<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period from April 1, 1996 to June 30, 1996
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 organization) Identification No.)
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 July 31, 1996.
Class Outstanding at July 31, 1996
----- ----------------------------
Common Stock, $1 par value 14,586,890
Preferred Stock Purchase Rights 14,586,890
1 of 18
<PAGE> 2
HOUGHTON MIFFLIN COMPANY
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets
June 30, 1996 and 1995 and December 31, 1995 3 - 4
Consolidated Condensed Statement of Operations
and Retained Earnings -- Three and Six
Months Ended June 30, 1996 and 1995 5 - 6
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 7
Notes to Unaudited Consolidated Condensed
Financial Statements 8 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 16
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
<PAGE> 3
HOUGHTON MIFFLIN COMPANY
<TABLE>
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996, 1995, AND DECEMBER 31, 1995
(UNAUDITED; IN THOUSANDS EXCEPT SHARE AMOUNTS)
<CAPTION>
JUNE 30, June 30, December 31,
1996 1995 1995
---------- -------- ----------
ASSETS
- ------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,164 $ 9,592 $ 16,701
Marketable securities available
for sale, at fair value 604 600 604
Accounts receivable 207,335 122,616 204,542
Less: allowance for book returns (9,589) (5,850) (21,698)
---------- -------- ----------
197,746 116,766 182,844
Inventories
Finished goods 151,826 85,938 120,120
Work in process 11,490 5,781 8,733
Raw materials 7,991 6,973 11,074
---------- -------- ----------
171,307 98,692 139,927
Income taxes 37,177 25,575 28,472
prepaid expenses 10,356 5,642 2,652
---------- -------- ----------
Total current assets 422,354 256,867 371,200
Property, plant and equipment,
and book plates (net of accumulated
depreciation and amortization of
$112,483 in 1996, $92,499 in 1995
and $123,891 at December 31, 1995) 137,081 70,515 123,100
Intangible assets, net 471,709 120,623 474,751
Other assets 80,194 56,734 77,747
---------- -------- ----------
$1,111,338 $504,739 $1,046,798
========== ======== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
HOUGHTON MIFFLIN COMPANY
<TABLE>
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996, 1995, AND DECEMBER 31, 1995
(UNAUDITED; IN THOUSANDS EXCEPT SHARE AMOUNTS)
<CAPTION>
JUNE 30, June 30, December 31,
1996 1995 1995
---- ---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C>
Current liabilities
Accounts payable $ 77,803 $ 47,643 $ 94,556
Commercial paper 112,801 54,925 144,612
Short-term debt 50,000 -- --
Royalties 24,277 18,193 40,140
Salaries, wages and commissions 4,656 2,595 18,751
Other accrued expenses 26,892 16,978 44,673
---------- -------- ----------
Total current liabilities 296,429 140,334 342,732
Long-term debt 550,957 99,475 426,148
Accrued royalties 2,273 2,915 2,497
Other liabilities 17,307 13,849 15,192
Accrued post retirement medical benefits 27,409 25,392 26,884
Stock repurchase commitment - 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 36,199 28,015 29,973
Retained earnings 209,247 219,074 228,528
---------- -------- ----------
260,205 261,848 273,260
Less:
Notes receivable from purchase agreement (5,766) (5,661) (5,821)
Unearned compensation related to outstanding
restricted stock (1,165) (185) (349)
Common shares held in treasury, at cost
(177,516 shares in 1996, 295,375
shares in 1995 and 273,681 shares
at December 31, 1995) (3,766) (6,251) (5,795)
Benefits trust assets, at market (32,545) (34,577) (27,950)
---------- -------- ----------
Total stockholders' equity 216,963 215,174 233,345
---------- -------- ----------
$1,111,338 $504,739 $1,046,798
========== ======== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
HOUGHTON MIFFLIN COMPANY
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED; IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net sales by industry segment:
Educational publishing $158,862 $ 83,147
General publishing 19,352 21,508
-------- --------
178,214 104,655
Costs and expenses:
Cost of sales 84,341 55,815
Selling and administrative 75,112 46,966
Special charges - 7,033
-------- --------
159,453 109,814
-------- --------
Operating income (loss) 18,761 (5,159)
Other income (expense):
