FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period from January 1, 1995 to March 31, 1995
Commission file number 1-5406
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HOUGHTON MIFFLIN COMPANY
- --------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-1456030
- ------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
222 Berkeley Street, Boston 02116-3754
- ------------------------------- -----------------------
(Address of principal (Zip Code)
executive offices)
(617) 351-5000
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Registrant's telephone number, including area code
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report.)
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 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of April 30,1995.
Class Outstanding at April 30, 1995
- ----------------------- --------------------------------
Common Stock, $1 par value 14,453,699
Preferred Stock Purchase Rights 14,453,699
1 of 18
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HOUGHTON MIFFLIN COMPANY
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets (unaudited)---
March 31, 1995 and 1994 and December 31, 1994 3 - 4
Consolidated Condensed Results of Operations
and Retained Earnings (unaudited) ---
Three Months Ended March 31, 1995 and 1994 5
Consolidated Condensed Statements of Cash Flows
(unaudited) ---
Three Months Ended March 31,1995 and 1994 6
Notes to Consolidated Condensed
Financial Statements (unaudited) 7 - 10
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 11 - 17
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
2
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HOUGHTON MIFFLIN COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1995 AND 1994 and DECEMBER 31, 1994
(In thousands of dollars, except share amounts)
(Unaudited)
ASSETS
March 31 March 31 December 31
1995 1994 1994
-------- -------- ----------
Current assets:
Cash and cash
equivalents $ 11,533 $ 23,123 $ 30,372
Marketable securities,
available-for-sale,
at fair value 604 9,065 16,821
Accounts receivable 83,818 74,612 143,599
Less allowance for
book returns 8,522 8,872 12,836
------ ------ -------
75,296 65,740 130,763
Inventories:
Finished goods 70,311 70,123 55,174
Work in process 3,694 3,983 4,460
Raw materials 3,946 3,150 2,027
------ ------ ------
77,951 77,256 61,661
Current income tax benefit 12,892 205 -
Deferred income taxes
and prepaid expenses 16,028 21,307 10,484
------ ------- -------
Total current assets 194,304 196,696 250,101
Property, plant, and
equipment and book plates
(net of accumulated
depreciation and amort-
ization of $101,482 in
1995, $92,570 in 1994
and $96,173 at
December 31, 1994) 70,705 80,464 68,888
Intangible assets, net 122,525 131,040 124,408
Other assets, 59,920 55,939 53,869
------ ------- ------
$ 447,454 $ 464,139 $ 497,266
======= ======= =======
See accompanying notes to unaudited
consolidated condensed financial statements.
3
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HOUGHTON MIFFLIN COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1995 AND 1994, and DECEMBER 31, 1994
(In thousands of dollars, except share amounts)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 March 31 December 31
1995 1994 1994
-------- -------- ----------
Current liabilities:
Accounts payable $ 33,620 $ 29,108 $ 45,023
Commercial paper - 24,820 -
Royalties 28,451 28,053 32,947
Salaries, wages,
and commissions 974 726 13,634
Other accrued expenses 12,975 18,027 13,106
Current debt maturities - 1,438 -
------ ------ ------
Total current
liabilities 76,020 102,172 104,710
Long-term debt 99,460 101,392 99,445
Accrued royalties 3,035 4,478 3,169
Other liabilities 13,132 9,866 13,005
Accrued postretirement
benefits 25,218 24,164 24,864
Stock repurchase
commitment 7,600 - 7,600
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 14,759 14,759 14,759
Capital in excess of
par value 23,595 26,696 22,316
Retained earnings 227,185 210,206 248,828
Notes receivable from
purchase agreements (5,923) - (5,841)
------- ------- -------
259,616 251,661 280,062
Common shares held in
treasury, at cost
(308,403 at March 31, 1995
263,708 at March 31, 1994
and 328,685 at December 31,
1994) (6,254) (3,650) (6,091)
Benefits trust assets,
at market value (30,373) (25,944) (29,498)
------- ------ -------
Total stockholders' equity 222,989 222,067 244,473
------- ------- -------
$ 447,454 $ 464,139 $ 497,266
======= ======= =======
See accompanying notes to unaudited
consolidated condensed financial statements.
