-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Pc2+QGme34XcQfan0GT12lqD7FQXeuUu2gJQ7TesNNIlvAPJAhSOxi1dYNuq0v2T fs16vCORn1Q0RtZ1Je7diQ== 0000040493-94-000007.txt : 19940316 0000040493-94-000007.hdr.sgml : 19940316 ACCESSION NUMBER: 0000040493-94-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940131 FILED AS OF DATE: 19940315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARCOURT GENERAL INC CENTRAL INDEX KEY: 0000040493 STANDARD INDUSTRIAL CLASSIFICATION: 5311 IRS NUMBER: 041619609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 001-04925 FILM NUMBER: 94516070 BUSINESS ADDRESS: STREET 1: 27 BOYLSTON ST / BOX 1000 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 BUSINESS PHONE: 6172328200 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL CINEMA CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MID WEST DRIVE IN THEATRES INC DATE OF NAME CHANGE: 19660907 10-Q 1 HARCOURT GENERAL FIRST QUARTER FORM 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended January 31, 1994 Commission File Number 1-4925 HARCOURT GENERAL, INC. (Exact name of registrant as specified in its charter) Delaware 04-1619609 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 27 Boylston Street, Chestnut Hill, MA 02167 (Address of principal executive offices) (Zip Code) (617)232-8200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO As of March 7, 1994, the number of shares outstanding of each of the issuer's classes of common stock was: Class Shares Outstanding Common Stock, $1 Par Value 55,946,263 Class B Stock, $1 Par Value 21,905,306 HARCOURT GENERAL, INC. I N D E X Part I. Financial Information Page Number Item 1. Condensed Consolidated Balance Sheets as of January 31, 1994 and October 31, l993 1-2 Condensed Consolidated Statements of Earnings for the Three Months Ended January 31, l994 and l993 3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 31, l994 and l993 4 Notes to Condensed Consolidated Financial Statements 5-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 Exhibit 11.1 13 1 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands) January 31, October 31, 1994 l993 Assets Current assets: Cash and equivalents $ 492,916 $ 466,925 Accounts receivable - trade, net 502,541 493,384 Inventories 564,270 470,525 Deferred income taxes 75,022 20,016 Other current assets 56,388 53,095 Total current assets 1,691,137 1,503,945 Property and equipment, net 515,530 516,541 Other assets: Prepublication costs, net 142,327 137,959 Intangible assets 396,502 400,028 Other 109,760 111,601 Total other assets 648,589 649,588 Net assets of discontinued theatre operations - 135,804 Insurance assets: Fixed maturity securities, at amortized cost (market value $2,998,263 and $2,915,850) 2,780,501 2,665,378 Commercial paper 79,392 105,764 Other investments and cash 47,341 45,987 Premiums, accounts, and investment income receivable 67,276 70,965 Deferred policy acquisition costs 159,279 155,534 Other insurance assets 123,108 127,320 Total insurance assets 3,256,897 3,170,948 Total assets $ 6,112,153 $ 5,976,826
(Continued) See Notes to condensed consolidated financial statements. 2 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands) January 31, October 31, 1994 1993 Liabilities and Shareholders' Equity Current liabilities: Notes payable and current maturities of long-term liabilities $ 71,863 $ 64,904 Accounts payable 285,354 283,693 Accrued liabilities 368,835 358,636 Taxes payable 58,802 35,322 Other current liabilities 100,612 49,331 Total current liabilities 885,466 791,886 Long-term liabilities: Notes and debentures 1,013,640 923,618 Other long-term liabilities 165,978 167,031 Total long-term liabilities 1,179,618 1,090,649 Deferred income taxes 209,749 200,088 Insurance liabilities: Policyholder reserves and deposits 2,530,909 2,450,023 Unearned premiums 166,121 175,937 Policy and contract claims 126,102 123,621 Other insurance liabilities 92,392 93,044 Total insurance liabilities 2,915,524 2,842,625 Shareholders' equity: Preferred stock 1,504 1,996 Common stock 77,819 77,307 Paid-in capital 723,644 861,928 Cumulative translation adjustments (5,402) (5,524) Retained earnings 124,231 115,871 Total shareholders' equity 921,796 1,051,578 Total liabilities and shareholders' equity $ 6,112,153 $ 5,976,826
See Notes to condensed consolidated financial statements. 3 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands except for per share amounts) For the three months ended January 31, 1994 1993 Revenues $832,237 $806,840 Costs applicable to revenues 525,697 514,203 Selling, general and administrative expenses 248,794 246,895 Corporate expenses 9,377 8,414 Operating earnings 48,369 37,328 Investment income 4,062 4,096 Interest expense (21,241) (20,662) Other income - 20,755 Earnings from continuing operations before income taxes 31,190 41,517 Income taxes (11,228) (14,701) Earnings from continuing operations 19,962 26,816 Earnings from discontinued theatre operations, net - 4,989 Net earnings $ 19,962 $ 31,805 Weighted average number of common and common equivalent shares outstanding 79,855 79,562 Earnings per common share: Earnings from continuing operations $ .25 $ .34 Earnings from discontinued theatre operations - .06 Net earnings $ .25 $ .40 Dividends per share: Common Stock $ .15 $ .14 Class B Stock $ .135 $ .126 Series A Stock $ .1725 $ .1475