Gain on sale of INSO Corporation common stock 8,707 -
Net interest expense (10,663) (2,147)
Equity in losses of INSO Corporation (404) (1,061)
-------- --------
(2,360) (3,208)
-------- --------
Income (loss) before taxes 16,401 (8,367)
Income tax provision (benefit) 6,887 (3,263)
-------- --------
Net income (loss) 9,514 (5,104)
Retained earnings at beginning of period 203,071 227,185
Valuation allowance on noncurrent marketable
equity securities - 99
Dividends declared (3,338) (3,106)
-------- --------
Retained earnings at end of period $209,247 $219,074
======== ========
Net income (loss) per common share $ 0.68 $ (0.37)
Average number of common shares 13,917 13,809
Cash dividends paid per common share $ 0.240 $ 0.225
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
HOUGHTON MIFFLIN COMPANY
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED; IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net sales by industry segment:
Educational publishing $202,147 $116,176
General publishing 38,902 38,984
-------- --------
241,049 155,160
Costs and expenses:
Cost of sales 134,436 95,696
Selling and administrative 131,941 87,060
Special charges - 7,033
-------- --------
266,377 189,789
-------- --------
Operating loss (25,328) (34,629)
Other income (expense):
Gain on sale of INSO Corporation common stock 22,950 -
Net interest expense (20,271) (3,678)
Equity in earnings (losses) of INSO Corporation 895 (440)
-------- --------
3,574 (4,118)
-------- --------
Loss before taxes (21,754) (38,747)
Income tax benefit (9,138) (15,111)
-------- --------
Net loss (12,616) (23,636)
Retained earnings at beginning of period 228,528 248,828
Valuation allowance on noncurrent marketable
equity securities - 92
Dividends declared (6,665) (6,210)
-------- --------
Retained earnings at end of period $209,247 $219,074
======== ========
Net loss per common share $ (0.91) $ (1.71)
Average number of common shares 13,897 13,800
Cash dividends paid per common share $ 0.480 $ 0.450
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
HOUGHTON MIFFLIN COMPANY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED; IN THOUSANDS)
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $ (12,616) $(23,636)
Adjustments to reconcile net loss to
net cash used in operating activities
Equity in (earnings) losses of INSO Corporation (895) 440
Depreciation and amortization 31,779 17,858
Gain on sale of INSO Corporation stock (22,950) -
Changes in operating assets and liabilities:
Accounts receivable (14,902) 13,997
Inventories (31,380) (37,031)
Accounts payable (16,753) 2,620
Royalties (16,087) (18,028)
Deferred and income taxes payable (8,705) (17,525)
Salaries, wages and commissions (14,095) (11,039)
Other, net (18,529) 1,842
--------- --------
NET CASH USED IN OPERATING ACTIVITIES (125,133) (70,502)
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Proceeds from the sales of INSO Corporation stock 25,917 -
Book plate expenditures (30,267) (15,595)
Acquisition of publishing assets (15,241) -
Property, plant and equipment expenditures (4,646) (3,374)
Marketable securities - 16,221
Sale of building and equipment - 3,186
--------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (24,237) 438
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Dividends paid on common stock (6,665) (6,210)
Issuance of commercial paper 18,189 54,925
Issuance of long-term financing 124,809 -
Purchase of common stock - (957)
Exercise of stock options 684 1,690
Other 816 (164)
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 137,833 49,284
Decrease in cash and cash equivalents (11,537) (20,780)
Cash and cash equivalents at beginning of period 16,701 30,372
--------- --------
Cash and cash equivalents at end of period $ 5,164 $ 9,592
========= ========
Supplementary disclosure of cash flow information:
Income taxes paid $ 3,162 $ 2,261
Interest paid $ 17,802 $ 5,044
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
HOUGHTON MIFFLIN COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of Houghton
Mifflin Company and its subsidiaries ("the Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information. All adjustments (consisting of normal recurring accruals) that, in
the opinion of management, are necessary for the fair presentation of this
interim financial information have been included.
