<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1993
---------------------
Commission file number 1-5406
--------------------
HOUGHTON MIFFLIN COMPANY
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-1456030
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
222 Berkeley St., Boston 02116-3764
- ------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 351-5000
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- -------------------------- -------------------------------
Common Stock, $1 par value New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
-----------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
----
The aggregate market value of voting stock of the registrant held by
nonaffiliates of the registrant was approximately $ 665,385,756 as of
February 28, 1994.
The registrant had outstanding 14,548,397 shares of common stock (exclusive
of Treasury shares) and 14,548,397 Preferred Stock Purchase Rights as of
February 28, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the "Definitive Proxy
Statement") to be filed with the Securities and Exchange Commission relative
to the Company's 1994 annual meeting of stockholders are incorporated into
Part III.
1 of 39
Exhibit Index Pages 29-31
<PAGE>
<PAGE>
Part II
Item 8. Consolidated Financial Statements and Supplementary Data.
See Index to Consolidated Financial Statements and Financial
Statement Schedules, set forth on page F1 herein. Summary of
Quarterly Results of Operations (unaudited) are presented on page 25.
24
<PAGE>
<PAGE>
HOUGHTON MIFFLIN COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a)(1) and (2))
Report of Independent Auditors Page F2
Consolidated Balance Sheets at
December 31, 1993 and 1992 Pages F3 - F4
Consolidated Statements of Income for the years
ended December 31, 1993, 1992, and 1991 Page F5
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1993, 1992, and 1991 Page F6
Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992, and 1991 Page F7
Notes to Consolidated Financial Statements Page F8 - F25
Schedules for the years ended December 31, 1993,
1992, and 1991:
V - Consolidated Property, Plant, and Equipment Page F26
VI - Consolidated Accumulated Depreciation and
Amortization of Property, Plant,
and Equipment Page F27
VIII - Consolidated Valuation and Qualifying
Accounts Page F28
IX - Consolidated Short-term Borrowings Page F29
X - Consolidated Supplementary Income Statement
Information Page F29
All other schedules have been omitted since the required information is not
present, or the amounts are not sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements.
F1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Houghton Mifflin Company
We have audited the accompanying consolidated balance sheets of
Houghton Mifflin Company as of December 31, 1993 and 1992, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1993. Our audits
also included the financial statement schedules listed in the Index at Item
14(a). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Houghton Mifflin Company at December 31, 1993 and 1992, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Notes 2 and 6 to the financial statements, in 1992 the
Company changed its methods of accounting for income taxes and postretirement
benefits other than pensions, respectively.
/S/ERNST & YOUNG
----------------
ERNST & YOUNG
Boston, Massachusetts
January 18, 1994
F2
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, 1993 and 1992 (IN THOUSANDS OF DOLLARS)
ASSETS 1993 1992
=================================================================================================
<S> <C> <C>
Current assets
Cash and cash equivalents $ 67,242 $ 39,671
Marketable securities, at cost which approximates market 18,107 28,964
- -------------------------------------------------------------------------------------------------
85,349 68,635
Accounts receivable 116,814 103,538
Less allowance for book returns 12,325 16,671
- -------------------------------------------------------------------------------------------------
104,489 86,867
Inventories:
Finished goods 56,479 53,450
Work-in-process 4,875 5,797
Raw materials 2,647 2,300
- -------------------------------------------------------------------------------------------------
64,001 61,547
Prepaid income taxes 10,904 14,742
Other prepaid expenses 3,106 1,980
- -------------------------------------------------------------------------------------------------
Total current assets 267,849 233,771
Property, plant, and equipment, at cost
Land and land improvements 1,950 3,220
Buildings and building equipment 14,359 18,030
Machinery and equipment 45,721 41,269
Leasehold improvements 4,467 10,754
- -------------------------------------------------------------------------------------------------
66,497 73,273
Less accumulated depreciation and amortization 36,991 40,619
- -------------------------------------------------------------------------------------------------
29,506 32,654
Book plates, less accumulated depreciation of $51,148
in 1993 and $61,241 in 1992 36,664 41,390
- -------------------------------------------------------------------------------------------------
Net property, plant, and equipment 66,170 74,044
Other assets, at cost
Royalty advances to authors, less allowance of $11,866
in 1993 and $9,545 in 1992 21,382 22,527
Intangible assets, less accumulated amortization of
$3,566 in 1993 and $1,918 in 1992 19,661 21,961
Prepaid income taxes 12,893 9,922
Long-term receivables and other 10,266 9,196
- -------------------------------------------------------------------------------------------------
Total other assets 64,202 63,606
- -------------------------------------------------------------------------------------------------
$ 398,221 $ 371,421
=================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F3
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, 1993 and 1992 (IN THOUSANDS OF DOLLARS)
LIABILITIES AND STOCKHOLDERS' EQUITY 1993 1992
===============================================================================================
<S> <C> <C>
Current liabilities
Accounts payable $ 33,622 $ 27,977
Short-term borrowings 24,605 --
Federal and state income taxes 2,463 6,372
Accrued expenses:
Royalties 27,696 27,966
Salaries, wages, and commissions 10,301 10,313
Other 10,628 9,261
- -----------------------------------------------------------------------------------------------
48,625 47,540
Current debt maturities 1,955 2,045
- -----------------------------------------------------------------------------------------------
Total current liabilities 111,270 83,934
Long-term debt 26,438 52,608
Accrued royalties payable 2,935 2,725
Other liabilities 9,413 9,364
Accrued postretirement benefits 23,948 22,874
Deferred income taxes 135 77
Commitments and contingencies (Notes 12 and 13)
Stockholders' equity
Preferred stock, $1 par value, 500,000 shares authorized, none issued -- --
Common stock, $1 par value, 70,000,000 shares authorized,
14,758,726 shares issued in 1993 and 1992 14,759 14,759
Capital in excess of par value 30,612 21,684
Retained earnings 211,222 192,326
- -----------------------------------------------------------------------------------------------
256,593 228,769
Less:
Common shares held in treasury, at cost
(232,459 shares in 1993, 347,703 shares in 1992) 1,367 2,255
Benefits trust assets, at market 31,144 26,156
Unamortized value of restricted shares -- 549
Net foreign currency translation adjustment -- 30
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 224,082 199,839
- -----------------------------------------------------------------------------------------------
$398,221 $371,421
===============================================================================================
</TABLE>
F4
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(In thousands of dollars except per share amounts) 1993 1992 1991
===========================================================================================
<S> <C> <C> <C>
Net sales $462,969 $454,706 $466,801
Costs and expenses
Cost of sales 227,969 220,278 228,930
Selling and administrative 173,070 190,118 190,477
Special charges 10,560 -- 2,532
- -------------------------------------------------------------------------------------------
411,599 410,396 421,939
- -------------------------------------------------------------------------------------------
Operating income 51,370 44,310 44,862
Other income (expense)
Loss on disposition of foreign publishing operations -- (13,527) (710)
Investment income 1,206 2,076 2,355
Interest expense (3,553) (4,415) (6,061)
- -------------------------------------------------------------------------------------------
(2,347) (15,866) (4,416)
- -------------------------------------------------------------------------------------------
Income before taxes, extraordinary item, and
cumulative effect of accounting changes 49,023 28,444 40,446
Taxes on income before extraordinary item and
cumulative effect of accounting changes 17,650 9,373 15,369
- -------------------------------------------------------------------------------------------
Income before extraordinary item and
cumulative effect of accounting changes 31,373 19,071 25,077
- -------------------------------------------------------------------------------------------
Extraordinary item, net of taxes
Loss on extinguishment of debt (1,002) -- --
Cumulative effect of accounting changes,
net of taxes
