Other includes
unallocated corporate items.
The following tables set forth the information for the Company's
reportable segments for the three months ended January 31:
(In thousands)
2000 1999
-------- --------
REVENUES:
Education Group $ 49,511 $ 41,394
Higher Education Group 83,913 83,137
Corporate and Professional Services Group 101,757 103,233
Worldwide STM Group 167,766 159,873
-------- --------
Total $402,947 $387,637
======== ========
OPERATING EARNINGS (LOSS):
Education Group $(58,564) $(51,372)
Higher Education Group 8,842 4,935
Corporate and Professional Services Group (1,323) 6,299
Worldwide STM Group 20,748 16,578
Other (5,676) (5,148)
-------- --------
Total $(35,973) $(28,708)
======== ========
5
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HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. ACQUISITION LIABILITIES
At October 31, 1999, $56.4 million is included in other current
liabilities representing facility exit costs of $32.0 million,
severance and employee benefit obligations of $8.3 million, unfulfilled
contractual obligations of $6.1 million and other obligations of $10.0
million. In the three months ended January 31, 2000, approximately $9.9
million was charged against acquisition liabilities. At January 31,
2000, $46.5 million is included in other current liabilities consisting
primarily of facility exit costs of $30.9 million, severance and
employee benefit obligations of $4.9 million, unfulfilled contractual
obligations of $6.0 million and other obligations of $4.7 million.
6
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HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1999
The following table illustrates revenues and operating earnings (loss) by
business segment for the three months ended January 31.
(In thousands) 2000 1999
-------- --------
Revenues:
Education Group $ 49,511 $ 41,394
Higher Education Group 83,913 83,137
Corporate and Professional Services Group 101,757 103,233
Worldwide STM Group 167,766 159,873
-------- --------
Total revenues $402,947 $387,637
======== ========
Operating Earnings (Loss):
Education Group $(58,564) $(51,372)
Higher Education Group 8,842 4,935
Corporate and Professional Services Group (1,323) 6,299
Worldwide STM Group 20,748 16,578
Corporate expenses (5,676) (5,148)
-------- --------
Total operating loss $(35,973) $(28,708)
======== ========
EDUCATION GROUP
Revenues from the Education Group increased $8.1 million, or 19.6%, in the first
three months of fiscal 2000. The increase was primarily attributable to higher
math, science, social studies, and reading program sales, as well as higher
sales at Steck-Vaughn, the Group's supplemental educational publishing business.
The Education Group incurred an operating loss of $58.5 million in the first
quarter of fiscal 2000, increasing by $7.1 million from a loss of $51.4 million
in the first three months of fiscal 1999. The loss increased primarily as a
result of higher selling and marketing, sampling and plate amortization costs.
HIGHER EDUCATION GROUP
Revenues from the Higher Education Group increased to $83.9 million in the first
three months of fiscal 2000 from $83.1 million in the first three months of
fiscal 1999. The increase was primarily due to higher sales of college titles.
Operating earnings from the Higher Education Group increased $3.9 million, or
79.2%, in the first quarter of fiscal 2000. The increase resulted primarily from
higher revenues in the Group's college publishing business and general and
administrative expense reductions at Harcourt Learning Direct, the Group's
distance learning business.
7
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HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CORPORATE AND PROFESSIONAL SERVICES GROUP
Revenues from the Corporate and Professional Services Group decreased 1.4% to
$101.7 million in the first quarter of fiscal 2000 from $103.2 million in the
prior year. The decrease was primarily attributable to lower revenues at NETg,
the Group's technology-based training business for information technology
professionals. The decrease was partially offset by higher sales at Drake Beam
Morin (DBM), the Group's professional services and outplacement business, and
The Psychological Corporation, the Group's educational and clinical assessment
business.
The Corporate and Professional Services Group incurred an operating loss of $1.3
million compared to earnings of $6.3 million in the prior year period. The
decrease was primarily due to lower revenues at NETg, and to a lesser extent, to
higher expenses at Assessment Systems, Inc. related to expansion initiatives.
WORLDWIDE SCIENTIFIC, TECHNICAL AND MEDICAL (STM) GROUP
Revenues from the Worldwide STM Group increased 4.9% to $167.8 million in the
first quarter of fiscal 2000 from $159.9 million in the prior year. The increase
was primarily due to higher journal sales at Academic Press, the Company's
scientific publisher.