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.
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.
Certain reclassifications have been made to prior period financial
statements in order to conform to the presentation used in the 1996 interim
financial statements.
(2) Acquisitions
------------
On October 31, 1995, the Company acquired D.C. Heath and Company ("Heath"),
a leading publisher of textbooks in areas including modern language, language
arts, science, social studies, and mathematics for the elementary, secondary,
and college markets, from Raytheon Company ("Raytheon"). The acquisition has
been accounted for as a purchase and the net assets and results of operations
are included in the Company's consolidated financial statements from the date of
acquisition. Net cash consideration for the acquisition was $460.6 million,
which was financed through a combination of existing cash balances and
indebtedness. 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.
During the second quarter of 1996, the Company acquired all of the
outstanding shares of D.C. Heath, Canada, Limited ("Heath Canada") from Raytheon
following receipt of Canadian regulatory approval. ITP Nelson ("ITP")
subsequently acquired the assets of Heath Canada from the Company and entered
into a series of agreements which expanded existing exclusive distribution
agreements for the school and college markets. Cash and licensing fees in
respect of this distributorship amount to approximately $5.5 million, of which
approximately $4.6 million has been paid.
8
<PAGE> 9
HOUGHTON MIFFLIN COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
--Continued--
<TABLE>
The following unaudited summary, presented on a pro forma basis, combines
the consolidated results of operations as if Heath, including Heath Canada, had
been acquired as of January 1, 1995.
<CAPTION>
(In millions, except Six Months Ended
per share amounts) June 30, 1995
-------------------- -----------------
<S> <C>
Net sales $221.8
Net loss $(41.9)
Net loss per share $(3.04)
</TABLE>
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the Heath acquisition been consummated as of the assumed date, nor
are they necessarily indicative of future results of operations.
(3) INSO Corporation
----------------
In March 1994, the Company spun-off its former Software Division in an
initial public offering. The equity interest in INSO Corporation ("INSO"), the
successor company, was approximately 40% after the offering. The Company's
recognition of earnings from its investment in INSO is based upon the equity
method of accounting.
In the six month period ended June 30, 1996, the Company received $25.9
million in proceeds from the sale of 537,500 shares of INSO common stock. As a
result of the sale the Company recorded a gain of approximately $23.0 million
($13.3 million after-tax) or $0.96 per share. The proceeds from this sale were
used to fund seasonal working capital requirements. The Company's equity
ownership in INSO, after the sale of common stock, is approximately 32%. A
portion of the remaining INSO shares may be sold by the Company, subject to
certain restrictions, as market conditions and events warrant.
9
<PAGE> 10
HOUGHTON MIFFLIN COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- --Continued--
(4) Intangible Assets
-----------------
<TABLE>
Intangible assets consist of the following (in thousands):
<CAPTION>
As of June 30, December 31,
1996 1995 1995
-------------------------------------
<S> <C> <C> <C>
Goodwill $482,565 $113,268 $473,786
Publishing rights 16,649 15,636 18,523
Other 5,731 5,606 5,891
Less:
accumulated amortization (33,236) (13,887) (23,449)
-------------------------------------
Total $471,709 $120,623 $474,751
=====================================
</TABLE>
The carrying value of goodwill is periodically reviewed to determine
recoverability based upon projected 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 the
undiscounted net cash flow amount.
(5) Subsequent Events
-----------------
The Board of Directors, at its July 31, 1996 meeting, declared a
quarterly dividend of $0.24 per share, payable on August 28, 1996, to
shareholders of record on August 14, 1996.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
- ----------------------
Second Quarter 1996 versus Second Quarter 1995
- ----------------------------------------------
Net sales for the quarter ended June 30, 1996 were $178.2 million, an increase
of 70% from the $104.7 million reported in the second quarter of 1995.