Postretirement healthcare benefits -- (13,357) --
Income taxes -- (1,300) --
- -------------------------------------------------------------------------------------------
Net income $ 30,371 $ 4,414 $ 25,077
===========================================================================================
Per share:
Income before extraordinary item and
cumulative effect of accounting changes $2.27 $1.35 $1.75
Loss on early extinguishment of debt, net ($0.07) -- --
Cumulative effect of accounting changes, net -- ($1.04) --
- -------------------------------------------------------------------------------------------
Net income $2.20 $0.31 $1.75
===========================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F5
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
YEARS ENDED DECEMBER 31, Common Capital Treasury Stock
1993, 1992, AND 1991 stock in excess of Retained ------------------
(In thousands of dollars) $1 par value par value earnings Shares Amount
===============================================================================================
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1991 $14,759 $12,269 $184,618 (499,907) $ (3,428)
Net income -- -- 25,077 -- --
Dividends paid -- -- (10,746) -- --
Stock options issued
and exercised -- 33 -- 6,927 114
Issuance of restricted
shares -- 1,115 -- 69,000 532
Share repurchases -- -- -- (57,600) (1,364)
Other equity
transactions, net -- 44 -- 3,475 43
Amortization of
restricted shares -- -- -- -- --
Foreign currency
translation adjustments -- -- -- -- --
- -----------------------------------------------------------------------------------------------
Balance at
December 31, 1991 14,759 13,461 198,949 (478,105) (4,103)
- -----------------------------------------------------------------------------------------------
Net income -- -- 4,414 -- --
Dividends paid -- -- (11,037) -- --
Stock options issued
and exercised -- 971 -- 108,747 2,067
Share repurchases -- -- -- (655,432) (19,496)
Shares sold to
benefits trust -- -- -- 650,000 18,551
Other equity
transactions, net -- (353) -- 27,087 726
Benefits trust
asset appreciation -- 7,605 -- -- --
Amortization of
restricted shares -- -- -- -- --
Foreign currency
translation adjustments -- -- -- -- --
- -----------------------------------------------------------------------------------------------
Balance at
December 31, 1992 14,759 21,684 192,326 (347,703) (2,255)
- -----------------------------------------------------------------------------------------------
Net income -- -- 30,371 -- --
Dividends paid -- -- (11,475) -- --
Stock options issued
and exercised -- 958 -- 94,486 1,419
Share repurchases -- -- -- (16,400) (654)
Other equity
transactions, net -- 2,310 -- 37,158 123
Benefits trust
asset appreciation -- 5,660 -- -- --
Amortization of
restricted shares -- -- -- -- --
Foreign currency
translation adjustments -- -- -- -- --
- -----------------------------------------------------------------------------------------------
Balance at
December 31, 1993 $14,759 $30,612 $211,222 (232,459) $ (1,367)
===============================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F6
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
<TABLE>
<CAPTION>
Unamortized Foreign
YEARS ENDED DECEMBER 31, value of currency
1993, 1992, AND 1991 Benefits restricted translation
(In thousands of dollars) trust shares adjustments Total
====================================================================================
<S> <C> <C> <C> <C>
Balance at
January 1, 1991 $ -- $ -- $ 1,286 $209,504
Net income -- -- -- 25,077
Dividends paid -- -- -- (10,746)
Stock options issued
and exercised -- -- -- 147
Issuance of restricted
shares -- (1,647) -- --
Share repurchases -- -- -- (1,364)
Other equity
transactions, net -- -- -- 87
Amortization of
restricted shares -- 549 -- 549
Foreign currency
translation adjustments -- -- (73) (73)
- ------------------------------------------------------------------------------------
Balance at
December 31, 1991 -- (1,098) 1,213 223,181
- ------------------------------------------------------------------------------------
Net income -- -- -- 4,414
Dividends paid -- -- -- (11,037)
Stock options issued
and exercised -- -- -- 3,038
Share repurchases -- -- -- (19,496)
Shares sold to
benefits trust (18,551) -- -- --
Other equity
transactions, net -- -- -- 373
Benefits trust
asset appreciation (7,605) -- -- --
Amortization of
restricted shares -- 549 -- 549
Foreign currency
translation adjustments -- -- (1,183) (1,183)
- ------------------------------------------------------------------------------------
Balance at
December 31, 1992 (26,156) (549) 30 199,839
- ------------------------------------------------------------------------------------
Net income -- -- -- 30,371
Dividends paid -- -- -- (11,475)
Stock options issued
and exercised -- -- -- 2,377
Share repurchases -- -- -- (654)
Other equity
transactions, net 672 -- -- 3,105
Benefits trust
asset appreciation (5,660) -- -- --
Amortization of
restricted shares -- 549 -- 549
Foreign currency
translation adjustments -- -- (30) (30)
- ------------------------------------------------------------------------------------
Balance at
December 31, 1993 $(31,144) $ -- $ -- $224,082
====================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F6
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(In thousands of dollars) 1993 1992 1991
=============================================================================================
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 30,371 $ 4,414 $ 25,077
Adjustments to reconcile net income to
net cash from operating activities:
Loss on disposition of foreign publishing operations -- 13,527 710
Cumulative effect of accounting changes, net of taxes -- 14,657 --
Early extinguishment of debt cost, net of taxes 1,002 -- --
Depreciation of book plates 29,589 33,333 32,654
Depreciation of property, plant, and equipment 7,168 7,491 6,765
Amortization of intangible assets 2,055 907 846
Amortization of restricted stock 549 549 549
Other, net 2,408 1,540 1,212
- ---------------------------------------------------------------------------------------------
73,142 76,418 67,813
Change in operating assets and liabilities:
Accounts receivable, net (19,497) 6,105 (7,339)
Inventories (2,454) 6,338 4,774
Royalty advances, net 1,085 (373) (114)
Accounts payable 5,645 (2,905) (2,535)
Prepaid and income taxes payable (1,455) (4,549) 179
Restructuring and closing costs 4,405 129 2,354
Other assets (1,750) (2,125) 149
Other liabilities 2,229 (2,335) 4,484
- ---------------------------------------------------------------------------------------------
(11,792) 285 1,952
- ---------------------------------------------------------------------------------------------
Net cash from operating activities 61,350 76,703 69,765
- ---------------------------------------------------------------------------------------------
Cash flows from (used in) investing activities:
Book plate expenditures (25,796) (28,459) (33,759)
Property, plant, and equipment expenditures (10,728) (9,727) (7,278)
Sale of building and equipment 2,836 -- --
Marketable securities 10,857 22,230 (3,671)
Proceeds from the sale of publishing operations -- 5,708 2,007
Acquisition of publishing assets -- (31,394) --
- ---------------------------------------------------------------------------------------------
Net cash used in investing activities (22,831) (41,642) (42,701)
- ---------------------------------------------------------------------------------------------
Cash flows from (used in) financing activities:
Dividends on common stock (10,936) (11,037) (10,746)
Dividends paid to benefits trust (539) (249) --
Commercial paper 24,605 -- (4,993)
Senior note redemption (26,511) -- --
Gollancz notes and short-term borrowings 2,000 (8,467) 1,318
Purchase of common stock (654) (19,496) (1,364)
Exercise of stock options 2,377 3,038 147
Change in long-term debt (1,260) (362) 346
- ---------------------------------------------------------------------------------------------
Net cash used in financing activities (10,918) (36,573) (15,292)
- ---------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (30) (427) (73)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 27,571 (1,939) 11,699
Cash and cash equivalents at beginning of year 39,671 41,610 29,911
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year 67,242 39,671 41,610
Marketable securities at end of year 18,107 28,964 51,194
- ---------------------------------------------------------------------------------------------
$ 85,349 $ 68,635 $ 92,804
=============================================================================================
Supplementary information:
Income taxes paid $ 19,121 $ 13,893 $ 15,296
Interest paid $ 3,632 $ 5,977 $ 5,901
=============================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F7
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 1: Significant accounting policies
==============================================================================
Principles of consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Cash and cash equivalents: Cash and cash equivalents consist primarily of
cash in banks and other short-term securities readily convertible into cash
and have original maturities of three months or less. The carrying amount
approximates fair value due to the short-term maturity of these instruments.