See Notes to condensed consolidated financial statements. 4 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) For the three months ended January 31, 1994 1993 Cash flows from operating activities Net earnings from continuing operations $ 19,962 $ 26,816 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Other income - (20,755) Deferred income taxes (45,345) - Depreciation and amortization 39,388 39,915 Other items (379) 5,840 Changes in assets and liabilities: Accounts receivable (8,884) 7,574 Inventories (93,405) (99,210) Other current assets (3,241) (15,508) Current liabilities 85,785 70,567 (6,119) 15,239 Insurance operating activities (8,167) 18,273 Discontinued theatre operating activities - 26,300 Net cash provided (used) by operating activities (14,286) 59,812 Cash flows from investing activities Discontinued theatre operation - 396 Capital expenditures (38,481) (36,082) Other items 363 (3,518) (38,118) (39,204) Insurance investing activities (80,811) (130,495) Net cash used by investing activities (118,929) (169,699) Cash flows from financing activities Proceeds from borrowing, net 116,200 80,910 Repayment of debt (18,852) (6,596) Cash dividends paid (11,602) (10,805) Equity transactions, net (2,468) 533 83,278 64,042 Insurance financing activities 75,928 103,953 Net cash provided by financing activities 159,206 167,995 Cash and equivalents Increase during the period 25,991 58,108 Beginning balance 466,925 430,728 Ending balance $492,916 $488,836
See Notes to condensed consolidated financial statements. 5 HARCOURT GENERAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The condensed consolidated financial statements of Harcourt General, Inc. (the Company) are submitted in response to the requirements of Form 10-Q and should be read in conjunction with the consolidated financial statements in the Company's Annual Report on Form 10-K. In the opinion of management, these statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. The January 31, 1994 condensed consolidated financial statements include the October 30, l993 condensed consolidated financial statements of The Neiman Marcus Group, Inc. (NMG), which were filed with the Securities and Exchange Commission on Form 10-Q. The Company owns approximately 65% of the fully-converted equity of NMG. The Company's businesses are seasonal in nature, and historically the results of operations for these periods have not been indicative of the results for the full year. 2. Discontinued operation On December 15, l993, the Company completed the spinoff of its theatre operations in a tax-free distribution to its shareholders. The newly created company is named GC Companies, Inc. (GCC). Under the plan of distribution, the Company transferred to GCC approximately $135.0 million of net theatre assets including approximately $64.0 million in cash. 3. Income taxes The Company adopted the provisions of Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes" during the first quarter of fiscal 1994. SFAS No. 109 requires the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and their respective tax bases using enacted tax rates in effect for the years in which the differences are expected to reverse. The effect of adopting SFAS No. 109 was not material to the Company's financial position or results of operations. Prior to October 31, 1993, the Company accounted for income taxes in accordance with Accounting Principles Board Opinion No. 11. 6 HARCOURT GENERAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. Income taxes (continued) Significant components of the net deferred tax liabilities stated on a gross basis are as follows:
(In thousands) November 1, 1993 Gross deferred tax assets: Accrued liabilities and reserves $ 78,014 Employee benefits 33,661 Postretirement health care benefits 34,937 Inventories 28,848 Difference in basis of assets acquired 42,772 Total gross deferred tax assets 218,232 Valuation allowance (25,538) Net deferred tax assets 192,694 Gross deferred tax liabilities: Property, equipment, prepublishing costs and intangibles 152,710 Pension and employee benefits accrual 23,041 Difference in basis of assets acquired 124,073 Accrued liabilities and reserves 27,597 Total gross deferred tax liabilities 327,421 Net deferred tax liabilities $ 134,727
Income taxes paid during the thirteen weeks ended January 31, l994 were $19.6 million. There was no change in the valuation allowance in the three months ended January 31, l994. The valuation allowance will be allocated to reduce the difference in basis of assets acquired when realization of the tax benefit occurs. Included in the Harcourt General Insurance Companies' assets and liabilities are net deferred tax liabilities of approximately $19.8 million. Gross deferred tax assets of $5.0 million are offset by gross deferred tax liabilities of $24.8 million. The deferred income tax assets arise primarily from accrued liabilities and reserves. The deferred income tax liabilities consist of amortization on deferred policy acquisition costs and in force insurance acquired. 7 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended January 31, 1994 versus Three Months Ended January 31, 1993 The following table illustrates revenues and operating earnings by business segment for the three months ended January 31.