Consolidated net income was $9.5 million, or $0.68 per share, for the quarter
ended June 30, 1996, compared to a consolidated net loss of $5.1 million, or
$0.37 per share, for the same period in 1995. The Company recorded a gain of
approximately $8.7 million ($5.1 million after-tax), or $0.36 per share, in the
second quarter of 1996 on the sale of 194,500 shares of INSO Corporation
("INSO") common stock. Included in 1996's second quarter results were charges of
$1.4 million ($0.8 million after-tax), or $0.06 per share, related to INSO's
acquisition of ImageMark Software Labs. Included in 1995's second quarter
results were charges of $7.0 million ($4.3 million after-tax), or $0.31 per
share, relating to the outsourcing of distribution operations, and charges of
$2.2 million, or $0.16 per share, related to INSO's acquisition of System
Compatibility Corporation.
Excluding these non recurring items, net income for the second quarter of 1996
would have been $5.2 million, or $0.38 per share, compared to net income of $1.4
million, or $0.10 per share, for the second quarter of 1995.
Net sales of $158.9 million from the educational publishing segment in the
second quarter of 1996 increased $75.8 million, or 91%, from last year's second
quarter net sales of $83.1 million. The increase was primarily due to the
addition of Heath titles, new product offerings, and a decrease in order backlog
at the end of the quarter. Although adoption opportunities are limited in 1996,
strong sales have been experienced for the School Division's reading program,
Invitations to Literacy [Copyright] 1996, and McDougal
11
<PAGE> 12
Littell's secondary school literature program, The Language of Literature
[Copyright] 1997. During the second quarter of 1995, the Company encountered
distribution difficulties which resulted in $20 million of orders received but
not shipped at June 30, 1995. No material backorders existed as of June 30,
1996.
Net sales of $19.4 million from the general publishing segment decreased $2.1
million, or 10%, from last year's second quarter net sales of $21.5 million.
Included in net revenues for the second quarter of 1995 was approximately $2.0
million from the sale of Information Please [Registered Trademark] publishing
rights to INSO. Lower sales of adult titles were offset by increased sales of
children's books, and $1.0 million in sales from Houghton Mifflin Interactive,
which began shipping product in the fourth quarter of 1995.
Operating income for the second quarter of 1996 was $18.8 million, a $24.0
million increase from last year's second quarter operating loss of $5.2 million.
Higher revenues in 1996 more than offset increased editorial expense, plate
amortization, selling, distribution and administrative expenses and $4.5 million
in additional goodwill amortization due to the Heath acquisition. The higher
editorial expense and plate amortization reflect investment in new products to
meet adoption opportunities in 1997, 1998, and 1999. Selling, distribution and
administrative expense decreased as a percent of sales, principally reflecting
efficiencies associated with the Heath acquisition. In the second quarter of
1995, special charges of $7.0 million related to outsourcing of the distribution
process at the Geneva, Illinois and Burlington, Massachusetts facilities were
recorded.
Net interest expense for the second quarter of 1996 increased $8.5 million to
$10.7 million from the same period in 1995. The increased interest expense
primarily related to financing of $345 million for the Heath acquisition,
issuance of $126 million of 6% Exchangeable Notes (Stock Appreciation Income
Linked Securities or "SAILS"), and higher working capital requirements in 1996.
The greater portion of
12
<PAGE> 13
educational publishing in the business mix has heightened seasonal working
capital requirements in the first half of 1996, and increased the seasonality of
the Company's business.
The provision for taxes for the second quarter of 1996 increased $10.2 million
over the second quarter of 1995. The increase is primarily due to higher
operating income and a higher effective tax rate due to permanent state and
federal tax differences related primarily to the increase in non-deductible
amortization of goodwill.
Results of Operation:
- ---------------------
Six Months Ended June 30, 1996 and 1995
- ---------------------------------------
Net revenues for the six months ended June 30, 1996 were $241.0 million, or 55%
higher than the $155.2 million recorded from the same period in 1995.