Marketable securities: Marketable securities are short-term investments in
instruments issued by investment grade institutions and have original
maturities of three months or greater. The securities held consist primarily
of tax-exempt municipal certificates and are stated at cost, which
approximates fair value. The fair values are estimated based on quoted market
prices.
Book returns: A provision for estimated returns, consisting of the sales
value less related inventory value and royalty costs, is made at time of
sale.
Inventories: Inventories are stated at the lower of cost or market
(replacement cost for raw materials, net realizable value for other
inventories). The last-in, first-out (LIFO) method is used to determine the
cost of inventory for substantially all of the Company's operations. The
first-in, first-out (FIFO) method is used to value the remaining inventory,
which amounted to approximately .05% and 6% of the respective inventory
balances at December 31, 1993 and 1992.
At December 31, 1993 and 1992, inventories valued at the lower of LIFO
cost or market were approximately $19,075,000 and $17,639,000, respectively,
less than they would have been valued under the FIFO method, which
approximates replacement cost. Net income for 1993, 1992, and 1991 would have
increased approximately $919,000 or $.07 per share, $935,000 or $.07 per
share, and $540,000 or $.04 per share, respectively, if the FIFO method were
used to value all inventories.
Depreciation and amortization: Depreciation and amortization are provided
over estimated useful lives as follows: buildings, leasehold and land
improvements--straight-line method; machinery and equipment and textbook and
certain reference book plates--accelerated methods. Trade publication book
plate costs and other reference plate costs are expensed when incurred.
Intangible assets: Purchased editorial publishing rights are amortized on a
straight-line basis over the estimated economic life of the titles or
contracts, but do not exceed 15 years. The excess of cost over net assets
acquired, or goodwill, is amortized on a straight-line basis over periods
that do not exceed 25 years.
F8
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 1: Significant accounting policies (con't)
==============================================================================
Income taxes: The Company provides deferred and prepaid taxes for temporary
differences in the recognition of income and expense for financial reporting
and tax accounting purposes. Differences relate principally to publishing
expenses, depreciation expense, deferred compensation, deferred income,
postretirement benefits, and allowance for book returns.
Foreign currency translation: Gains and losses on foreign currency
transactions are reflected in income. Gains and losses on translation of the
Company's net equity interests in foreign subsidiaries are reported
separately and accumulated in the "Net foreign currency translation
adjustment" in Stockholders' Equity.
Benefits trust: Assets held in the benefits trust were purchased from the
Company's treasury at quoted market value in 1992. The trust assets are only
available to fund certain of the Company's obligations for compensation and
benefit plans. At December 31, 1993 and 1992, the trust included 650,000
shares of the Company's common stock and cash of $21,000 and $237,000 for
1993 and 1992, respectively. The shares of common stock are valued at market
with changes in share price from prior reporting periods reflected as an
adjustment to capital in excess of par value.
Earnings per share: Earnings per share are based on the weighted average
number of shares of common stock deemed outstanding for financial accounting
purposes. Shares of common stock held in the benefits trust and common stock
equivalents such as employee stock options are evaluated for inclusion in the
earnings per share calculation under the treasury stock method and currently
have no dilutive effect.
Presentation: Certain 1992 and 1991 amounts have been reclassified to conform
to the 1993 presentation.
F9
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 2: Taxes on income
==============================================================================
Effective January 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." As permitted, prior years' financial statements have not been
restated. The cumulative effect of adopting SFAS No. 109 was to decrease net
income by $1.3 million for 1992.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The non-current deferred tax asset associated with the $21.5 million
cumulative postretirement benefit obligation recognized in 1992 (see Note 6)
amounted to $8.2 million at December 31, 1992. The significant components
of the Company's net deferred tax assets are shown in the following table:
1993 1992 1991
========================================================
(In thousands)
Tax liability-related:
Depreciation expense $ 1,663 $ 3,162 $ 3,733
Deferred income 3,205 2,367 2,124
- --------------------------------------------------------
4,868 5,529 5,857
Tax asset-related:
Postretirement benefits 12,566 11,004 1,938
Publishing expenses 8,745 8,087 8,686
Allowance for book
returns 3,145 6,438 5,095
Deferred compensation 2,782 2,174 2,005
Other, net 1,292 2,413 1,586
- --------------------------------------------------------
28,530 30,116 19,310
- --------------------------------------------------------
Net deferred tax assets $23,662 $24,587 $13,453
========================================================
At December 31, 1993 and 1992, net deferred tax assets represented 5.9%
and 6.6%, respectively, of the Company's consolidated total assets. The net
deferred tax asset balance is stated at prevailing statutory income tax
rates. The Company currently does not anticipate any change in valuation
methodology applied to the determination of net deferred tax assets.