Operating earnings from the Worldwide STM Group increased $4.1 million, or
25.2%, in the first quarter of fiscal 2000. The increase was primarily due to
higher margins at Harcourt Health Sciences resulting from the integration of
Mosby and to higher revenues at Academic Press.
CORPORATE EXPENSES
Corporate expenses increased $.5 million, or 10.3%, in the first three months of
fiscal 2000. The increase resulted primarily from higher compensation costs.
INVESTMENT AND OTHER INCOME
Investment and other income increased $7.6 million to $8.5 million in the first
quarter of fiscal 2000. The increase resulted primarily from a gain of $7.6
million from the sale of securities.
INTEREST EXPENSE
Interest expense decreased $.6 million, or 2.3%, in the first quarter of fiscal
2000. The increase was primarily due to lower average outstanding borrowings.
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 statements of cash flows.
Cash provided by operating activities for the quarter ended January 31, 2000 was
$167.5 million compared to $182.3 million in the prior year period. The cash
provided by the Company's operations and borrowings under its revolving credit
facility was sufficient to fund working capital, capital expenditures and the
Company's dividend requirements. The most significant item affecting working
capital was a seasonal decrease of $137.5 million in accounts receivable.
Cash flows used by investing activities were $35.2 million for the quarter ended
January 31, 2000 and consisted primarily of expenditures for prepublication
costs. Capital expenditures are expected to approximate $230.0 million in fiscal
2000. Also in the first quarter of fiscal 2000 the Company recorded proceeds
from the sale of securities of $12.4 million.
8
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HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
At January 31, 2000, the Company had $515.0 million available under its $750.0
million revolving credit agreement, which expires in July 2002. The Company
expects to use this facility to repay subordinated notes of $125 million that
mature in March 2000.
The Company believes its cash on hand, cash generated from operations and its
current and future debt capacity will be sufficient to fund its planned capital
growth, operating and dividend requirements.
YEAR 2000
The Company has completed its assessment of its hardware and software systems,
including the embedded systems in the Company's buildings, property and
equipment, and has implemented plans to ensure that the operations of such
systems would not be adversely affected by the Year 2000 date change. As of the
date of this report, the Company has not experienced any significant problems
with its hardware and software systems related to the Year 2000 date change.
The Company established a 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. As of the date of this report, the Company has not experienced
any significant problems with its suppliers and vendors related to the Year 2000
date change. 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 have been successfully 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.
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 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.
9
<PAGE> 12
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS.
27.1 Financial data schedule
(b) REPORTS ON FORM 8-K.
On November 1, 1999, the Company filed a report on Form 8-K
reporting the distribution on October 22, 1999 of 21,440,960
shares of Class B Common Stock of The Neiman Marcus Group, Inc.
to holders of the Company's Common Stock and Class B Stock.
10
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARCOURT GENERAL, INC.
Date: March 13, 2000 /s/ John R. Cook
-------------------------
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: March 13, 2000 /s/ Catherine N. Janowski
-------------------------
Catherine N. Janowski
Vice President and
Controller
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> OCT-31-2000 OCT-31-1999
<PERIOD-END> JAN-31-2000 JAN-31-1999
<CASH> 52,493 57,207
<SECURITIES> 121,908 0
<RECEIVABLES> 375,262 338,461
<ALLOWANCES> 39,138 36,602
<INVENTORY> 227,187 216,267
<CURRENT-ASSETS> 732,353 699,063
<PP&E> 320,996 331,376
<DEPRECIATION> 192,320 182,943
<TOTAL-ASSETS> 2,844,032 3,270,609
<CURRENT-LIABILITIES> 768,285 771,454
<BONDS> 1,222,331 1,314,340
0 0
813 906
<COMMON> 71,707 71,086
<OTHER-SE> 522,119 826,943
<TOTAL-LIABILITY-AND-EQUITY> 2,844,032 3,270,609
<SALES> 402,947 387,637
<TOTAL-REVENUES> 402,947 387,637
<CGS> 154,897 143,642
<TOTAL-COSTS> 438,920 416,345
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 32,878 24,276
<INTEREST-EXPENSE> 25,870 26,468
<INCOME-PRETAX> (53,322) (54,299)
<INCOME-TAX> (19,729) (21,303)
<INCOME-CONTINUING> (33,356) (32,281)
<DISCONTINUED> 0 12,778
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (33,356) (19,503)
<EPS-BASIC> (0.47) (0.28)
<EPS-DILUTED> (0.47) (0.28)
</TABLE>