Consolidated net loss was $12.6 million, or $0.91 per share, for the six months
ended June 30, 1996, compared to a net loss of $23.6 million, or $1.71 per
share, for the same period in 1995. The Company recorded a gain of approximately
$23.0 million ($13.3 million after-tax), or $0.96 per share, in the six months
ended June 30, 1996, on the sale of 537,500 shares of INSO common stock, and one
time charges related to the equity investment in INSO of $1.4 million ($0.8
million after-tax), or $0.06 per share. Net loss in 1995 included special
charges of $7.0 million ($4.3 million after-tax), or $0.31 per share, relating
to the outsourcing of distribution operations and one time charges related to
investment in INSO of $2.2 million, or $0.16 per share.
Excluding these unusual items, net loss for the first six months of 1996 was
$25.1 million, or $1.81 per share, compared to a net loss of $17.1 million, or
$1.24 per share, for the first six months of 1995.
13
<PAGE> 14
Net sales of $202.1 million for the educational publishing segment in 1996
increased by $86.0 million, or 74%, from the same period in 1995. This increase
primarily reflected the impact in the second quarter of the addition of Heath
titles, new product offerings, and a decrease in order backlog.
General publishing net sales of $38.9 million in 1996 were similar to the same
period in 1995. Increased sales of children's books and $1.4 million in sales
from Houghton Mifflin Interactive, which recorded no sales until the fourth
quarter of 1995, were offset by lower sales of adult titles in 1996 and the sale
of publishing rights in 1995.
The Company's operating loss was $25.3 million for the six months ended June 30,
1996 compared to $34.6 million for the comparable period in 1995. Higher
revenues more than offset higher editorial expense, plate amortization, selling,
distribution and administrative expenses and $9.0 million in additional goodwill
amortization. The higher editorial expense and plate amortization reflect
investment in new products to meet the adoption opportunities in 1997, 1998, and
1999. Selling, distribution and administrative expense decreased as a percent of
sales, primarily reflecting efficiencies associated with the Heath acquisition.
In the second quarter of 1995, special charges of $7.0 million related to the
costs of outsourcing the distribution process at the Geneva, Illinois and
Burlington, Massachusetts facilities were recorded.
Interest expense for the first six months of 1996 increased $16.6 million over
the first six months of 1995. The increase related to financing of $345 million
for the Heath acquisition, issuance of $126 million of 6% SAILS, and higher
working capital requirements in 1996. The greater portion of educational
publishing in the business mix has heightened seasonal working capital
requirements in the first half of the year, and increased the seasonality of the
Company's business.
14
<PAGE> 15
The tax benefit for the six months ended June 30,1996 decreased $6.0 million
over the comparable period from the prior year. The decrease is primarily due
to a smaller operating loss offset somewhat by a 3% increase in the effective
tax rate.
Liquidity and Capital Resources
-------------------------------
The seasonality of the Company's business has a significant effect on operating
cash flow. In order to fund operating and investing activities through the
middle of the third quarter, the Company issues short-term debt to supplement
cash on hand at the beginning of each year.
During the six month period ended June 30, 1996, the Company used proceeds of
$25.9 million from the sale of lNSO stock, and issued approximately $143.0
million of commercial paper to cover its seasonal operating loss and working
capital needs and to fund publishing and capital investments. The increase in
working capital requirements compared to the prior year reflect the seasonal
spending for inventory for 1996 publishing adoptions and the increased
operational expenses incurred due to the Heath acquisition.
Net cash of $24.2 million was required for investing activities in the first
half of 1996. Book plate expenditures of $30.3 million were incurred for new
products to meet significant adoption opportunities over the next few years. In
the first half of 1996, the Company also spent $15.2 million for publishing
assets, including the final settlement for the Heath purchase and other
products. In the six month period ended June 30, 1996, the Company received
$25.9 million in proceeds from the sale of 537,500 shares of INSO common stock.
The tax on this gain will be paid later in the year.