F10
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 2: Taxes on income (con't)
==============================================================================
For financial reporting purposes, income before taxes, extraordinary
item, and the cumulative effect of accounting changes includes the following
components:
1993 1992 1991
==========================================================
(In thousands)
Pretax income (loss):
United States $48,137 $ 44,868 $46,346
Foreign 886 (16,424) (5,900)
- ----------------------------------------------------------
$49,023 $ 28,444 $40,446
==========================================================
Significant components of the provision for income taxes attributable to
income before taxes, extraordinary item, and the cumulative effect of
accounting changes are as follows:
1993 1992 1991
=========================================================
(In thousands)
Current:
Federal $15,715 $ 8,606 $12,836
Foreign 256 236 284
State 3,266 2,439 2,830
- ---------------------------------------------------------
Total current 19,237 11,281 15,950
Deferred:
Federal (1,398) (1,081) (475)
Foreign -- (642) --
State (189) (185) (106)
- ---------------------------------------------------------
Total deferred (1,587) (1,908) (581)
- ---------------------------------------------------------
$17,650 $ 9,373 $15,369
=========================================================
The reconciliation of the income tax rate attributable to income before
taxes and the cumulative effect of accounting changes computed at the U.S.
federal statutory tax rate to reported income tax expense is as follows:
1993 1992 1991
===================================================
Federal statutory rate 35.0% 34.0% 34.0%
State income taxes, net
of federal benefit 4.6 4.6 4.6
Foreign losses (0.5) (3.2) 1.6
Other (3.1) (2.4) (2.2)
- ---------------------------------------------------
Effective tax rate 36.0% 33.0% 38.0%
===================================================
F11
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 2: Taxes on income (con't)
==============================================================================
The Omnibus Budget Reconciliation Act of 1993 increased the federal
statutory rate applicable to the Company to 35% from 34% effective for income
earned after January 1, 1993. There were no other material changes to the
Company's effective tax rate for 1993 which resulted from this legislation.
==============================================================================
Note 3: Short-term borrowings and lines of credit
==============================================================================
At December 31, 1993, the Company had an unsecured line of credit for $25
million available to be used for direct borrowings or as support for the
issuance of commercial paper. During the year, additional lines of credit
intended to serve as support for domestic seasonal commercial paper
borrowings also were maintained. All of these were supported by commitment
fees. The $24.6 million in commercial paper borrowing outstanding at December
31, 1993 related to the Company's early redemption of $25 million of 8.78%
senior notes originally due for payment in December 1994.
==============================================================================
Note 4: Long-term debt
==============================================================================
Long-term debt at December 31, 1993 and 1992, consisted of the following:
1993 1992
===========================================================
(In thousands)
8.78% senior notes due December 15,
1994, interest payable semi-annually $ -- $25,000
8.78% senior notes due March 30,
1997, interest payable semi-annually 25,000 25,000
Capital lease obligations (Note 12) 3,393 4,653
- -----------------------------------------------------------
28,393 54,653
Less current maturities of
capital lease obligations 1,955 2,045
- -----------------------------------------------------------
$26,438 $52,608
===========================================================
Amounts due in each of the four years subsequent to December 31, 1993, in
thousands, are as follows: 1994--$1,955; 1995--$1,032; 1996--$406;
1997--$25,000.
F12
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 4: Long-term debt (con't)
==============================================================================
In June 1993, the Company completed an early redemption of $25 million of
8.78% senior notes due to mature in December 1994. The extraordinary
refinancing cost of $1.0 million, or $.07 per share, was net of an income tax
benefit of $.6 million. The Company financed the early redemption of the
senior notes with commercial paper.
The Company has used interest rate swap agreements to reduce the impact
of changes in interest rates on its financing requirements. An interest rate
swap agreement covering interest payments for the $25 million senior notes
due March 30, 1997, was in place at December 31, 1993. Under this agreement,
the Company pays semi-annual interest on the notional $25 million principal
amount at a variable rate related to the London Interbank Offering Rate
(LIBOR) and receives semi-annual interest on the notional principal at 8.78%.
The swap rate at December 31, 1993, was 7.19%. The swap will reset in March
1994, and semi-annually thereafter through March 1996.
In December 1991, the Financial Accounting Standards Board issued SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments." This
statement requires the Company to estimate the fair value of certain
financial obligations which currently are comprised of the senior notes due
in 1997. The fair value of the Company's $25 million in 8.78% senior notes is
estimated at $28 million under the assumption that the obligation was
refinanced for its remaining maturity and at prevailing interest rates on
December 31, 1993.
In September 1992, the Company filed a Registration Statement with the
Securities and Exchange Commission providing for the issuance of up to an
aggregate $100 million in debt securities. The debt securities may be issued
at dates, aggregate principal amounts, maturities, and rates (either variable
or fixed) as determined by the Company. The Company has not issued any debt
securities through the shelf availability, but expects to issue debt
securities in 1994 to finance up to $100 million of the pending acquisition
of McDougal, Littell & Company (see Note 13).
F13
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 5: Retirement plans
==============================================================================
The Company has a noncontributory, trusteed defined benefit pension plan that
covers substantially all employees. Pension benefits are generally based on
years of service and compensation during active employment. The plan's assets
consist principally of common stocks, fixed income securities, and cash and
cash equivalents. The Company provides funds sufficient to meet accrued
benefit and statutory funding requirements.
Pension expense for 1993, 1992, and 1991 included the following
components:
1993 1992 1991
==============================================================
(In thousands)
Service cost (benefits
earned during the year) $ 3,420 $ 3,336 $ 3,351
Interest cost on projected
benefit obligation 4,809 4,375 3,986
Actual (return) on
plan assets (12,136) (4,388) (10,522)
Deferral and amortization,
net 7,244 (100) 6,466
- --------------------------------------------------------------
Net pension expense $ 3,337 $ 3,223 $ 3,281
==============================================================
The following table sets forth the Plan's funded status:
1993 1992 1991
===============================================================
Actuarial assumptions:
Discount rate 7.5% 8.0% 8.0%
Increase in future
compensation 6.0% 6.5% 6.5%
Expected long-term rate of
return on assets 8.5% 8.5% 8.5%
- ---------------------------------------------------------------
Plan assets at fair value
at September 30 $70,064 $55,234 $50,715
Projected benefit
obligation 69,674 61,311 56,433
- ---------------------------------------------------------------
Excess (deficiency) of plan
assets over projected
benefit obligation at
September 30 390 (6,077) (5,718)
F14
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 5: Retirement plans (con't)
==============================================================================
Unrecognized items:
Net (gain) loss (3,346) 1,096 1,561
Prior service cost 242 300 329
Net transition asset (1,607) (1,790) (1,973)
Cash contribution after
September 30 425 2,720 3,047
- ---------------------------------------------------------------
Accrued pension liability
at December 31 $(3,896) $(3,751) $(2,754)
- ---------------------------------------------------------------
Actuarial present value of
accumulated benefits at
September 30 $54,357 $41,573 $36,013
Accumulated benefit
obligation related to
vested benefits at
September 30 $49,172 $37,433 $29,920
===============================================================
The actuarial assumption changes made in 1993 have been applied to the
determination of the September 30, 1993 benefit obligation valuations. The
impact on pension expense, which is not expected to be material, will be
recognized in 1994.
Due to workforce changes in 1993, there was a reduction in the Company's
defined benefit pension obligation. A pre-tax expense reduction of $1,164,000
($745,000 after-tax, or $.05 per share) was recorded in the fourth quarter of
1993 in accordance with Financial Accounting Standard No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans."
