<PAGE>
FORM 10-Q/A
AMENDMENT TO
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
--------------------------------------
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
--------------------------------------------------------------
Registrant's telephone number, including area code
Not Applicable
- ---------------------------------------------------------------
(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
<PAGE>
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
<PAGE>
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 122,525 131,031 124,408
Other assets, 59,920 55,948 53,869
------ ------- ------
$ 447,454 $ 464,139 $ 497,266
======= ======= =======
See accompanying notes to unaudited
consolidated condensed financial statements.
3
<PAGE>
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
<PAGE>
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 and (expense):
Gain on sale of interest in
Software Division - 36,212
Net interest expense (1,531) (552)
Equity in earnings of
INSO Corporation 621 249
------- ------
(910) 35,909
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
(in thousands) 13,790 13,877
========== ==========
See accompanying notes to unaudited
consolidated condensed financial statements.
5
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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 periodically reviewed
to determine recoverability based upon projected,
undiscounted net cash flows over the remaining life
of the related business unit. If the analysis indicates
that impairment has occurred, the Company writes down
the book value of the intangible asset to its fair
market value.
(7) The Board of Directors, at its April 26, 1995, meeting,
declared a quarterly dividend of $.225 per share,
payable on May 24, 1995, to shareholders of record
on May 10, 1995.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST QUARTER 1995 VERSUS FIRST QUARTER 1994
Net revenues for the first quarter ended March 31, 1995, were
$50.5 million, a 2% increase from last year's first quarter
revenues of $49.4 million. The total consolidated net loss
incurred in 1995's first quarter was $18.5 million, or $1.34
per share, compared to 1994's first quarter income of $2.0
million, or $.14 per share.
The Company's sales and related earnings are seasonal in nature.
Over seventy percent of the annual net sales and almost
all of the operating earnings are generated in the second and
third quarters due to the influence of the substantial
seasonal sales from the educational publishing segment.
A quarter-to-quarter comparison of the results of operations is
significantly impacted by the following nonrecurring items
recognized in the first quarter ended March 31, 1994:
- Special charges related to restructuring actions,
$6.5 million, $4.0 million after-tax, or $.29 per
share.
11
<PAGE>
- Gain on sale of former Software Division, $36.2 million,
$22.8 million after-tax, or $1.65 per share.
- Loss on early retirement of long-term debt, $2.0 million,
$1.2 million after-tax, or $.09 per share.
Additionally, the first quarter of 1994 reflects the existence of
net sales and operating results for McDougal Littell from the
March 1, 1994, date of acquisition.
Excluding the nonrecurring items referred to above, the net
loss for the first quarter of 1994 was $15.6 million, or $1.13
per share.
The increase in the period-to-period seasonal loss is due to
the increased spending for editorial and program development,
increased selling costs, and the inclusion in the first
quarter 1995 of two additional months of operations from
McDougal Littell and the related amortization of goodwill
expense and financing costs associated with the acquisition.
The manufacturing component of cost of sales has not yet been
significantly impacted due to the increase in paper costs.
12
<PAGE>
Publishing plans have been implemented and structured to
mitigate the effect of paper cost increases. They include, but
are not limited to, the substitution of paper grades, negotiated
price protection contracts from certain suppliers, and certain
contractually allowable price increases.
TEXTBOOKS AND OTHER EDUCATIONAL MATERIALS
Net sales from the educational segment for the first
quarter of 1995 were $33.0 million, an increase of 10% over last
year's first quarter of $30.0 million. The increase was due to
the presence of two additional months of sales from
McDougal Littell, an educational publisher acquired on
March 1, 1994. The School Division posted modest gains in the
first quarter of 1995 over the same period in 1994. Sales were
flat compared to the same period for the College Division
and The Riverside Publishing Company.
Cost of sales increased from first quarter 1994 levels. The
anticipated step-up in spending in the area of editorial
13
<PAGE>
and program development is designed to position the
Company to take full advantage of upcoming 1995 and 1996
adoption opportunities in the elementary and secondary school
publishing calendar. The Riverside Publishing Company continues
to be aggressive in its development of customized
criterion-referenced testing programs currently sought by state
and open territory school districts. Further efforts are also
being made to enhance and diversify its product offerings, as
well as expand its presence in group assessment testing. The
College Division is concentrating on creating new initiatives
in software and on-line educational computer services, as well
as continuing to maintain its standards in providing high
quality textbooks for the competitive college market.
Selling and administrative charges increased over the same period
in 1994. The increase is attributed to the costs incurred in
connection with the sampling and delivery of educational
textbooks and other materials for the upcoming selling season
and the more extensive adoption opportunities available in 1995.
14
<PAGE>
GENERAL PUBLISHING
Net sales from the trade and reference publishing segment were
$17.5 million in the first quarter of 1995, down $1.9 million,
or 10%, from the same period in 1994. Net sales were flat
quarter-to-quarter, excluding the $1.8 million of sales from
the former Software Division from the first quarter of 1994.
Editorial and development costs have increased from first
quarter 1994 levels in part due to the launching of new
multimedia publications scheduled to debut in September 1995.
The multimedia products have an emphasis on the children's,
reference, and hobby markets.
OTHER INCOME AND EXPENSES
Net interest expense increased approximately $1.0 million
from last year's first quarter primarily due to the debt service
requirements of the $100 million of 7.125% Notes issued in
April 1994.
15
<PAGE>
The Company's effective tax rate for the first quarter of 1995
was 39% compared to the first quarter 1994's rate of 16%. The
first quarter effective tax rate in 1994 reflected the
utilization of available tax benefits due primarily to the
pre-tax gain related to the INSO public offering. The
Company's effective tax rate for 1994 was 38%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements are primarily determined by its
seasonal working capital needs. Cash used to fund operating
activities in the first quarter 1995 were $24.7 million,
compared to $14.0 million for the same period in 1994.
The current period use related predominately to the requisite
build up in inventory balances in preparation for the
approaching selling season for the school publishing segment.
Investing activities provided cash from the normal
draw-down of cash balances and marketable securities to
fund operating requirements and to provide for the
16
<PAGE>
investment in publishing assets and new technology to enhance
efficiencies and productivity. Requirements for financing
activities for the first quarter of 1995 were principally for
the payment of quarterly dividends and the purchase of shares
of common stock, pursuant to the Company's repurchase program.
The Company's available resources at March 31, 1995, plus
funds generated from operating activities and borrowing
facilities and the periodic use of the short-term debt market,
primarily commercial paper, are believed to be sufficient to
meet total cash requirements for the foreseeable future.
17
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matter 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: July 19, 1995 --------------------------
Michael J. Lindgren
Vice President, Controller
and Treasurer
18
<TABLE> <S> <C>
<PAGE>
<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> (11,848)
<INCOME-CONTINUING> (18,532)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,532)
<EPS-PRIMARY> (1.34)
<EPS-DILUTED> (1.34)
</TABLE>