15
<PAGE> 16
At June 30, 1996, total debt was $713.8 million consisting of approximately $143
million to support working capital requirements and the balance to finance prior
acquisitions. The Heath acquisition was initially financed with the draw down of
$345 million in credit facilities and cash on hand from the SAIL issuance. These
borrowings were refinanced in the fourth quarter of 1995 with $200 million in
proceeds from a five year credit facility and the issuance of $145 million in
commercial paper. In March 1996, the Company completed the refinancing of the
debt incurred in conjunction with the Heath acquisition with the issuance of
$125 million of long-term debt and $100 million of medium-term notes. Proceeds
from these issuances were used to repay $125 million of the commercial paper and
$100 million of the five year credit facility drawn upon in conjunction with the
Heath acquisition.
The Company currently expects that cash flow from operations for the full year
1996 and proceeds from the sale of INSO stock will be sufficient to cover
investment activities and dividend payments as well as to repay by year end a
portion of the debt outstanding at the beginning of 1996.
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
Statements in this report that are not historical facts may be forward-looking
statements that are subject to a variety of risks and uncertainties. There are a
number of important factors that could cause actual results to differ materially
from those expressed in any forward-looking statements made by the Company.
These factors include, but are not limited to, (i) the seasonal and cyclical
nature of the Company's educational sales; (ii) variable funding in school
systems throughout the nation, which may result in both cancellation of planned
purchases of educational materials and shifts in timing of purchases; (iii)
changes in purchasing patterns in elementary, secondary, and college markets;
(iv) regulatory changes which would affect the purchase of educational materials
and services; (v) strength of the retail market for general-interest
publications and market acceptance of front-list titles and new electronic
products; and (vi) other factors detailed from time to time in the Company's
filings with the Securities and Exchange Commission.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Stockholders' Meeting on April 24, 1996, at which a
quorum was present, the stockholders approved the following proposals
by the number of shares of common stock voted as noted:
<TABLE>
Proposal # 1 - Election of Class I Directors for a three-year term:
<CAPTION>
Number of Shares
Voted For Against
-------------------------------
<S> <C> <C>
Joseph A. Baute 11,777,208 332,360
Nader F. Dareshori 11,766,466 343,102
George Putnum 11,779,174 330,394
DeRoy C. Thomas 11,775,571 333,997
</TABLE>
The following directors continued their term in office: James O.
Freedman, Mrs. John V. Lindsay, Charles R. Longsworth, John F. Magee,
Claudine B. Malone, Alfred L. McDougal, and Ralph Z. Sorenson.
<TABLE>
<CAPTION>
Proposal #2 - Ratification of Ernst & Young LLP as independent
auditors for the fiscal year ended December 31, 1996.
<S> <C>
For - 12,075,494
Against - 19,007
Abstained - 15,066
<CAPTION>
Proposal #3 - Transaction of Other Business:
For - 9,222,525
Against - 2,493,664
Abstained - 393,379
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
None
17
<PAGE> 18
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
Dated: August 14, 1996 /s/Gail Deegan
---------------------------
Gail Deegan
Executive Vice President,
Chief Financial Officer, and Treasurer
Dated: August 14, 1996 /s/Michael J. Lindgren
---------------------------
Michael J. Lindgren
Vice President, Controller
18
<PAGE> 19
Houghton Mifflin Company
Index To Exhibits
Item 6(a)
Exhibit No. Description of Document Page Number in This Report
- ----------- ----------------------- --------------------------
27 Financial Data Schedule 20 - 21
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,164
<SECURITIES> 604
<RECEIVABLES> 207,335
<ALLOWANCES> 9,589
<INVENTORY> 171,307
<CURRENT-ASSETS> 422,354
<PP&E> 249,564
<DEPRECIATION> 112,483
<TOTAL-ASSETS> 1,111,338
<CURRENT-LIABILITIES> 296,429
<BONDS> 0
<COMMON> 14,759
0
0
<OTHER-SE> 202,204
<TOTAL-LIABILITY-AND-EQUITY> 1,111,338
<SALES> 241,049
<TOTAL-REVENUES> 241,049
<CGS> 134,436
<TOTAL-COSTS> 266,377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,271
<INCOME-PRETAX> (21,754)
<INCOME-TAX> (9,138)
<INCOME-CONTINUING> (12,616)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,616)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