In addition, the Company has an Employees' Savings and Thrift Plan which
conforms to Section 401(K) of the Internal Revenue Code. Under the plan,
which covers substantially all of the Company's domestic employees,
participants may elect to contribute up to 15% of their compensation subject
to an annual limit, which was $8,994 in 1993, to three funds: a fixed income
fund, an equity fund, and a fund invested solely in the Company's common
stock.
Under the plan, the Company may match an employee's contribution in
varying amounts up to 3% of the employee's compensation. The Company's
contribution expense in connection with the Plan, which is invested solely in
shares of the Company's common stock, amounted to approximately $1,663,000 in
1993, $1,782,000 in 1992, and $1,379,000 in 1991.
F15
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 6: Postretirement benefits
==============================================================================
In addition to the provision of pension benefits, the Company also maintains
a contributory plan that provides health care coverage to eligible retirees.
The expenses for postretirement health care coverage were recognized for
accounting purposes when paid in years prior to 1992. The Company adopted the
provisions of SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," in the fourth quarter of 1992 with effect from
January 1, 1992. The Company's initial accumulated postretirement benefits
obligation was $21.5 million, representing the actuarially determined present
value of the benefits earned under the Company's plan prior to January 1,
1992. The after-tax cost of the $21.5 million charge amounted to $13.4
million, or $.95 per share, in 1992.
The Company has not specifically funded the retiree health care
liability, although the benefits trust formed on June 3, 1992, was
established to provide funding for certain of the Company's future
obligations for compensation and benefit plans, including the costs of
retiree health care. At December 31, 1993 and 1992, the fair value of the
benefits trust assets was $31.1 million and $26.2 million, respectively. The
benefits trust assets are comprised almost entirely of the Company's common
stock. Under the terms of the trust agreement, proceeds from the periodic
sale of common stock by the trustee, as well as cash dividends received, will
be used to pay designated compensation and benefit plan obligations.
The following table sets forth the changes in the accrued postretirement
benefits liability, in thousands:
1993 1992
=====================================================
Balance at beginning of year $22,874 $ 0
Accumulated postretirement
benefits transition obligation -- 21,545
Annual expense:
Service cost 426 444
Interest on unfunded liability 1,859 1,679
- -----------------------------------------------------
2,285 2,123
Claims paid (1,211) (794)
- -----------------------------------------------------
Balance at end of year $23,948 $22,874
=====================================================
F16
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 6: Postretirement benefits (con't)
==============================================================================
The principal actuarial assumptions used to determine the Company's 1992
postretirement benefits transition obligation were an 8% discount rate and
health care cost inflation of 14%, declining one percent per annum through
the year 2000. A rate of 13% for health care inflation was utilized in 1993
to determine accounting expense for the year. The Company's 1993 accounting
expense and accumulated postretirement benefit obligation would increase by
$146,000 and $1,813,000, respectively, had the inflation rate been held at
14% for 1993. The Company expects to adjust the discount rate to 7.5% and
reduce the health care inflation rate to 11.5% for 1994. These changes
reflect decreases in long-term interest rates and a moderation in health care
costs experienced by the Company over the past two years.
==============================================================================
Note 7: Stock options
==============================================================================
The Company has granted options under the 1982 Incentive Stock Option Plan
(the 1982 Plan), the 1987 Stock Compensation Plan (the 1987 Plan), and the
1992 Stock Compensation Plan (the 1992 Plan). Under each of the plans, shares
of common stock are reserved and authorized to be issued upon the exercise of
stock options, restricted or bonus stock, or other performance awards. In
1991, 81,000 shares of restricted stock were awarded under the 1987 Plan, of
which 50,000 remained outstanding at the end of 1993. Options granted under
all plans become exercisable at such times as the Board of Directors has
determined, but not later than 10 years from the date of the grant. As of
December 31, 1993, options for 114,578 shares remained exercisable under the
1987 Plan, and 49,243 shares remained exercisable under the 1992 Plan.
F17
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 7: Stock options (con't)
==============================================================================
Activity under the 1982, 1987, and 1992 stock option plans during the
past three years is summarized as follows:
<TABLE>
<CAPTION>
Options outstanding
------------------------------------------------------
Option price
Unissued -------------------------- Shares
option shares Shares Per share Total exercisable
=========================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990 346,872 615,076 $22.75-49.25 $ 23,358,802 357,182
Granted (260,400) 179,400 23.88 4,283,175
Became exercisable 22.25-49.25 203,744
Exercised (10,146) 22.75-23.88 238,546 (10,146)
Terminated/expired 331,568 (319,568) 22.75-49.25 (13,888,353) (225,874)
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 418,040 464,762 22.25-49.25 13,992,170 324,906
1992 Plan reserved 700,000
Granted (17,000) 17,000 35.25 599,250
Became exercisable 23.88-35.25 64,183
Exercised (129,495) 23.88-39.00 (4,187,063) (129,495)
Terminated/expired 93,824 (93,824) 23.88-34.38 (3,160,913) (87,592)
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 1,194,864 258,443 22.25-49.25 7,243,444 172,002
Granted (196,000) 196,000 44.63 8,746,500
Became exercisable 23.25-49.25 93,592
Exercised (94,486) 23.88-44.63 (2,377,323) (94,486)
Terminated/expired 14,240 (14,240) 23.88-44.63 (494,787) (7,287)
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 1,013,104 345,717 $22.25-49.25 $ 13,117,834 163,821
=========================================================================================================
</TABLE>
F18
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 8: Sale of foreign publishing operations
==============================================================================
In the fourth quarter of 1992, the Company announced the sale of certain
foreign operations. The areas sold included the publishing and distribution
operations of Gollancz (Holdings) Limited, a wholly owned subsidiary based in
England, and the majority of the school publishing rights owned by Houghton
Mifflin Canada Limited. The Company's net income for 1992 included a pre-tax
loss of $13.5 million resulting from the disposition of these operations,
including unamortized Gollancz goodwill of $9.2 million. The after-tax
transaction losses in 1992 related to the sale of foreign operations amounted
to $7.0 million, or $.50 per share.
In 1991, the Company sold substantially all of the assets of its
Australian subsidiary and incurred a loss of $.7 million in connection with
closing that operation.
A summary of the net sales and financial performance of the foreign
operations sold that are included in the Company's consolidated results is
set forth in the following table:
Year ended December 31, 1992 1991
================================================
(In thousands, except per share)
Net sales $14,299 $15,390
================================================
Operating loss (2,453) (4,923)
Net interest expense (389) (401)
- ------------------------------------------------
Net loss $(2,842) $(5,324)
================================================
Net loss per share $ (0.20) $ (0.37)
================================================
F19
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 9: Acquisitions
==============================================================================
In October 1992, the test publishing assets of the Assessment Division of
DLM, Inc., (DLM) were acquired for $17 million in cash. The assets included
the publishing rights for and inventory of a list of clinical/special needs
assessment products.
In October 1992, a 17.5% ownership interest in Cassell PLC, a privately
held company based in London, England, was acquired for $4.4 million in cash.