(In thousands) 1994 1993 Revenues: Publishing $160,993 $159,091 Specialty retailing 507,634 479,003 Insurance 128,486 138,029 Professional services 35,124 30,717 Total revenues $832,237 $806,840 Operating earnings (loss): Publishing ($ 7,403) ($ 11,962) Specialty retailing 37,041 35,144 Insurance 21,935 17,494 Professional services 6,173 5,066 Corporate expenses (9,377) (8,414) Total operating earnings $ 48,369 $ 37,328
Publishing Publishing revenues increased 1.2% compared to the same period last year. This increase was primarily due to an increase in the scientific, technical and medical business which benefited from higher domestic and foreign sales, partially offset by lower revenues from the professional publishing business. Publishing operating loss decreased by $4.6 million compared to the same period last year. The operating loss was reduced because of lower prepublication costs and lower marketing expenses at Harcourt Brace School, partially offset by lower operating earnings in the scientific, technical and medical business due to increased operating expenses. Specialty Retailing Specialty retailing results are reported with a lag of one quarter so that the operating results of The Neiman Marcus Group, Inc. (NMG) for the quarter ended October 30, 1993, were consolidated with the operating results of the Company for the quarter ended January 31, 1994. Revenues in the thirteen weeks ended October 30, 1993 increased 6.0% over revenues in the thirteen weeks ended October 31, 1992. Higher revenues at Neiman Marcus and Bergdorf Goodman were partially offset by lower revenues at Contempo Casuals. The number of stores was substantially unchanged in the current period. The 5.4% increase in operating earnings was attributable to higher revenues and finance charge income which were partially offset by an increase in costs of goods sold and volume-related selling costs. 8 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Insurance Insurance revenues decreased 6.9% compared to the same period last year. The decrease in revenues was primarily related to the absence of major medical premium revenue due to the sale of that block of business in April of 1993. Insurance operating earnings increased 25.4% compared to the same period last year. Operating earnings increased due to $2.2 million of additional capital gains, favorable claims experience in the farm and rural accident and health line of business and increased spreads on annuity contracts in force due to the decline in interest rates. Professional services Professional services revenues increased $4.4 million to $35.1 million in the 1994 first quarter from $30.7 million in the 1993 first quarter. The increase reflects higher volume in group and executive outplacement programs. Professional services operating earnings increased 21.9% compared to the same period in the prior year. This increase is attributable to higher revenues which more than offset the increase in payroll and benefit costs needed to support the higher volume. Corporate Expenses Corporate expenses increased $963,000 compared to the same period last year. This increase was primarily due to higher professional fees. Interest Expense Interest expense remained relatively unchanged from the same period last year. Higher interest expense at NMG was offset by lower interest expense at the Company. Other Income Other income in 1993 represents a gain from the reduction in the level of NMG's estimated liabilities due to the settlement of various disputes with Carter Hawley Hale Stores, Inc. Income Tax Expense The Company's effective tax rate is expected to be 36% in fiscal 1994 and was 36.9% in fiscal 1993. During the first quarter of 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 (SFAS No. 109) "Accounting for Income Taxes." SFAS No. 109 requires the asset and liability method of accounting for income taxes. The effect of adopting this standard was not material to the Company's financial position or results of operations. 9 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources General The following discussion analyzes liquidity and capital resources by operating, investing and financing activities as presented in the Company's consolidated statements of cash flows. The discussion of liquidity and capital resources for the insurance segment appears separately because the assets, liabilities and cash flows of the insurance company are restricted by statute. Cash used by continuing operating activities for the quarter ended January 31, l994 was $6.1 million excluding adjustments for Harcourt General's insurance operations. The publishing and professional services business segments provided $91.7 million of cash from operating activities while NMG's operating activities consumed $97.8 million of cash. The cash provided by the Company's operations was sufficient to fund working capital, capital expenditures and dividend requirements. NMG increased its borrowing in order to fund working capital for the holiday season, capital