4
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HOUGHTON MIFFLIN COMPANY
CONSOLIDATED CONDENSED RESULTS OF OPERATIONS
AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1995 and 1994
(Unaudited, in thousands of dollars,
except per share amounts)
1995 1994
--------- ----------
Net sales by industry segment:
Educational publishing:
School $ 23,472 $ 20,296
College 9,557 9,680
------- ------
33,029 29,976
General publishing 17,476 19,412
------- ------
50,505 49,388
Cost and expenses:
Cost of sales 39,881 37,866
Selling and administrative 40,094 37,098
Special charges - 6,513
------- ------
79,975 81,477
------- ------
Operating loss (29,470) (32,089)
Other income (expense):
Gain on sale of interest in
Software Division - 36,212
Net interest expense (1,531) (552)
Equity in earning of
INSO Corporation 621 249
------- ------
Income (loss) before taxes and
extraordinary item (30,380) 3,820
Income tax provision (benefit) (11,848) 610
------- --------
Income (loss) before
extraordinary item (18,532) 3,210
Extraordinary loss on early
extinguishment of debt (net
of tax benefit of $759) - (1,239)
------- ------
Net income (loss) (18,532) 1,971
Retained earnings at
beginning of period 248,828 211,222
Valuation allowance on noncurrent
marketable equity securities (7) -
Dividends declared (3,104) (2,987)
------- ------
Retained earnings at end
of period $ 227,185 $ 210,206
======== =======
Per share:
Income (loss) before
extraordinary item $ (1.34) $ 0.23
Loss on early extinguishment
of debt - (0.09)
-------- -------
Net income (loss) per share $ (1.34) $ 0.14
======== =======
Cash dividends paid per
common share $ 0.225 $ 0.215
========== ==========
Average number of common shares 13,790 13,877
========== ==========
See accompanying notes to unaudited
consolidated condensed financial statements.
5
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HOUGHTON MIFFLIN COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 and 1994
(Unaudited, in thousands of dollars)
1995 1994
--------- ----------
Cash flows provided by (used in)
operating activities
Net income (loss) $(18,532) $ 1,971
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Gain on sale of interest in
Software Division - (36,212)
Loss on early extinguishment
of debt, net - 1,239
Equity in earnings of
INSO Corporation (621) (249)
Depreciation and amortization 7,236 5,857
Changes in assets and liabilities:
Accounts receivable 55,467 38,242
Inventories (16,290) (317)
Royalties (8,403) 2,130
Accounts payable (11,043) (7,195)
Deferred and income taxes
payable (13,176) (8,504)
Salaries, wages and commissions (12,660) (9,564)
Other assets and liabilities (6,699) (1,384)
------- ------
Net cash used in operating activities (24,721) (13,986)
------- ------
Cash flows from (used in) investing
activities
Acquisition of McDougal, Littell,
net of cash acquired - (130,342)
Dividend received from
INSO Corporation - 32,860
Book plate expenditures (5,338) (7,050)
Property, plant, and equipment
expenditures (1,844) (1,778)
Marketable securities 16,217 9,042
------- ------
Net cash provided by (used in )
investing activities 9,035 (97,268)
------ ------
Cash flows provided by (used in)
financing activities
Dividends paid on common shares (3,104) (2,987)
McDougal, Littell financing - 100,000
Purchase of common stock (957) (2,987)
Exercise of stock options 908 418
Senior notes prepayment - (26,960)
Other - (349)
------- ------
Net cash provided by (used in)
financing activities (3,153) 67,135
------- ------
Decrease in cash and
cash equivalents (18,839) (44,119)
Cash and cash equivalents
at beginning of period 30,372 67,242
------- ------
Cash and cash equivalents
at end of period $ 11,533 $ 23,123
====== ======
Supplementary disclosure of cash
flow information:
Income taxes paid $ 1,357 $ 1,954
Interest paid $ 531 $ 1,616
See accompanying notes to unaudited
consolidated condensed financial statements
6
<PAGE>
HOUGHTON MIFFLIN COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(1) All normal and recurring adjustments that are, in the
opinion of management, necessary for a fair
presentation of the results for the interim
periods have been included.
The information contained in the interim financial
statements should be read in conjunction with the
Company's latest Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
Results of interim periods are not necessarily
indicative of results to be expected for the
year as a whole. The effect of seasonal business
fluctuations and the occurrence of many costs and
expenses in annual cycles require certain
estimations in the determination of interim results.
Certain reclassifications have been made to prior
period financial statements in order to conform to
the presentations used in the 1995 interim financial
statements.
(2) The Company acquired McDougal, Littell & Company
("McDougal Littell"), a leading publisher of high school
and elementary textbooks on March 1, 1994, for $130.3
million.