Cassell publishes general works with particular emphasis on the reference
area. Cassell, in a separate transaction, purchased the Gollancz (Holdings)
Limited publishing subsidiary in October 1992.
The publishing assets of College Survival, Inc., publisher of "Becoming a
Master Student", one of the best-selling domestic college textbooks, were
purchased on December 31, 1992, for $10 million in cash.
The DLM and College Survival assets acquired were accounted for under the
purchase accounting method. Accordingly, the assets purchased were valued at
their fair market values, of which $21.3 million was attributed to intangible
assets. The following table presents the unaudited pro forma results of
operations for the DLM and College Survival assets acquired as if both
transactions had occurred on January 1, 1991. The results, which would have
been incremental to the Company, give effect to adjustments for the
amortization of publishing rights, goodwill, and net interest expense. These
pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisitions
been made at the beginning of 1991, or of results which may occur in the
future.
Year ended December 31, 1992 1991
=============================================
(In thousands, except per share)
Net sales $14,464 $14,767
=============================================
Pre-tax income $ 4,019 $ 2,626
=============================================
Net income $ 2,492 $ 1,628
=============================================
Net income per share $ 0.18 $ 0.11
=============================================
The DLM and College Survival acquisitions are reflected in the
educational publishing segment. The Cassell PLC investment is reflected in
the general publishing segment and is accounted for using the cost method.
F20
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 10: Special charges
==============================================================================
The Company undertook a number of restructuring actions in 1993 and 1991
related to its corporate and domestic publishing activities. A summary of the
principal actions taken and related costs is set forth in the table below:
Year ended December 31, 1993 1991
=====================================================
(In thousands, except per share)
Corporate and divisional
workforce realignment $ 7,500 $2,532
Warehouse closure and sale 900 --
Headquarters relocation 2,160 --
- -----------------------------------------------------
10,560 2,532
Income tax credit 3,960 962
- -----------------------------------------------------
Net charge to net income $ 6,600 $1,570
=====================================================
Per share cost $ .48 $ .11
=====================================================
==============================================================================
Note 11: Preferred stock purchase plan
==============================================================================
In December 1988, the Company adopted a Stockholders' Rights Plan and
declared a dividend distribution of one Right for each outstanding share of
common stock. The Rights are attached to the common stock and do not have
voting or dividend rights, and until they become exercisable, can have no
dilutive effect on the earnings of the Company. Each Right, when exercisable,
entitles the holder to purchase, at an exercise price of $125, one
one-thousandth of a share of Series A Junior Participating Preferred Stock.
The Rights will become exercisable after a person or group has acquired
ownership of 20% or more of the outstanding common stock, or the commencement
of a tender or exchange offer that would result in a person or group owning
30% or more of the common stock, or the determination by the Continuing
Directors that a person or group which has acquired a substantial amount (at
least 15%) of the outstanding common stock is an Adverse Person (as defined
in the Rights Agreement). Any declaration by the Continuing Directors that a
person is an Adverse Person, any acquisition of 30% or more of the
outstanding common stock (except pursuant to an offer the Outside Directors
have determined is fair to, and in the best interest of, the Company and its
stockholders) and certain mergers, sales of assets, or other "self-dealing"
transactions with a holder of 20% or more of the outstanding common stock,
may entitle each Right holder, other than the potential acquirer, to receive
upon exercise of each Right an amount of common stock or common stock of the
acquirer in the case of certain mergers
F21
<PAGE>
==============================================================================
Note 11: Preferred stock purchase plan (con't)
==============================================================================
or sales of assets, having a market value equal to twice the exercise price
of the Right. In general, the Company may redeem the Rights in whole at a
price of $.05 per Right at any time prior to the tenth day after a person
or group acquires 20% or more of the outstanding common stock. The Company
may not redeem the Rights if the Continuing Directors have declared someone
to be an Adverse Person. The Rights will expire in December 1998.
==============================================================================
Note 12: Commitments and contingencies
==============================================================================
Lease obligations: The Company has various lease agreements for warehouse and
office space, which are accounted for as operating leases. Other leases for
automobiles, office equipment, and computer equipment, which meet capitalized
lease criteria, are recorded as machinery and equipment in the accompanying
financial statements.
At December 31, 1993 and 1992, capital leases reported as property,
plant, and equipment were as follows:
1993 1992
======================================================
(In thousands)
Machinery and equipment $5,925 $7,295
Less accumulated depreciation 2,551 2,727
- ------------------------------------------------------
Net machinery and equipment $3,374 $4,568
======================================================
In May 1993, the Company's corporate, publishing, and support functions
consolidated and relocated to new Boston headquarters. The primary term of
the lease for the new headquarters expires on March 1, 2007, and the Company
has options to extend that term.
F22
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 12: Commitments and contingencies (con't)
==============================================================================
The future minimum rental commitments under all noncancelable leases,
including the above commitment, are as follows:
Capital Operating leases
Year leases (primarily real estate)
==================================================================
(In thousands)
1994 $2,048 $ 8,699
1995 1,108 8,919
1996 446 8,586
1997 -- 7,806
1998 -- 7,801
Thereafter -- 57,185
- ------------------------------------------------------------------
Total minimum
lease payments $3,602 $98,996
- ------------------------------------------------------------------
Less:
Interest cost 209
- ------------------------------------------------------------------
Present value of minimum
lease payments $3,393
==================================================================
The Company's leases for corporate, administrative, and editorial
locations include renewal options and escalation clauses for the Company's
proportionate share of increases in building maintenance costs.
Rent expense for operating leases was approximately $9,850,000 in 1993,
$11,100,000 in 1992, and $11,000,000 in 1991.
Contingencies: The Company is involved in ordinary and routine litigation
incidental to its business. There are no pending legal proceedings that would
materially affect the financial position of the Company.
F23
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 13: Subsequent events
==============================================================================
In the fourth quarter of 1993, the Company announced its intention to
transfer the assets, businesses, and employees of its Software Division to a
newly-formed company, InfoSoft International, Inc. ("InfoSoft"). On January
12, 1994, InfoSoft filed a registration statement with the Securities and
Exchange Commission on Form S-1 and updated that registration statement on
February 2, 1994. The Company's equity interest in InfoSoft after the
offering is expected to exceed 40%.
On January 7, 1994, the Company announced that it had entered into an
agreement to purchase the outstanding common stock of McDougal, Littell &
Company a leading school textbook publisher, for $138 million in cash. The
Company will finance the acquisition and related costs through a combination
of debt and operating cash. The acquisition is expected to be completed in
the first quarter of 1994.
F24
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Note 14: Segment information
==============================================================================
The Company's principal business is publishing and is divided into two
segments: (a) textbooks and other educational materials and services for the
school and college markets; and (b) general publishing, including fiction,
nonfiction, software, children's books, and reference materials.