expenditures and dividend requirements. Since October 31, l993, working capital increased $93.6 million. The most significant items affecting working capital were increases in accounts receivable of $9.2 million, inventories of $93.7 million and current deferred income taxes of $55.0, which were partially offset by a $51.3 million increase in other current liabilities and a $23.5 million increase in taxes payable. These changes in working capital were mainly due to increased inventory requirements at NMG to accommodate the holiday season and higher transaction volume. The higher accounts receivable balance was attributable to a modification of credit terms offered to NMG's customers and higher revenues at NMG, offset by lower accounts receivable balances in the publishing business. Cash flows used by investing activities excluding insurance operations were $38.1 million. The Company's investing activities in the 1994 period included capital expenditures totaling $38.5 million. Publishing capital expenditures in the 1994 quarter totaled $26.1 million and were related principally to expenditures for prepublication costs. Capital expenditures in the publishing business are expected to approximate $140.0 million in fiscal 1994. Specialty retailing capital expenditures in the 1994 period totaled $10.1 million and were primarily related to store renovation and expansion projects. Capital expenditures for NMG in 1994 are expected to approximate $70.0 million and relate primarily to new store construction, store renovation and a major expansion of the mail order facility. 10 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources General (continued) Financing activities primarily reflect additional borrowings of $116.2 million under NMG's revolving credit agreements, purchasing $18.9 million of the remaining Harcourt Brace debt and paying $11.6 million of dividends. On January 31, l994, the Company's consolidated long-term liabilities totaled $1.2 billion. That amount includes $540.3 million of NMG long-term liabilities, which is not guaranteed by the Company. The Company has uncommitted borrowing capacity with three banks totaling $75.0 million and committed borrowing capacity of $400.0 million. The Company had no committed or uncommitted borrowings outstanding at January 31, l994. NMG has uncommitted borrowing capacity totaling $70.0 million of which $15.0 million was outstanding at October 30, 1993 and committed borrowing capacity totaling $400.0 million of which $333.4 million was outstanding at October 30, 1993. Insurance Cash used by insurance operations totalled $8.2 million in the first quarter of fiscal 1994. This amount reflects realized capital gains of $7.3 million and an increase in deferred policy acquisition costs of $3.7 million which were partially offset by net increases in policyholder reserves and unearned premiums. The insurance companies used $80.8 million in investing activities, primarily to purchase fixed maturity securities. Cash generated from insurance financing activities consisted of proceeds from policyholder deposits of $75.9 million. The Company recently announced that it is exploring various options related to the potential sale of the insurance business, although no decision has been made. 11 PART II Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 11.1 Computation of average number of shares outstanding used in determining primary and fully diluted earnings per share. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarter ended January 31, 1994. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HARCOURT GENERAL, INC. Date: March 14, 1994 s/John R. Cook John R. Cook Senior Vice President and Chief Financial Officer Date: March 14, 1994 s/Stephen C. Richards Stephen C. Richards Vice President and Controller Principal Accounting Officer EX-11.1 2 EXHIBIT 11.1 - HARCOURT GENERAL FORM 10Q 13 EXHIBIT 11.1 HARCOURT GENERAL, INC. Computation of average number of shares outstanding used in determining primary and fully diluted earnings per share:
(In thousands) For the three months ended January 31, 1994 1993 PRIMARY 1. Weighted average number of common shares outstanding 77,603 76,327 2. Assumed conversion of Series A Cumulative Convertible Stock 1,861 2,873 3. Assumed exercise of certain stock options based on average market value 391 362 4. Weighted average number of shares used in primary per share computations 79,855 79,562 FULLY DILUTED (A) 1. Weighted average number of common shares outstanding 77,603 76,327 2. Assumed conversion of Series A Cumulative Convertible Stock 1,861 2,873 3. Assumed exercise of all dilutive options based on higher of average or closing market value 398 417 4. Weighted average number of shares used in fully diluted per share computations 79,862 79,617
(A) This calculation is submitted in accordance with Securities Exchange Act of 1934 Release No. 9083 although not required by Footnote 2 to Paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. -----END PRIVACY-ENHANCED MESSAGE-----