The acquisition was initially financed through a
combination of operating cash and $100 million in
short-term bank debt which was repaid on April 5, 1994,
with the proceeds from a $100 million public debt
offering ("Notes"). The Notes are unsecured and mature
on April 1, 2004, and bear interest at 7.125%, payable
semi-annually.
7
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HOUGHTON MIFFLIN COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
The acquisition was accounted for as a purchase
and the net assets and results of operations have
been included in the consolidated interim financial
statements since the date of acquisition. The cost of
the acquisition has been allocated on the basis of the
estimated fair market value of the assets acquired
and the liabilities assumed. The excess of the net
assets acquired, or goodwill, is being amortized on a
straight-line basis over a period of twenty years.
The following unaudited summary, prepared on a
pro forma basis, combines the consolidated results of
operations as if McDougal Littell had been acquired as
of January 1, 1994. Pro forma adjustments reflecting
anticipated efficiencies in operations resulting
from a transaction are, under most circumstances, not
permitted. As a result of the limitations imposed
with regard to the type of permitted pro forma
adjustments, the Company believes that this unaudited
pro forma financial information does not indicate future
results of operations, nor the results of historical
operations had the acquisition been consummated as of
January 1,1994.
In millions, except Three Months Ended
per share amounts March 31, 1994
--------------------- -----------------
Net sales $ 51.1
Loss before extraordinary item (2.7)
Net loss (4.0)
Net loss per common share $ (.29)
8
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HOUGHTON MIFFLIN COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(3) In March 1994, the Company spun off its former Software
Division in an initial public offering. In connection,
the Company received a cash dividend of $32.9 million
from the successor company, INSO Corporation ("INSO"),
formerly known as InfoSoft International Inc. The
equity interest in INSO after the offering was
approximately 40%. Additionally, an after-tax gain of
$22.8 million, or $1.65 per share, was recognized in
connection with the INSO public offering.
The Company's recognition of earnings from its
investment in INSO is based upon the equity method
of accounting. The estimated equity income included
in the Company's quarterly results is based upon
historical quarterly results. Differences between the
quarterly equity income recorded by the Company and
actual earnings reported by INSO will be adjusted in
the succeeding quarter.
(4) The $6.5 million of special charges included in the
results of operations for the three months ended
March 31, 1994, relate primarily to corporate and
divisional staff reductions, asset disposals, and
consolidations of certain leased facilities.
(5) In March 1994, the Company completed the early redemption
of $25 million of 8.78% senior notes scheduled to mature
in March 1997. The extraordinary expense of $1.2
million, or $.09 per share, was net of an income tax
benefit of $.8 million. The early redemption was
financed with operating cash and a portion of the net
proceeds received in connection with the INSO public
offering. See Note 3.
9
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HOUGHTON MIFFLIN COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(6) Intangible assets consist of the following:
As of March 31 December 31
In thousands 1995 1994 1994
--------------------------------------------------------
Goodwill $113,268 $114,503 $113,268
Publishing rights 15,530 15,345 15,530
Other 5,731 5,731 5,731
--------------------------------------------------------
Accumulated
amortization (12,004) (4,548) (10,121)
--------------------------------------------------------
Total $122,525 $131,031 $124,408
========================================================
The carrying value of goodwill is peratter to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(b) Report on Form 8-K
Registrant filed no reports on Form 8-K
during the quarter ended March 31, 1995.
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 thereunto duly authorized.
HOUGHTON MIFFLIN COMPANY
-------------------------
Registrant
/S/ Michael J. Lindgren
Date: May 11, 1995 --------------------------
Michael J. Lindgren
Vice President, Controller
and Treasurer
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 11,533
<SECURITIES> 604
<RECEIVABLES> 83,818
<ALLOWANCES> 8,522
<INVENTORY> 77,951
<CURRENT-ASSETS> 194,304
<PP&E> 172,187
<DEPRECIATION> 101,482
<TOTAL-ASSETS> 447,454
<CURRENT-LIABILITIES> 76,020
<BONDS> 0
<COMMON> 14,759
0
0
<OTHER-SE> 208,230
<TOTAL-LIABILITY-AND-EQUITY> 447,454
<SALES> 50,505
<TOTAL-REVENUES> 50,505
<CGS> 39,881
<TOTAL-COSTS> 79,975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,531
<INCOME-PRETAX> (30,380)
<INCOME-TAX> (18,848)
<INCOME-CONTINUING> (18,532)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,532)
<EPS-PRIMARY> (1.34)
<EPS-DILUTED> (1.34)
</TABLE>