A comparative summary of information about the Company's operations by
segment for the years 1993, 1992, and 1991 appears below. Segment information
for 1991 has been restated to reflect separately net sales and losses from
operations of foreign businesses sold in 1992 and 1991. Corporate expenses
include compensation of corporate officers, certain system development
costs, certain occupancy costs, stockholder reporting expenses,
and legal and consulting fees. Corporate assets are principally cash,
marketable securities, and prepaid income taxes.
<TABLE>
<CAPTION>
Textbooks and other
educational materials General
1993 and services publishing Corporate Consolidated
=============================================================================================================
<S> <C> <C> <C> <C>
Net sales $357,198 $105,771 $ -- $462,969
- -------------------------------------------------------------------------------------------------------------
Segment income $ 68,933 $ 11,862 $ -- $ 80,795
- -------------------------------------------------------------------------------------------------------------
General corporate expenses (18,865) (18,865)
Special charges (4,976) -- (5,584) (10,560)
Interest expense, net (2,347) (2,347)
- -------------------------------------------------------------------------------------------------------------
Income before taxes and extraordinary
item $ 63,957 $ 11,862 $(26,796) $ 49,023
- -------------------------------------------------------------------------------------------------------------
Identifiable assets $175,378 $ 84,559 $ -- $259,937
Corporate assets 138,284 138,284
- -------------------------------------------------------------------------------------------------------------
Total assets $175,378 $ 84,559 $138,284 $398,221
- -------------------------------------------------------------------------------------------------------------
Depreciation and amortization expense $ 34,044 $ 1,600 $ 3,168 $ 38,812
Purchase of property, plant, and equipment,
including book plates $ 26,918 $ 3,182 $ 6,424 $ 36,524
=============================================================================================================
1992
=============================================================================================================
Net sales from ongoing operations $348,581 $ 91,826 $ -- $440,407
Net sales from foreign operations sold 4,920 9,379 -- 14,299
- -------------------------------------------------------------------------------------------------------------
Net sales $353,501 $101,205 $ -- $454,706
- -------------------------------------------------------------------------------------------------------------
Income from ongoing operations $ 57,555 $ 9,027 $ -- $ 66,582
Loss from foreign operations sold (535) (1,918) -- (2,453)
- -------------------------------------------------------------------------------------------------------------
Segment income $ 57,020 $ 7,109 $ -- $ 64,129
- -------------------------------------------------------------------------------------------------------------
General corporate expenses (19,819) (19,819)
Loss on sale of foreign publishing operations (1,468) (12,059) (13,527)
Interest expense, net (2,339) (2,339)
- -------------------------------------------------------------------------------------------------------------
Income before taxes and cumulative effect
of accounting changes $ 55,552 $ (4,950) $(22,158) $ 28,444
- -------------------------------------------------------------------------------------------------------------
Identifiable assets $152,844 $ 75,704 $ -- $228,548
Acquired assets 27,040 4,354 2,000 33,394
Corporate assets 109,479 109,479
- -------------------------------------------------------------------------------------------------------------
Total assets $179,884 $ 80,058 $111,479 $371,421
- -------------------------------------------------------------------------------------------------------------
Depreciation and amortization expense $ 37,233 $ 1,862 $ 1,729 $ 40,824
Purchase of property, plant, and equipment,
including book plates $ 33,752 $ 1,632 $ 2,802 $ 38,186
=============================================================================================================
1991
=============================================================================================================
Net sales from ongoing operations $366,870 $ 84,541 $ -- $451,411
Net sales from foreign operations sold 3,362 12,028 -- 15,390
- -------------------------------------------------------------------------------------------------------------
Net sales $370,232 $ 96,569 $ -- $466,801
- -------------------------------------------------------------------------------------------------------------
Income from ongoing operations $ 66,143 $ 5,411 $ -- $ 71,554
Loss from foreign operations sold (1,035) (3,888) -- (4,923)
- -------------------------------------------------------------------------------------------------------------
Segment income $ 65,108 $ 1,523 $ -- $ 66,631
- -------------------------------------------------------------------------------------------------------------
General corporate expenses (19,244) (19,244)
Special charges (2,525) (2,525)
Loss on disposition of foreign
publishing operation (710) -- (710)
Interest expense, net (3,706) (3,706)
- -------------------------------------------------------------------------------------------------------------
Income before taxes $ 65,108 $ 813 $(25,475) $ 40,446
- -------------------------------------------------------------------------------------------------------------
Identifiable assets $173,748 $ 89,118 $ -- $262,866
Corporate assets 118,914 118,914
- -------------------------------------------------------------------------------------------------------------
Total assets $173,748 $ 89,118 $118,914 $381,780
- -------------------------------------------------------------------------------------------------------------
Depreciation and amortization expense $ 36,111 $ 1,583 $ 1,725 $ 39,419
Purchase of property, plant, and equipment,
including book plates $ 36,999 $ 2,109 $ 1,929 $ 41,037
=============================================================================================================
</TABLE>
F25
<PAGE>
<PAGE>
HOUGHTON MIFFLIN COMPANY
<TABLE>
SCHEDULE V - CONSOLIDATED PROPERTY, PLANT, AND EQUIPMENT
Years ended December 31, 1993, 1992, and 1991
(in thousands)
<CAPTION>
Balance at Balance
beginning Additions Sales and at end of
Classifications Year of year at cost Other Retirements year
- --------------- ---- ---------- --------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Land and land 1993 $3,220 $ - $ - $1,270 $1,950
improvements 1992 3,220 - - - 3,220
1991 3,220 - - - 3,220
Buildings and 1993 $18,030 $106 $ - $3,777 $14,359
building equipment 1992 17,916 114 - - 18,030
1991 17,745 179 - 8 17,916
Machinery and 1993 $41,269 $9,040 $ - $4,588 $45,721
equipment 1992 36,919 8,654 - 4,304 41,269
1991 34,499 6,322 - 3,902 36,919
Leasehold 1993 $10,754 $1,582 $ - $7,869 $4,467
improvements 1992 10,241 959 - 446 10,754
1991 9,519 777 - 55 10,241
Plates 1993 $102,631 $25,796 $ - $40,615 $87,812
1992 98,816 28,459 *1,250 25,894 102,631
1991 86,002 33,759 - 20,945 98,816
<FN>
The cost of buildings, machinery and equipment, leasehold improvements, and plates is depreciated, or
amortized, over the estimated useful lives of such assets, as follows: buildings, 31 years; building
equipment, 10 years; machinery and equipment, 5-8 years; leasehold improvements, over the life of the lease;
and plates, primarily 3 years.
* Costs attributable to plates included in 1992 acquisition cost for test publishing assets of the
Assessment Division of DLM, Inc.
</TABLE>
F26
<PAGE>
<PAGE>
HOUGHTON MIFFLIN COMPANY
<TABLE>
SCHEDULE VI - CONSOLIDATED ACCUMULATED
DEPRECIATION AND AMORTIZATION
Years ended December 31, 1993, 1992, and 1991
(in thousands)
<CAPTION>
Balance at Additions
beginning charged to Sales and Balance at
Classifications Year of year expense Retirements end of year
- --------------- ---- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Land 1993 $524 $54 $155 $423
improvements 1992 463 61 - 524
1991 399 64 - 463
Buildings and 1993 $8,871 $639 $1,874 $7,636
building 1992 8,192 679 - 8,871
equipment 1991 7,484 716 8 8,192
Machinery and 1993 $25,883 $5,767 $3,868 $27,782
equipment 1992 23,050 5,856 3,023 25,883
1991 20,744 5,065 2,759 23,050
Leasehold 1993 $5,341 $708 $4,899 $1,150
improvements 1992 4,746 895 300 5,341
1991 3,855 920 29 4,746
Plates 1993 $61,241 $29,589 $39,682 $51,148
1992 53,475 33,333 25,567 61,241
1991 41,523 32,654 20,702 53,475
</TABLE>
F27
<PAGE>
<PAGE>
HOUGHTON MIFFLIN COMPANY
SCHEDULE VIII - CONSOLIDATED VALUATION ACCOUNTS
Years ended December 31, 1993, 1992, and 1991
(in thousands)
Additions
Balance at charged Balance
beginning (credited) at end
of year to income Retirements of year
- --------------------------------------------------------------------------
1993
- ----
Allowance for book
returns $16,671 $(4,346) $ - $12,325
Allowance for authors'
advances 9,545 2,466 145 11,866
1992
- ----
Allowance for book
returns $15,878 $ 793 $ - $16,671
Allowance for authors'
advances 10,705 2,351 3,511 9,545
1991
- ----
Allowance for book
returns $13,401 $2,477 $ - $15,878
Allowance for authors'
advances 9,281 2,356 932 10,705
F28
<PAGE>
<PAGE>
HOUGHTON MIFFLIN COMPANY
SCHEDULE IX - CONSOLIDATED SHORT-TERM BORROWINGS
Years ended December 31, 1993, 1992, and 1991
(in thousands)
Year Maximum Amount Average Weighted*
Ended Outstanding at End Daily Average
December 31 of Any Month Outstanding Interest Rate
- ----------- ----------------- ----------- -------------
1993 $54,892 $ 7,459 3.24%*
1992 $12,156 $ 3,196 9.82%**
1991 $26,644 $ 6,815 7.53%**
*Calculated based on short-term borrowings, their related rates
of interest, and the period borrowings were outstanding during
the year. Commercial paper outstanding at December 31, 1993,
was $24,605,000.No commercial paper was outstanding at December 31,
1992 or 1991.
**Domestic short-term borrowings amounted to $1.0 million at a
weighted average rate of 3.4% in 1992 and $5.4 million at
a weighted average rate of 6.1% in 1991.
SCHEDULE X - CONSOLIDATED SUPPLEMENTARY
INCOME STATEMENT INFORMATION
Years ended December 31, 1993, 1992, and 1991
(in thousands)
Charged to Operating Costs and Expenses
-----------------------------------
1993 1992 1991
------- ------- -------
Royalties $44,382 $43,135 $42,538
======= ======= =======
Advertising costs $15,117 $16,453 $15,369
======= ======= =======
F29
<PAGE>
- ------------------------- HOUGHTON MIFFLIN COMPANY -------------------------
<TABLE>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
<CAPTION>
(Unaudited, in thousands of dollars
except per share amounts) First Second Third Fourth
1993 Quarter Quarter Quarter Quarter Year
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $ 49,721 $121,204 $208,510 $ 83,534 $462,969
Gross profit (net sales less cost of sales) 14,148 61,496 120,226 39,130 235,000
Net income (loss) before extraordinary item (14,933) 4,482 41,544 280 31,373
Extraordinary item, net of taxes -- (1,002) -- -- (1,002)
Net income (loss) (14,933) 3,480 41,544 280 30,371
Per share:
Net income (loss) before extraordinary item (1.08) 0.32 3.00 0.02 2.27
Extraordinary item, net of taxes -- (0.07) -- -- (0.07)
Net income (loss) (1.08) 0.25 3.00 0.02 2.20
===========================================================================================================
1992
===========================================================================================================
Net sales $ 52,096 $125,670 $198,760 $ 78,180 $454,706
Gross profit 16,667 65,048 115,806 36,907 234,428
Net income (loss) before cumulative
effect of accounting changes (14,023) 11,697 33,989 (12,592) 19,071
Cumulative effect of accounting
changes, net of taxes (14,657) -- -- -- (14,657)
Net income (loss) (28,680) 11,697 33,989 (12,592) 4,414
Per share:
Net income (loss) before cumulative
effect of accounting changes (0.98) 0.82 2.46 (0.91) 1.35
Cumulative effect of accounting
changes, net of taxes (1.02) -- -- -- (1.04)
Net income (loss) (2.00) 0.82 2.46 (0.91) 0.31
===========================================================================================================
1991
===========================================================================================================
Net sales $ 49,917 $127,199 $211,248 $ 78,437 $466,801
Gross profit 14,581 69,683 119,278 34,329 237,871
Net income (loss) (15,569) 12,413 33,815 (5,582) 25,077
Net income (loss) per share (1.09) 0.87 2.36 (0.39) 1.75
===========================================================================================================
</TABLE>
The above quarterly information indicates the seasonal fluctuations of the
Company's educational publishing business.
The second quarter of 1993, the fourth quarter of 1992, and the third
quarter of 1991 include charges related to the Company's corporate, domestic,
and foreign publishing operations which are of an unusual nature. Notes 8 and
10 to the consolidated financial statements describe the transactions and
related financial statement impact.
The first and fourth quarters of 1992 include accounting changes made by
the Company to comply with the Financial Accounting Standards Board standards
for Postretirement Benefits Other Than Pensions and for IncomeTaxes. The net
loss and related per share amounts shown above for the first and fourth
quarters of 1992 differ from previously reported results. This presentation
reflects the recognition of the cumulative effect of accounting changes for
both standards at the beginning of 1992 rather than in the quarter adoption
of the standard was announced. The results for the full year 1992 are
unchanged.
In the second quarter of 1993, the Company completed an early redemption
of $25 million of 8.78% senior notes due December 1994. The extraordinary
loss of $1.0 million is net of an income tax benefit of $.6 million. Note 4
to the consolidated financial statements describes the transaction.
25
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized this 21st day of March, 1994.
HOUGHTON MIFFLIN COMPANY
/S/ Stephen O. Jaeger
------------------------
Stephen O. Jaeger
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Accounting and Financial Officer)
28
<PAGE>
HOUGHTON MIFFLIN COMPANY
INDEX TO EXHIBITS
(Item 14(a)(3))
Exhibit No. Description of Document Page number in this report*
(23) Consents of Experts and Counsel Page 39
*Page number refers to sequentially numbered copy
29
<PAGE>
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 2-69298, 33-14850, 2-80045, and 33-51098 and Form S-3 No. 33-
51700) and related prospectuses of our report dated January 18, 1994, with
respect to the consolidated financial statements and schedules of Houghton
Mifflin Company, as amended, included in this Form 10-K/A.
/S/ERNST & YOUNG
----------------
ERNST & YOUNG
Boston, Massachusetts
March 18, 1994
39
